Head Start
Comprehensive Approach to Identifying and Addressing Risks Could Help Prevent Grantee Financial Management Weakenesses Gao ID: GAO-05-176 February 28, 2005In fiscal year 2004, Congress appropriated $6.8 billion to serve 919,000 poor children through 1,680 Head Start grantees nationwide. Recent reports of financial improprieties at a number of Head Start programs raised questions about the effectiveness of the oversight by the Department of Health and Human Services' (HHS) Administration for Children and Families (ACF) in identifying and resolving financial management weaknesses in Head Start grantees. In this report, GAO provides information on whether (1) ACF can consistently identify financial management weaknesses, if any, in Head Start grantees and (2) ACF ensures that grantees effectively resolve any problems, in a timely manner, when detected.
While ACF uses many processes to collect and analyze information on Head Start grantees, it has not designed its processes and integrated this information to consistently identify Head Start grantees' financial management weaknesses. For example, ACF has not developed a comprehensive risk assessment to identify weaknesses that could limit the program's ability to achieve its objectives. Furthermore, ACF has no process in place to ensure that its on-site reviews are conducted in accordance with the framework it has designed to assess grantee compliance with program and financial management requirements. Moreover, financial reports and audits are not effectively used in day-to-day monitoring activities to identify high-risk grantees and resolve their problems. Head Start grantees who were judged out of compliance in a review by ACF in 2000 with one or more of the program's financial management standards were about as likely to remain out of compliance as attain full compliance over the succeeding 3 years. ACF's failure to ensure that more grantees promptly resolve such problems creates opportunities for financial losses or instability that affect services to children and families. After working with one grantee to correct severe financial management problems for 3 years--including failure to account for over $400,000 in grant funds that were not spent on Head Start services to children and their families--ACF notified the organization that it no longer would receive funding. While ACF may terminate grantees with serious financial weaknesses such as recurring failure to comply with federal management standards, this process is rarely used: ACF most often encourages grantees to voluntarily relinquish their grants. In a small number of cases, ACF must proceed with formal termination, which can be difficult and lengthy owing, in part, to grantees' right to continued funding during its appeal, regardless of merit, and their ability to finance appeals with grant funds.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-176, Head Start: Comprehensive Approach to Identifying and Addressing Risks Could Help Prevent Grantee Financial Management Weakenesses
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
February 2005:
Head Start:
Comprehensive Approach to Identifying and Addressing Risks Could Help
Prevent Grantee Financial Management Weaknesses:
GAO-05-176:
GAO Highlights:
Highlights of GAO-05-176, a report to congressional requesters
Why GAO Did This Study:
In fiscal year 2004, Congress appropriated $6.8 billion to serve
919,000 poor children through 1,680 Head Start grantees nationwide.
Recent reports of financial improprieties at a number of Head Start
programs raised questions about the effectiveness of the oversight by
the Department of Health and Human Services‘ (HHS) Administration for
Children and Families (ACF) in identifying and resolving financial
management weaknesses in Head Start grantees. In this report, GAO
provides information on whether (1) ACF can consistently identify
financial management weaknesses, if any, in Head Start grantees and (2)
ACF ensures that grantees effectively resolve any problems, in a timely
manner, when detected.
What GAO Found:
While ACF uses many processes to collect and analyze information on
Head Start grantees, it has not designed its processes and integrated
this information to consistently identify Head Start grantees'
financial management weaknesses. For example, ACF has not developed a
comprehensive risk assessment to identify weaknesses that could limit
the program‘s ability to achieve its objectives. Furthermore, ACF has
no process in place to ensure that its on-site reviews are conducted in
accordance with the framework it has designed to assess grantee
compliance with program and financial management requirements.
Moreover, financial reports and audits are not effectively used in day-
to-day monitoring activities to identify high-risk grantees and resolve
their problems.
Head Start grantees who were judged out of compliance in a review by
ACF in 2000 with one or more of the program's financial management
standards were about as likely to remain out of compliance as attain
full compliance over the succeeding 3 years. ACF‘s failure to ensure
that more grantees promptly resolve such problems creates opportunities
for financial losses or instability that affect services to children
and families. After working with one grantee to correct severe
financial management problems for 3 years”including failure to account
for over $400,000 in grant funds that were not spent on Head Start
services to children and their families”ACF notified the organization
that it no longer would receive funding. While ACF may terminate
grantees with serious financial weaknesses such as recurring failure to
comply with federal management standards, this process is rarely used:
ACF most often encourages grantees to voluntarily relinquish their
grants. In a small number of cases, ACF must proceed with formal
termination, which can be difficult and lengthy owing, in part, to
grantees' right to continued funding during its appeal, regardless of
merit, and their ability to finance appeals with grant funds.
High Incidence of Continued Noncompliance with Head Start Standards
among Grantees Reviewed by ACF in 2000:
[See PDF for image]
[End of figure]
What GAO Recommends:
To improve oversight of Head Start grantees, GAO recommends that the
Assistant Secretary for Children and Families develop a comprehensive
risk assessment of the Head Start program and improve the processes it
currently uses to collect information on program risks. ACF agreed with
the recommendations. GAO also recommends that, once ACF makes the
improvements, it should make greater use of its authority to seek
competition in communities that are currently served by poorly
performing grantees. ACF raised concerns about our interpretation of
its authority to do so; therefore, Congress may wish to consider
clarifying its intent on this matter.
www.gao.gov/cgi-bin/getrpt?GAO-05-176.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Marnie Shaul at (202) 512-
7215 or shaulm@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
ACF Lacks a Comprehensive Strategy to Assess Head Start Risks:
ACF Does Not Ensure That Grantees Effectively Resolve Financial
Management Problems:
Conclusions:
Matter for Congressional Consideration:
Recommendations for Executive Action:
Comments from the Administration for Children and Families and Our
Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Health and Human Services:
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Related GAO Products:
Head Start and Other Early Childhood Programs:
Internal Controls:
Grants Management:
Tables:
Table 1: ACF's Oversight Processes for Monitoring Grantees' Financial
Management:
Table 2: Summary of Results for PIR Data Reliability Tests, 2002-2003
Program Year:
Table 3: Grantees and Head Start Funds Allocated to the Largest
Regional Offices:
Table 4: Reasons for Selecting and Reviewing Grantees, by Region:
Figures:
Figure 1: Federal Head Start Funding (Fiscal Years 1990-2005):
Figure 2: ACF Organizational Chart:
Figure 3: Average Timeline for Audit Review Process for Files Reviewed:
Figure 4: Grantees with Recurring Financial Management Problems (2000-
2003):
Figure 5: A Case Study: Northwest Arkansas Head Start Human Services,
Inc.
Abbreviations:
ACF: Administration for Children and Families:
ACYF: Administration on Children, Youth, and Families:
FBI: Federal Bureau of Investigation:
FMFIA: Federal Managers' Financial Integrity Act:
HHS: Department of Health and Human Services:
IG: Inspector General:
NEAR: National External Audit Review Center:
OMB: Office of Management and Budget:
PIR: Program Information Reports:
PMS: Payment Management System:
PRISM: Program Review Instrument for Systems Monitoring:
TANF: Temporary Assistance for Needy Families:
United States Government Accountability Office:
Washington, DC 20548:
February 28, 2005:
Congressional Requesters:
Recent reports of financial improprieties at a number of Head Start
programs around the country raised questions about the effectiveness of
the Department of Health and Human Services' (HHS) oversight of Head
Start grantees. Head Start is one of the largest federal early
childhood programs, providing grants to local organizations to give
preschool education and other supplemental services to poor children
and their families. In fiscal year 2004, the Congress appropriated $6.8
billion to serve 919,000 poor children through 1,680 Head Start
grantees nationwide. HHS's Administration for Children and Families
(ACF) administers the Head Start program through its network of
regional offices. Head Start was last reauthorized in 1998 for fiscal
years 1999 through 2003; it received appropriations in 2004 and 2005 to
fund the program and it is currently scheduled for reauthorization.
Unresolved financial management weaknesses among Head Start grantees
can reduce the quality or amount of services that are provided to
children or result in a grantee's services being discontinued.
Recently, some concerns have been expressed that the lack of reliable
information on the financial integrity of Head Start grantees leaves
little assurance that all the children the program is funded to serve
are receiving the "head start" they deserve. In this report, we are
providing information on (1) whether ACF can consistently identify
financial management weaknesses, if any, in Head Start grantees and (2)
whether ACF ensures that grantees effectively resolve any problems in a
timely manner when they are detected.
To assess whether ACF can consistently identify financial management
weaknesses, we reviewed and analyzed relevant agency documentation of
the processes used to oversee Head Start grantees' financial management
practices. To guide our work we used the Office of Management and
Budget's (OMB) Circular A-123: Management Accountability and Control
and our own Standards for Internal Control in the Federal Government as
a basis to collect and analyze information on ACF's oversight structure
for the Head Start Program. We interviewed senior Head Start and ACF
officials in Washington, D.C., and four of ACF's 10 regional offices--
Philadelphia, Pa. (Region III); Atlanta, Ga. (Region IV); Chicago, Ill.
(Region V); and Dallas, Tex. (Region VI), which collectively administer
more than 50 percent of all Head Start funds and oversee more than 50
percent of the nation's Head Start grantees. These 4 ACF regional
offices are among the nation's 5 largest in terms of total Head Start
funding and funded enrollment. During each of our regional office
visits we met with senior Head Start officials and regional office
management to obtain their views on the strengths and weaknesses of the
different processes used to oversee Head Start grantees. We also
conducted interviews by telephone with Head Start officials and senior
management from the six other ACF regional offices. To learn how ACF
ensures that grantees effectively resolve their financial management
problems, we reviewed ACF data on the reviews that it conducts of its
Head Start grantees at least every three years and the Federal Audit
Clearinghouse--a federal database that contains summary information on
each of the grantee's annual audits. Based on this review we selected
55 grantees with known financial management weaknesses in the four
regional offices and reviewed the regional offices' files on these
grantees for the period 2001 through 2004 to follow the use of audit
findings and actions related to the grantees' weaknesses. We also met
with program and financial specialists who work with Head Start
grantees in each of the four regional offices we visited. Finally, for
all grantees ACF reviewed from 2000 through 2003, we examined patterns
of results from those reviews in areas related to financial management.
Furthermore, we tested the reliability of two data sets--Head Start's
Program Review Instrument for Systems Monitoring (PRISM) and Head
Start's Program Information Reports (PIR)--and found the PRISM data set
to be sufficiently reliable for our purposes. Our tests identified some
concerns about the reliability of the PIR database that we discuss more
fully in this report. For additional details about our scope and
methodology, see appendix I. Our work was conducted from January
through December 2004 in accordance with generally accepted government
auditing standards.
Results in Brief:
Although ACF uses many processes to collect and analyze information on
grantee financial management--such as on-site reviews, annual surveys
of grantees, and reviews of financial reports and audits--ACF has not
designed its processes or consistently used the findings from the
existing processes to assess overall program risks. Such an assessment
is an important step in identifying and addressing weaknesses that
limit the program's ability to achieve its objectives. Moreover, the
processes ACF uses to collect data on grantee financial management
performance have significant flaws. For example, we found that ACF has
no process in place to ensure that its reviewers consistently follow
the standards for on-site reviews, lacks procedures to independently
verify information from grantee surveys, and makes limited use of
financial reports and financial audits to identify high-risk grantees.
ACF recently began to train its reviewers and certify that they have
the skills they need to assess grantee compliance with the program's
rules; however, the limited scope of the training and failure to
conduct verification of the reviewers' credentials may limit the
benefits of these new initiatives. With respect to financial reports,
actual cash withdrawals are not routinely reconciled with the grantees'
reported expenditures in a timely manner. As a result, unchecked
problems may worsen. Although infrequent, there have been cases in
which grantees have furloughed employees or temporarily closed centers-
-thereby disrupting services to children and their families--because
they spent their grants too quickly and did not adequately manage their
grants to ensure that funds were available throughout the school year.
Many program specialists in ACF regional offices that we visited told
us they most frequently learn that a grantee is having trouble through
a call from a parent or teacher reporting a problem. Although program
specialists said that such calls were a routine part of their day-to-
day monitoring activities, over-reliance on this approach to
identifying problems can result in missed opportunities to help
grantees address management challenges before they become problems.
When ACF identifies grantees with financial management weaknesses, the
agency does not consistently ensure that grantees effectively resolve
problems. Lack of more aggressive action to ensure that grantees
address their problems can allow weaknesses to persist that affect
program services. Our analysis of the results of all of ACF's on-site
reviews conducted in 2000 shows that 53 percent of the grantees
identified by ACF with financial management problems were again cited
in the grantee's next review. In our detailed review of the actions ACF
takes to ensure that grantees address financial management problems
focused on problems that were identified between 2000 and 2003, we
found that in most of the 55 cases we reviewed ACF only required the
grantee to self-certify that it corrected its problems and pursued no
further action. One of the more aggressive approaches ACF can take to
address long-standing problems is to require the grantee to develop and
implement a quality improvement plan, but first ACF must declare the
grantee "deficient" --a term it uses to identify grantees with severe
problems. Yet, we noted inconsistencies in the process used by the
regional offices to determine the severity of the problems. Some of the
regional office managers we spoke with told us that they treated each
case differently and largely based their decisions on their previous
experiences working with the grantees, so one grantee might be deemed
deficient while another, with similar problems, would not. Once a
grantee is found deficient, ACF may allow it up to 1 year to correct
its problems and then must revisit the grantee. We found that ACF makes
little use of its authority to replace an existing grantee that is not
meeting performance or financial management requirements. When awarding
new funds each year, ACF gives priority to the current grantee even if
the grantee has financial management weaknesses. While ACF has the
authority to terminate a grantee, this process is rarely used; ACF most
often works to encourage grantees to voluntarily relinquish their
grants. When ACF does turn to termination proceedings, it must continue
to fund the grantee and to cover the legal costs of the grantee's
appeal. Senior Head Start officials in two of ACF's regional offices we
visited told us that they are reluctant to pursue terminations because
the processes used to collect information to support such an action are
inadequate, and the termination procedures are a drain on scarce staff
resources. As a result, the process to remove a grantee that
consistently fails to perform up to standards is protracted and that
grantee can continue to receive funds long after financial management
weaknesses have been identified. The community will frequently have no
other options for Head Start services until the termination process is
complete.
To address these issues and to improve oversight of the Head Start
program, we are recommending that the Assistant Secretary for Children
and Families develop a comprehensive risk assessment of the Head Start
program and improve the processes it uses to collect information on
program risks. Once these improvements have taken hold, ACF should make
greater use of its authority to recompete grants that are currently
awarded to poorly performing grantees. ACF agreed with many of our
recommendations to improve the oversight processes it uses to collect
information on the financial management of Head Start grantees. ACF
also agreed that it would explore ways to increase the accuracy of its
annual survey of Head Start grantees. These improvements should go a
long ways towards ensuring that those responsible for overseeing the
Head Start program and its 1,680 grantees have the information they
need to target oversight resources effectively and reduce the program's
risks. ACF did not, however, directly address two of our
recommendations that would increase the effectiveness of its oversight
processes. Namely, ACF did not address our recommendation to more
comprehensively estimate the extent of improper payments nor did it
address our recommendation to hold ACF regional management, staff, and
contract reviewers accountable for following its own guidance when
conducting on-site reviews. Finally, ACF expressed concerns about our
legal interpretation of its authority to recompete Head Start grants.
Congress may wish to consider clarifying ACF's authority to recompete
grants if ACF finds that the Head Start grantee currently serving in a
community fails to meet program or financial management requirements.
Background:
Started in 1965 as part of the Johnson Administration's War on Poverty,
Head Start was designed to deliver comprehensive educational, social,
health, nutritional, and psychological services to poor children. Head
Start offers poor children below the age of school entry and their
families a range of services, including preschool education, family
support, health screenings, dental care, and efforts to access medical
insurance. The program may either provide the services directly or
facilitate access to existing services. Head Start is authorized to
serve children at any age prior to compulsory school attendance. The
program was originally aimed at 3-to 5-year-olds. Early Head Start, a
companion program begun in 1994, focuses on making these services
available to children from birth to 3 years of age and to pregnant
women.
Head Start Grantees, Funding, and Eligibility:
The federal government makes Head Start grants directly to nearly 1,700
local organizations, including community action agencies, school
systems, for-profit and nonprofit organizations, other government
agencies, and tribal governments or associations. Many Head Start
grantees provide services by subcontracting with other organizations,
known as delegate agencies.
To accomplish Head Start's goals, the Congress provided $6.9 billion in
federal funds for fiscal year 2005. In addition, Head Start grantees
must match the federal grant with 20 percent of their own funds which
can include in-kind contributions, local or state funds, and donations.
Federal appropriations for Head Start increased threefold, in real
terms, during the 1990s. While federal funds have not grown as quickly
from 2000 to 2005 as they did in the 1990s, funding has kept pace with
inflation. (See fig. 1.)
Figure 1: Federal Head Start Funding (Fiscal Years 1990-2005):
[See PDF for image]
[End of figure]
Head Start funds are allotted among the states based on their 1998
allocation and, for funds exceeding that amount, by a formula based on
the number of children in each state under the age of 5 from families
whose income is below the federal poverty level.[Footnote 1] Head Start
regulations require that at least 90 percent of the children enrolled
in Head Start come from families with incomes at or below the federal
poverty level, from families receiving public assistance, or from
families caring for a foster child. Grantees may fill up to 10 percent
of their slots with children from families that exceed the federal
poverty level.
Grants Management:
The Head Start program is one of more than 1,000 federally funded grant
programs. Each of these programs has specific objectives and all rely
on third parties--states, local governments, and not-for-profit
organizations--to provide direct services to eligible beneficiaries.
Federal grants have historically served as vehicles through which the
federal government attempted to achieve a variety of national goals by
providing funding to other levels of government to carry out specific
federal policies. In particular, economists have cited the role federal
grants play in encouraging state and local governments to provide more
of the public goods and services deemed beneficial from a national,
rather than a purely local, perspective.[Footnote 2]
While funding third parties through grants provides many benefits to
federal policymakers, the limited federal role in providing services
creates challenges as well. Decades of research on federal grants and
our own work have identified management and oversight challenges that
federal agencies must work to overcome to ensure that their grant
programs are operating effectively and are succeeding in meeting their
goals. For example, we have reported in our series of reports on Major
Management Challenges and Program Risks that HHS's ability to ensure
financial accountability was hampered by weaknesses in key financial
processes, including financial analysis, reporting, and grant
accounting.[Footnote 3] Since the federal government relies on third
parties to work directly with program beneficiaries, these management
challenges stem, in part, from the limited federal role in grant
programs: setting national goals and objectives, identifying qualified
grantees, providing funds to grantees that agree to use the funds in
accordance with federal laws and regulations, and monitoring the
grantees' compliance with those conditions.
All recipients of federal grant funds must periodically report on their
expenditures of federal funds, and every federal grantee that spends
more than $500,000 in federal funds each year must obtain an audit of
its financial statement that includes verification of compliance with
federal rules.[Footnote 4] In addition, each grant program has specific
rules. For example, Head Start has eligibility rules based on family
income to target federal Head Start funds to those children in greatest
need. The auditor need not check that every rule is followed in every
instance; instead, the auditor checks if the grantee has a system of
plans, methods, or procedures in place that would allow employees to
prevent or detect problems in the normal course of their assigned
duties. Federal agencies are required to have a similar system of
internal controls in place to improve the accountability and
effectiveness of federal programs and operations. Among other things,
these systems should include the establishment of processes to collect
information on grantee performance.
GAO's Internal Control Framework:
Internal controls help government program managers achieve desired
results through effective stewardship of public resources. Internal
controls comprise the plans, methods, and procedures used to meet
missions, goals, and objectives and, in doing so, support performance-
based management. Internal controls also help managers safeguard assets
and prevent and detect errors and fraud. Internal controls provide
reasonable assurance that an organization achieves its objectives of
(1) effective and efficient operations, (2) reliable financial
reporting, and (3) compliance with laws and regulations.
Our publication, Standards for Internal Control in the Federal
Government, provides a road map for entities to establish control for
all aspects of their operations and a basis against which entities can
evaluate their control structures. Also, our publication, Executive
Guide: Strategies to Manage Improper Payments: Learning from Public and
Private Sector Organizations, focuses on the internal control standards
as they relate to reducing improper payments--a focus of ongoing
concern in Head Start and other programs for which ACF has oversight
responsibility.[Footnote 5]
The five components of internal controls are:
* Control environment--creating a culture of accountability within the
entire organization--program offices, financial services, and regional
offices--by establishing a positive and supportive attitude toward the
achievement of established program outcomes.
* Risk assessment--identifying and analyzing relevant problems that
might prevent the program from achieving its objectives. Developing
processes that can be used to form a basis for measuring actual or
potential effects of these problems and manage their risks.
* Control activities--establishing and implementing oversight processes
to address risk areas and help ensure that management's decisions--
especially about how to measure and manage risks--are carried out and
program objectives are met.
* Information and communication--using and sharing relevant, reliable,
and timely information on program-specific and general financial risks.
Such information surfaces as a result of the processes--or control
activities--used to measure and address risks.
* Monitoring--tracking improvement initiatives over time and
identifying additional actions needed to further improve program
efficiency and effectiveness.
Through the implementation of these five internal control components,
agencies can help ensure compliance with financial management
requirements and strengthen program accountability.
ACF's Organizational Structure and Oversight Processes:
ACF is responsible for federal programs that promote the economic and
social well-being of families, children, individuals, and communities-
-such as the Temporary Assistance for Needy Families (TANF) program,
the Child Care and Development Block Grant, and Adoption Assistance
programs. ACF administers the Head Start program by awarding grants to
nearly 1,700 grantees nationwide each year. The Head Start Bureau, a
program office within ACF's Administration on Children, Youth, and
Families (ACYF), develops program policy and designs the program-
specific oversight processes. Other offices within ACF also play key
roles in overseeing Head Start grantees. For example, ACF's Office of
Financial Services develops and provides guidance on general grants
management issues such as financial reporting processes for all ACF
programs. ACF's 10 regional offices, operating through ACF's Office of
Regional Operations, implement most of the oversight processes
prescribed by the various program offices--such as the Head Start
Bureau--and the Office of Financial Services. (See fig. 2.)
Figure 2: ACF Organizational Chart:
[See PDF for image]
[End of figure]
ACF has a number of processes it uses to collect information on grantee
performance and financial management. The Head Start Act mandates that
each grantee and delegate be assessed at least once every 3 years to
ensure compliance with Head Start's performance standards. The Head
Start Bureau develops the protocols for these assessments--the Program
Review Instrument for Systems Monitoring (PRISM) Guide. The Head Start
Bureau estimates that about 700 reviews are conducted each year--
covering about one-third of all grantees and selected delegate
agencies. During these on-site reviews, a team of reviewers assesses
whether the Head Start program is in compliance with statutory,
regulatory, and policy requirements. The Head Start Act specifies that,
whenever possible, these teams should be led by an employee of HHS who
is knowledgeable about the Head Start program. In most cases, these
teams are lead by staff from ACF's regional offices. The act also
specifies that the rest of the team be knowledgeable about Head Start
programs and, whenever possible, be knowledgeable about the diverse
needs of eligible children and their families. Head Start has more than
2,600 reviewers on contract that it sends out on week-long trips to
visit grantees and conduct reviews. Many of the reviewers that ACF
contracts to take part in PRISM reviews are employees of Head Start
programs throughout the country. The size of each review team and the
expertise of the various members of the team depends on the complexity
of the issues anticipated at each grantee.
Another key process ACF uses to monitor grantees is the annual survey
of grantees, or the Program Information Reports (PIR). PIR is the only
source of national data on Head Start programs. PIR data describe
important program characteristics that may provide information for
assessing risks to program finances or specific program objectives,
such as:
* the different program designs and staffing patterns;
* the funded and actual enrollment of children (and pregnant women in
Early Head Start programs with children ages 0 to 3);
* the number and types of health, education, disability, and family
services delivered to enrolled children and families; and:
* the demographic, social, and other characteristics of the Head Start
and Early Head Start children and families served.
ACF also uses its reviews of financial reports and audits to monitor
grantees. ACF requires Head Start grantees to report on their
expenditures of federal funds once every 6 months. These financial
reports are standard reporting forms for all federal grantees and, as
such, do not include great detail on how a grantee spent its Head Start
funds. The reports identify how much the grantee has spent and how much
is left unspent. In addition, Head Start grantees' withdrawals are
recorded in the Payment Management System (PMS)[Footnote 6] and made
available for review by ACF staff monitoring grants. Grantees' Single
Audits must be completed within 9 months of the end of the grantees'
fiscal year. Table 1 summarizes ACF's key oversight processes.
Table 1: ACF's Oversight Processes for Monitoring Grantees' Financial
Management:
Monitoring process: On-site review (PRISM);
Required frequency: Triennial;
Purpose and description: To determine whether a grantee meets standards
established in the Head Start Act, including those related to financial
management, teams of federal staff and contracted consultants' conduct
a weeklong, on-site review using a structured guide known as the
Program Review Instrument for Systems Monitoring (PRISM).
Monitoring process: Survey of grantees (PIR);
Required frequency: Annual;
Purpose and description: To provide management information to the
Bureau and policymakers, all programs (grantees and delegates) are
mandated by federal regulations to submit performance data, including
key financial measures such as enrollment and teacher salary ranges.
Grantees report these data through a survey known as the Program
Information Report (PIR).
Monitoring process: Review of financial reports;
Required frequency: Semiannual;
Purpose and description: To account for use of grant funds, all
grantees must submit semiannual reports on the status and use of their
federal funds.
Monitoring process: Review of audits;
Required frequency: Annual;
Purpose and description: To ensure that federal grantees' financial
statements are accurate, that they have adequate controls in place to
protect federal funds, and that they are in compliance with key
regulations, under the Single Audit Act all grantees must obtain an
annual audit of their financial statements and compliance with selected
federal laws and regulations.
Monitoring process: Day-to-day contacts with grantees;
Required frequency: Variable;
Purpose and description: To assist Head Start programs, program
specialists in ACF regional offices respond to grantee queries and
other calls from grantee staff, parents, and others with an interest in
their local Head Start programs.
Monitoring process: Renewal application;
Required frequency: Annual;
Purpose and description: To provide information to support
determination of the grantee's future funding level, grantees are
required to submit renewal applications each year to the ACF regional
office.
Source: GAO analysis.
[End of table]
ACF Lacks a Comprehensive Strategy to Assess Head Start Risks:
ACF uses many processes to collect information on grantee performance-
-including financial management performance--but does not bring
together this information to comprehensively assess the program's risks
and identify areas where it might need new or improved processes to
collect key information. A comprehensive risk assessment is an
important step in identifying and addressing weaknesses that might
limit the program's ability to achieve its objectives. In a sign of
their willingness to improve their own processes, during the course of
our review, staff from ACF's Head Start Bureau expressed an interest in
incorporating a risk assessment strategy into the financial segment of
the PRISM review process, and such actions were taken during our
review. ACF has acted less effectively to elevate the risk assessment
strategy to its own operations, such as grants management in its
regional offices. Although ACF collects information that would be
useful in assessing Head Start's risks, we found that many of its
monitoring processes have flaws that limit the reliability and
usefulness of the information collected. Improving the reliability of
the information it collects may help ACF identify financial management
weaknesses in its grantees sooner.
ACF Has Engaged in Limited Analysis of Financial Risks to Head Start:
Many of the efforts that ACF makes, through its component
organizations, to collect information and assess program risks are
poorly integrated. While we identified a number of risk assessment
activities throughout ACF, we could not identify any effort to bring
the various monitoring processes together and make a comprehensive
assessment of Head Start's risks--including financial management risks.
All federal grant programs, including Head Start, face some risks from
grantees that might fail to comply with program-specific requirements,
such as Head Start's income eligibility and enrollment restrictions.
Other risks stem from failing to comply with general grants management
requirements such as failure to develop cost allocation strategies to
ensure that grantees spend federal funds on program beneficiaries and
not on excessive overhead costs or other purposes.
Program-Specific Risk Assessments:
In May 2004, the Head Start Bureau announced a new initiative focusing
on increasing accountability in Head Start. But, this effort--ACF's
Head Start Management Initiative--targets risks that were identified
externally--in our recent reports, news articles, and congressional
inquiries--and does not represent a comprehensive, proactive effort.
The Initiative focuses on four risks: underenrollment, improper
payments, failure to comply with program regulations, and excessive
executive and administrative personnel compensation. To address these
risks, ACF plans to strengthen on-site monitoring and develop an online
management information system to track enrollment, fiscal, and
programmatic data. Though these efforts are key first steps, ACF
officials say they will be implemented in 2005, and it is too early to
assess their effectiveness. However, the Initiative does not address
other risks such as failures of board governance, which a senior Head
Start official cited as a problem for most grantees with serious or
persistent problems. The Head Start Bureau has offered governance
training for Head Start program board members in (1) their fiduciary
responsibilities, (2) their liability as board members if problems
arise, and (3) effective board operations. ACF said that it is the
responsibility of each grantee to train the members of its boards. ACF
provided training on governance issues via satellite broadcast in
September 2004 and ACF also said it made one-time training funds
available to support such training needs.
Until recently, ACF had not collected information that it could use to
estimate the extent of improper payments and recent efforts have been
limited in scope. ACF has recently collected data on the extent to
which grantees may be enrolling children from families that exceed the
program's income eligibility guidelines--a program risk because many
eligible children may not have access to the services they deserve.
However, ACF's implementation of a governmentwide effort to reduce the
risk of improper payments has focused solely on measuring the risks
that payments were made to grantees that enrolled too many children
from families that did not meet the income eligibility requirements.
ACF's approach has excluded improper payments that might be made for
other purposes such as payments for unallowable program activities,
improper payments to contractors, payments to grantees whose programs
are significantly under-enrolled, and other unauthorized payments. To
estimate the extent of improper Head Start payments owing to enrollment
of income-ineligible families, ACF sampled 50 grantees and--projecting
this sample to the program as a whole--found that about 4 percent of
the families served by the program should not have been allowed to
participate in the program. While ACF plans to continue to monitor this
risk of improper payments by sampling grantees each year, it does not
have plans to identify and estimate risks brought about by other types
of improper payments.
Grants Management Risk Assessments:
ACF relies on each of its regional offices to assess grant management
risks in their own operations; but ACF has not recently conducted an
independent compliance review, which is important to ensure that grants
policies are followed and ACF's financial interests are protected. The
Federal Managers' Financial Integrity Act (FMFIA) requires federal
agencies to conduct self-assessments to ensure that their internal
controls are adequately maintained and evaluated. As part of its self-
assessment, each regional office reports on weaknesses it identified
each year, efforts to correct previously identified weaknesses, and
potential material weaknesses that represent broader threats to ACF's
operations as a whole.[Footnote 7] For example, one region reported its
Head Start property grant files did not contain complete, permanent
records on all real property acquired or renovated with Head Start
funds--a problem also identified in a HHS Inspector General (IG) report
as early as 1996.[Footnote 8] Both the IG and the regional office
reports said that as a consequence ACF was unable to protect federal
interests in facilities acquired or renovated with Head Start funds.
Although in its next FMFIA self-assessment the region reported that it
was making progress addressing those risks and expected to complete
rebuilding the files by March 2005, ACF told us in its comments on a
draft of this report that it currently expected that this project would
not be complete until September 2005.
While the FMFIA self-assessments enable the regional offices to focus
on some grants-management risks, periodic independent compliance
reviews are also key to ensuring that the regional offices follow ACF's
own oversight processes. As part of HHS's Balanced Scorecard
Initiative,[Footnote 9] ACF reported in 2000 that some grants
management offices received late reports from grantees, did not have
systems in place to monitor grantee funds to identify excessive
drawdowns, and might not be accounting for grant funds in a timely
manner. The scorecard report recommended that ACF consider conducting
formal compliance reviews of ACF regional offices to identify risks and
correct any grants management problems. Officials with ACF's Office of
Administration said that constraints on staffing and travel funds have
prevented them from conducting any compliance reviews to ensure that
regional offices staff follow ACF's oversight processes.
ACF Has Multiple Processes to Oversee Grantees' Financial Management,
but Each Has Weaknesses:
ACF's main processes for collecting information on the financial
management of Head Start grantees--on-site reviews, annual grantee
surveys, and analyses of financial reports and audits--could form the
foundation for systematically collecting and analyzing grantee
information, but we found flaws in each method that limit the value of
the information collected.
Lack of Effective Evaluation of On-Site Reviews:
Although ACF has made some progress in improving its on-site reviews,
we found that it has no process to ensure that the review teams follow
the Head Start Bureau's guidance or that managers and staff in ACF
regional offices are held accountable for the quality of the reviews.
PRISM reviews are ACF's primary tool to assess whether grantees are in
compliance with statutory and regulatory requirements. Since the last
time we reported on the on-site review process in 1998,[Footnote 10]
ACF has made substantial revisions to its PRISM guide, which now
focuses on three elements of a successful Head Start program: Child
Development and Health Services, Family and Community Partnerships, and
Program Design. Financial management issues are addressed under the
Program Design component. The effectiveness of the PRISM review in
systematically identifying grantees with financial management
weaknesses depends on some assurance that PRISM is implemented as
designed and the team members who are conducting the reviews have the
skills they need to assess grantee compliance with the Head Start
performance standards.
There is evidence that some reviewers may not follow PRISM guidelines
and, as a result, some grantees are not reviewed as rigorously as
others. In 2003 and 2004, the Head Start Bureau re-reviewed 5 grantees
after the initial PRISM reviews, which was conducted by regional office
staff and contract reviewers, found few problems. In each case, the
subsequent review, which was led by reviewers selected by the Head
Start Bureau, found that each grantee was out of compliance with many
Head Start performance standards. Head Start regional managers said the
reviewers selected by the Head Start Bureau were more skilled and that
they followed the PRISM guidelines more closely than the teams of
reviewers lead by the regional office staff.
In addition, different review teams reported different findings for the
same grantees. For example, to limit disruption to Head Start grantees,
ACF's team reviewing improper payments accompanied PRISM reviewers in
2004 and conducted their review of the grantees' eligibility and
recruitment systems simultaneously. In its sample of 50 grantees, ACF's
improper payments reviewers found that 42 percent (21 grantees) failed
to meet the program's income eligibility requirement. However, the
PRISM teams that were supposed to have reviewed the children's files at
the same grantees and at the same time, found only 3 grantees--of the
same 50 reviewed in the sample--out of compliance with the income
eligibility requirements. Both sets of reviewers should have come to
the same conclusions as both assessed compliance with the same
standard.
It is unclear whether the failure to reach similar conclusions in these
specific cases was the result of poor training, lack of skills, or
other causes. The Head Start Bureau has raised concerns about the lack
of independence of PRISM review team leaders, who are employees of
ACF's regional office with responsibility for the Head Start programs
in their region. Until 2001, the PRISM reviews were led by the same
employee responsible for the day-to-day communications with that
grantee. In 2001, the Head Start Bureau asked that ACF regional office
staff not lead the reviews on grantees that they work with on a regular
basis.
ACF's new team leader policy is intended to help ensure that the
results of the review are independent and credible but, as the examples
noted above illustrate, there are still concerns about whether the
PRISM teams are rigorously applying the PRISM framework to achieve a
thorough and reliable result. Although regional office staff no longer
lead reviews for grantees for which they have day-to-day oversight
responsibilities, the way many regional offices implement the PRISM
process may still affect the independence--and, therefore, the
credibility--of the PRISM reviews. Once the review team has returned
from its on-site visit, the regional office management team responsible
for working with those grantees on a day-to-day basis reviews the
findings of the PRISM team and prepares the PRISM report. This
management team makes the determination regarding the status of the
grantee and any corrective actions the grantee needs to take to address
problems identified in the review.
Regional office staff we spoke with told us that the contractors on
their teams were ill-prepared and lacked the knowledge necessary to
conduct a PRISM review. The Head Start Bureau has the responsibility
for identifying and training qualified reviewers to conduct the
reviews.[Footnote 11] In 2004, Head Start embarked on an effort to
begin training the members of its reviewer pool. They began the effort
by training fiscal reviewers because they said this was the area of
PRISM that had the greatest and most immediate need. In October 2004,
Head Start trained about 400 fiscal reviewers in a 2-day session on a
new fiscal management checklist to prepare them for the 2005 reviews.
While there was no assessment at the end of the training, Head Start
plans to require that more experienced fiscal reviewers accompany new
reviewers during their first few PRISM reviews. In August 2004, the
Head Start Bureau also provided a 2-day training course for nearly all
its reviewers that focus on program design and management issues--a
critical area that senior Head Start officials said needs more
attention.
It is unclear whether this training on the PRISM process alone will
adequately equip those responsible for assessing the management of the
Head Start grantees. ACF may need to seek greater assurances that its
reviewers have the skills and knowledge they need to apply the PRISM
process to the circumstances at every grantee they review. In 2004, the
Head Start Bureau began to develop qualifications for PRISM reviewers
and began asking the reviewers to provide a list of their
qualifications. Head Start officials said that the first set of
qualifications they developed were for fiscal reviewers. The new
qualifications include a bachelor's degree or higher in accounting--or
other business-related degree--and experience with the Head Start
program and federal grants management. According to officials
responsible for overseeing contractor recruitment, they do not check
reviewers' credentials or references. The lack of verification of the
reviewers' qualifications and the limited scope of any training
provided to these reviewers may present challenges, especially as the
Bureau tries to implement PRISM's new fiscal management checklists.
The Head Start Bureau also implemented two new procedures to support
improvements on PRISM reviews. First, contracted team members are
encouraged to evaluate each others' performance during the PRISM
review. Head Start Bureau officials said they plan to use the
assessments of the contracted PRISM reviewers to determine future
training needs and to evaluate whether poorly rated reviewers should
continue to participate in PRISM reviews. However, there is no process
to evaluate the federal team leader's performance. Second, in 2002 the
Head Start Bureau began to critique final PRISM reports to ensure that
the reports were issued within 45 days of the PRISM review and to
improve the quality of the evidence that supported the findings. For
example, a finding of noncompliance with a regulation should be
supported by two forms of corroborating evidence.
These two procedures may help Head Start improve the quality of the
PRISM reviews and the written reports, but neither provides the
independent verification needed to ensure that all reviewers
consistently follow the PRISM guidelines. There is no procedure to
independently--and systematically--verify the quality of the review nor
whether the team of reviewers rigorously followed the framework. The
Director of ACF's Regional Operations expressed reluctance to solicit
feedback on the team leaders' performance from nonfederal contract
workers. However, one of ACF's regional office administrators said that
she would welcome such information. According to this administrator,
the Head Start Bureau does not provide the regional offices with
information on the PRISM reviews that they can use to compare their
staff's performance with staff in other regional offices.
Lack of Procedures to Independently Verify the Accuracy of Grantee
Performance Data:
ACF surveys all grantees annually to measure key aspects of the
program's performance nationally, but does not independently verify the
data submitted by the grantees. The PIR survey--the only source of
national data on Head Start grantees--provides the Congress, the
administration, federal agencies, Head Start grantees, legislatures,
state and local agencies, and the public a description of Head Start
program performance in order to oversee grantee progress, manage
federal resources, and develop Head Start policies. Despite its
widespread use in providing the public with information on the national
Head Start program and in overseeing grantees, our analysis raises
significant concerns about the reliability of the data from this
survey.
We found discrepancies in the database that raise questions about the
accuracy of the data that grantees provided. Our December 2003 report
on Head Start enrollment found that ACF does not know if grantees are
fully-enrolled because the data it collects on enrollment through the
PIR survey contained inaccuracies that we determined made the data
unreliable for our purposes. Moreover, when ACF attempted to verify the
data submitted by 75 grantees that had reported particularly higher or
low enrollment, it found that approximately half had erroneously
reported their actual numbers.[Footnote 12]
During the current review, we found, despite more than 700 checks for
internal inconsistency, instances where the data were not internally
consistent. For example, data from the 2003 survey showed that the
number of Family and Community Partnership staff without degrees but in
career path training vastly exceeded the total number of Family and
Community Partnership staff reported in the survey. We conducted 29
tests to check for data consistency. Our tests were designed to ensure
the reliability of (1) some of the more 700 tests already included in
the PIR database and (2) grantee data that were not covered by PIR
checks for data consistency. These tests included all three sections of
the PIR database: enrollment and program operations, program staff and
qualifications, and child and family services. In 18 of our 29 tests,
PIR data summed to different totals than they should have, given the
internal consistency checks, or contained inconsistent data that did
not sum to the expected total. (See app. I for more information about
our testing and analysis of the PIR database.)
ACF relies on PIR's internal consistency checks and the regional
offices to ensure the accuracy of the PIR data. However, as long as the
grantee reports data consistently throughout its PIR report, internal
checks will not detect inaccurate data. The only way to determine
whether the grantee has accurately completed its survey is to verify
the data against the grantee's own records, but regional office staff
have only about 6 weeks from the time they receive preliminary data
until the database is finalized each year. During this time, regional
office staff will work with grantees that have not finished their
surveys and with grantees that have filed a survey that did not pass
the internal consistency checks. Regional office staff said there is
little time to verify even key data--such as enrollment and teacher
qualifications--before the database is finalized and closed for further
data entry.
Limited Use of Financial Reports and Audits:
ACF officials do not routinely reconcile a grantee's withdrawals with
its reported expenditures until after all the funds have been spent.
Regional ACF staff said that such a reconciliation is difficult because
the reporting format for the expenditure information is different from
the format used to report withdrawals. For example, Head Start grantees
report aggregate expenditures every 6 months whereas information on the
grantees' withdrawals is not aggregated and cannot be easily reconciled
to the same time period. However, not reconciling withdrawals and
expenditures more frequently impedes ACF's ability to identify grantees
that might be drawing down excess funds at the beginning of the grant
period and creating shortfalls at the end of the year.
Regarding audits, ACF officials cited limitations in the scope and
timing of the audits as an explanation for failing to use them more
systematically in their day-to-day monitoring activities.[Footnote 13]
However, this explanation reflects a misunderstanding of the nature and
meaning of the audit findings. For example, many Head Start grantees
spend funds from a number of federal programs. While it is true that,
under a single audit, a large entity that runs multiple federal grant
programs might not have its Head Start grant audited every year, the
auditor would focus its attention on the grantee's internal controls--
the management systems it has in place to ensure that it can comply
with all federal regulations--regardless of the specific programs to
which they apply.
ACF regional office staff also cited lengthy delays in receipt of the
audit reports as a limitation in the usefulness of the audits for
oversight purposes. ACF officials told us that it can take up to 6
months from the date the audit is completed to receive the official
copy of the audit report.[Footnote 14] As a result of these delays,
regional staff told us that they wait for the next audit to verify that
findings from previous audits have been corrected. To address the
problems created by these delays, some regional offices ask for copies
of the audits from the grantees so they can identify problems earlier,
but it was not clear they had authority to do so.
In focusing on the limitations of the audits, these ACF officials may
overlook some valuable information on the grantee's financial
management practices. Even if an audit does not cite the Head Start
program in particular, any material weaknesses in internal controls
should raise concerns about the grantee's ability to manage its federal
funds and should be factored into the overall assessment of the risks
associated with that grantee and the impact those risks might have on
the entire program.
ACF Does Not Ensure That Grantees Effectively Resolve Financial
Management Problems:
We found that longstanding financial management problems continued in
many grantees even after ACF had identified their problems and cited
the grantees for failing to comply with program requirements. In our
review of the files of 55 grantees with financial management weaknesses
and interviews with agency staff, we assessed the range of actions
taken by ACF staff responsible for overseeing these grants. While our
review of selected files was limited to 4 of ACF's regional offices and
may not represent the entire range of actions employed nationwide by
ACF officials to resolve such weaknesses,[Footnote 15] we found a
limited use of ACF's authority to require grantees to take corrective
action. We also noted inconsistencies in the process used by the
regional offices to determine the severity of the grantees' problems.
As a result, grantees with similar problems may be treated differently.
When problems are severe, ACF may try to convince grantees to
relinquish their grants in order to expedite transition to a different
provider. ACF makes limited use of its authority to deny funding to
problematic grantees.
ACF's Approach to Addressing Grantee Problems Does Not Resolve Many
Grantees' Long-standing Management Challenges:
Among the tools available to ACF to resolve grantees' problems--
including self-certification, special award conditions, and site
visits--ACF most commonly relied on grantees to self-certify that they
had corrected any problems identified during audits or PRISM reviews.
We tracked 30 audits from the date the auditor completed the audit and
identified financial management weaknesses until the regional office
staff considered the auditors' findings resolved. In all 30 cases, the
ACF regional office asked the grantee to send a letter explaining how
those findings had been resolved and did not conduct a site visit or
other follow up with the grantee. Regional staff said that they do not
typically visit grantees to resolve audit findings but instead rely on
subsequent audits to ensure that all findings have been addressed. We
found that it frequently takes up to 2 years from the point the first
audit identifies a problem until the regional office receives the
second audit, during which time the grantee continues to receive
federal grant funds. (See fig. 3.)
Figure 3: Average Timeline for Audit Review Process for Files Reviewed:
[See PDF for image]
[End of figure]
ACF rarely uses other tools, such as special award conditions, to
ensure that grantees are working to correct problems. When ACF
designates a grantee high-risk, it imposes more restrictive conditions
(a special award condition) than normally required of grantees, such as
more frequent financial reporting, or it can require the grantee to
seek prior approval from the ACF program specialist before it can spend
any federal funds. However, we found that the regional offices take
such steps infrequently.
The third tool, site visits, is used infrequently to help grantees'
resolve their financial problems. Program specialists in the regional
offices cited a heavy workload as the key reason they are not able to
make more frequent visits to grantees with financial management
problems. As a result, many grantees are only visited by ACF officials
once every three years during their regularly scheduled PRISM review.
Many program specialists in ACF regional offices that we visited told
us they most frequently learn that a grantee is having trouble through
a call from a parent or teacher reporting a problem. Although program
specialists said that such calls were a routine part of their day-to-
day monitoring activities, over-reliance on this approach to
identifying problems can result in missed opportunities to help
grantees address management challenges before they become problems. ACF
regional office managers said that program specialists with
responsibility for overseeing Head Start grantees typically are
responsible for about 12 grantees. Regional office managers working on
Head Start programs noted concerns that future caseloads may increase
as staff retire and limits on future hiring constrain their ability to
replace these workers.
Our review of files showed that ACF relied most often on self-
certification rather than its other tools. We reviewed the files of 34
grantees with financial management weaknesses that were identified
during PRISM reviews. In 18 cases, ACF determined that the grantees'
problems were not severe enough for the grantee to be deemed deficient.
Of those 18 grantees, the regional office required 16 to submit letters
indicating resolution had been achieved, and no further action was
pursued. In the 2 cases that ACF decided to return to visit, it found
that the grantees had not corrected the problems identified in the
PRISM review. Because they had not corrected their problems as required
by law, ACF deemed the grantees deficient and required them to develop
and implement a quality improvement plan. When ACF then revisited these
grantees, it verified that the problems had been corrected. It was not
clear from our file review how ACF prioritized these 2 grantees for
follow-up, but in revisiting these grantees ACF took an aggressive step
to ensure compliance. Similar assurances that the other 16 grantees
addressed their problems cannot be ascertained until they are visited
again during their next PRISM review.
Despite the application of tools such as self-certification, special
award conditions, and follow up visits to the grantee, our review of
Head Start's PRISM databases for fiscal years 2000-2003 showed that
many of the same grantees that were noncompliant with financial
management standards in 2000, were noncompliant in those same areas in
their subsequent reviews. The 2000 PRISM reviews identified 838
grantees (about 76 percent of all those reviewed) out of compliance
with one or more financial management standards--either in fiscal
management, program governance, or record keeping and reporting. Many
of those grantees were cited in more than one of those three areas. The
next time those same grantees were reviewed, 440--or 53 percent--were
cited again for problems in those same areas. As figure 4 shows, for
those 440 grantees, there was little change from one review to the
next. The repeat problems could be a result of failure to correct the
problems in the first place--something that might have been identified
with a follow up review--or an initial correction that did not take
hold. One senior official in a regional office said that many Head
Start grantees will fix a problem identified in the PRISM report in the
short term but fail to make lasting changes to their financial
management systems. For example, a grantee might try to meet financial
reporting deadlines for a few months after being cited by a PRISM
review team for missing deadlines, but if the grantee did not implement
a system to ensure that these reports are on time consistently, the
improved performance may not be sustained.
Figure 4: Grantees with Recurring Financial Management Problems (2000-
2003):
[See PDF for image]
[End of figure]
While grantees usually self-certify the resolution of problems
identified through their financial audits, when the PRISM review
identifies a severe problem--deemed a deficiency--there are specific
actions required by law that grantees must take to resolve the
deficiency. However, we noted inconsistencies in the process used by
the regional offices to determine the severity of the problems. For
example, reports based on the on-site reviews for 20 of the grantees we
reviewed showed similar problems in the quantity of violations and the
severity of the weaknesses, but only 10 were deemed deficient by the
ACF regional office. In comparing the problems cited in two grantees'
PRISM reports, we noted that both had serious violations in program
governance and fiscal management issues, but the ACF regional office
only deemed one deficient and not the other. According to each
grantee's PRISM report, the governing boards of both grantees failed to
exercise their responsibilities fully, did not participate in the
development of the funding applications, did not participate in
developing the strategies associated with planning the grantees'
program, and did not help develop the grantees' eligibility and
recruitment procedures. Similarly, both grantees were cited for failing
to meet a number of financial management requirements, such as
comparing actual expenditures to their budgets or ensuring that they
had adequate insurance coverage. The first grantee was not found
deficient and was required to correct the problems cited in its report
and self-certify that all problems had been resolved. The other
grantee, deemed deficient, was required to develop and implement a
quality improvement plan that was monitored closely by the regional
office staff throughout the next year and in a follow-up review a year
later. While regional office staff and their managers in all the
regional offices we visited said they meet to discuss any problems
identified during the review process to determine the severity of the
problems, they said they treat each case differently and largely base
their decisions on their previous experiences working with the
grantees. However, based on our discussion with regional office staff,
we could not discern an objective pattern justifying such disparate
treatment.
ACF Has Made Little Use of Authority to Fund New Grantees to Replace
Poorly Performing Grantees:
ACF has not made full use of its authority to identify new
organizations to take over from poorly performing grantees. The Head
Start Act requires that, when awarding funds for Head Start service,
ACF give preference to current Head Start grantees. But, under the Head
Start Act, ACF is not required to give a priority to the grantee if it
determines that the grantee fails to meet program, financial
management, and other requirements established by the agency.[Footnote
16] However, we found that ACF continues to fund a grantee--even a
deficient grantee--until the grantee either relinquishes the grant or
the grantee is terminated. Of the 55 files we reviewed of grantees with
known financial management weaknesses, we found that in less than half
(26 cases) the program specialist noted problems identified in a PRISM
review or audit in deciding whether to recommend refunding the grant.
In each of these 26 cases, the ACF approving officer recommended
continued funding despite the problems cited in the reports. In the
other 29 cases, ACF's approving officer also recommended refunding
without noting in the files that there were concerns relating to
financial management weaknesses.
While ACF may remove grantees that have demonstrated poor performance-
-including poor financial management--through termination, ACF rarely
uses its authority to do so. Between 1993 and 2001, 27 grantees were
terminated. Senior Head Start officials in 2 of the ACF regional
offices we visited told us that, although mechanisms are in place to
ensure continuity of Head Start services following a
termination,[Footnote 17] they are reluctant to pursue terminations
because the processes used to collect information to support such an
action are inadequate and the procedures required to terminate a
grantee can be a drain on scarce staff resources.
More often, when dealing with poorly performing grantees, ACF tries to
convince them to relinquish the grant in lieu of initiating termination
proceedings and then seeks another grantee to serve the community.
Between 1993 and 2001, 117 grantees voluntarily relinquished their
grants or did so at HHS's request; about 54 percent of those grantees
experienced problems with fiscal management issues. If a grantee
refuses to relinquish its grant, ACF can proceed by notifying the
grantee that its grant will be terminated.
Both termination and negotiations toward relinquishment can be
protracted, in part because a Head Start grantee's right to receive
funding throughout its appeal may prolong the termination process. A
senior Head Start official noted that there is an incentive for
grantees to appeal ACF decisions to terminate programs, because their
legal costs are covered and they can continue to operate their programs
while their appeal is pending. According to an administrative judge
with HHS's Departmental Appeals Board, continued receipt of funding
through the appeals process makes Head Start unique among other HHS
grant programs. While grantees of other programs can appeal an adverse
funding decision, they cannot continue to receive federal funds unless
the decision is reversed.
When grants are allowed to remain with poorly performing grantees,
children being served may not be getting the "head start" they deserve
because the grantees continuously fail to meet program and financial
management standards. For example, in 2003, ACF tried to convince a New
Mexico grantee to relinquish its grant; at the time the grantee had
been accused of failure to provide pertinent information to federal
officials investigating allegations of fraud and abuse and meet other
program standards. Although the ACF regional office had demanded
repayment of $526,000 after records obtained by the Federal Bureau of
Investigation (FBI) and HHS's Inspector General indicated that many of
the enrolled families were ineligible, the grantee appealed that
decision, maintaining that it required records taken by the FBI and
without them it could not properly prepare for its appeal. The appeal
was still pending as of our file review, but on July 1, 2004, ACF
awarded $2 million to this grantee to serve a reduced number of
children and their families in its community.
Similarly, a West Virginia grantee announced that it would appeal ACF's
July 2004 decision to terminate its grant. This grantee had been cited
for failing to meet federal financial requirements in every audit since
1997. Moreover, a 2002 PRISM review could not determine how the grantee
had spent over $400,000 in grant funds but noted that it was clearly
not spent providing Head Start services to children and their families.
Before initiating the termination process with this grantee, ACF worked
for more than a year to get the grantee to develop and implement a
quality improvement plan. During this time, the grantee continued to
receive federal funding and was the only Head Start program available
to families in that community. (See fig. 5 for a detailed description
of some of the challenges ACF faced addressing one grantee's financial
management problems.)
Figure 5: A Case Study: Northwest Arkansas Head Start Human Services,
Inc.
Northwest Arkansas Head Start Human Services, Inc., provides Head Start
services in Rogers, Arkansas, and surrounding communities. The grantee
has operated a Head Start program since 1982 and expanded considerably
in the last decade. In 2004, the grantee received a $3.5 million grant
to serve 504 children and their families. After 2 decades of operation,
the program still faces financial management problems.
Single audits as early as 1998 showed that the grantee had not complied
with financial management requirements. Specifically, the 1998 and 1999
audits reported significant cash management problems. Grantee staff and
board members attribute these problems to a general lack of financial
management expertise and unsound financial management practices. For
example, the grantee did not set aside reserves for accrued leave time
and other contingencies. As a result, when employees left the
organization and they were paid for their accumulated leave, there were
shortfalls in the program's budget for current operating expenses.
Moreover, audits for 2000 and 2001 were never completed and submitted
to the grantee's board.
The problems persisted until June 2002, when the regularly scheduled
PRISM review deemed the grantee deficient for failing to comply with
many of Head Start's financial management requirements and other
program requirements. The grantee was given a year to develop and
implement a quality improvement plan. When a PRISM review team returned
in April 2003, it found that the grantee had resolved all its financial
management problems.
Despite this positive assessment from the April 2003 review team, the
fiscal year 2003 audit reported that the grantee had given $25,000 of
its grant funds to another program it operates--a violation of federal
grants management policies. Moreover, in August 2003, a newly hired
fiscal director reported to the press that the grantee faced a severe
budget crisis and would not be able to stay open without additional
funding. Calls from parents and teachers to the Head Start Bureau
spurred ACF officials to conduct a fourth PRISM review in December
2003. This team--selected by the Head Start Bureau--found the grantee
deficient and took aggressive action to protect federal Head Start
funds by requiring that the regional office approve every expenditure
that grantee makes.
The Northwest Arkansas Head Start Human Services, Inc., board president
said the agency has been working to implement its quality improvement
plan to ensure that improved financial management practices are
lasting.
Source: GAO analysis.
[End of figure]
Unless ACF exercises its authority to remove problematic grantees from
the program, poor links may persist between a grantee's funding and its
performance. Poorly performing grantees--such as those noted above--
continue to receive federal grant funds for years without making the
improvements to program design and management that are called for.
Children and their families in communities served by these grantees
continue to have access to a federally funded Head Start program, but,
because their Head Start grantee continually fails to meet the
program's requirements, it is unclear whether these children are
receiving the level of services they should.
Conclusions:
The federal government relies on nearly 1,700 grantees to provide Head
Start services to nearly one million children and their families each
year. As the federal investment in Head Start grew in the 1990s, the
challenges of overseeing nearly $7 billion in federal grant funds also
grew. While federal policymakers and program managers are continually
seeking ways to improve accountability for Head Start, ACF has not
implemented a well-integrated monitoring system to oversee the Head
Start program, including its financial management.
Until ACF builds a foundation for overseeing its Head Start program
that incorporates a comprehensive assessment of the program's risks--
including financial management risks--whenever poor grantee performance
attracts attention ACF will be unable to ascertain how widespread the
problems are. A risk assessment can help to identify what type of
information an organization needs to gather on grantee performance--
especially financial management. Some of the processes ACF currently
uses to collect data have flaws that prevent the agency from being able
to rely on the data to ensure that Head Start is indeed achieving the
expected outcome of helping poor children and their families. Until
ACF's data collection processes are improved and reasonable assurances
are put in place to ensure the reliability of the data collected, ACF
is not in a strong position to base future funding decisions on grantee
performance. Similarly, while it has begun to train staff and to
implement key monitoring processes, it is unclear whether these efforts
are sufficient to ensure the reliability of the data ACF collects on
grantee financial management.
If ACF improves the processes it uses to collect and analyze data on
grantee financial management, ACF will be in a stronger position to
link funding opportunities to performance. For example, ACF may be able
to make greater use its authority to recompete grants that are
currently awarded to poorly performing grantees. Currently, in order to
ensure the continuity of Head Start services in a given community, ACF
relies on current grantees--even those with weak financial management
systems--to provide those services until it completes the termination
process and the current grantee has exhausted all appeals or has
voluntarily agreed to relinquish its grant. Competition for grants
might create a stronger incentive for those grantees that are not
performing up to standards to correct their problems and develop sound
systems of financial management; if these grantees are unable to
correct their problems, ACF may be able to more quickly identify a
grantee that can better meet the program's performance standards.
Matter for Congressional Consideration:
Because of ACF's uncertainty about the scope of its authority to
implement our recommendation to make greater use of its authority to
recompete Head Start grants, Congress may wish to clarify ACF's
authority to recompete grants if ACF determines that the current
grantee fails to meet Head Start's program or financial management
requirements.
Recommendations for Executive Action:
To improve oversight of the Head Start program and the financial
management of Head Start grantees, we are making the following 8
recommendations to the Assistant Secretary for Children and Families to:
* Produce a comprehensive risk assessment of the Head Start program
that incorporates information from the various components of ACF with
oversight responsibilities for Head Start grantees and assesses actual
or potential risks of mismanagement. This assessment should be updated
periodically to provide reasonable assurances to Head Start management
that the program's grantees are financially sound and that program
objectives are being met.
* To better establish and assess program risks, ACF should develop
plans to collect data on and estimate the extent of improper payments
made for unallowable activities, payments to grantees whose programs
are significantly underenrolled or other unauthorized payments. ACF
currently collects data on the extent to which over-income families are
enrolled in Head Start programs and has estimated the number of such
families nationwide. Additional efforts should be made to collect data
on other types of improper payments and to use the data to more
comprehensively assess the program's risks.
* To improve the processes it currently uses to collect and analyze
information on program risks, ACF should:
* ensure that training and certification for all PRISM reviewers,
including federal team leaders, is provided to enable the reviewers to
perform their responsibilities in accordance with the review framework
developed by the Head Start Bureau;
* develop an approach that can be applied uniformly across all of ACF's
regional offices to assess the results of the PRISM reviews and ensure
consistent treatment of grantees with similar problems when determining
whether grantees should be deemed deficient; and:
* implement a quality assurance process to ensure that the framework
for conducting on-site reviews is implemented as designed, including
holding ACF's regional management accountable for following this
framework and for the quality of the reviews.
* To enhance the usefulness of the data ACF collects through its annual
PIR survey in assessing the program's risks, ACF should ensure that
information it uses for program management--and reports to the Congress
and the public--is accurate. This may require independently verifying
key data submitted through the annual survey or ensuring that the
grantee has a system in place to collect and report accurate,
verifiable data.
* To more quickly identify financial risks associated with
mismanagement of federal funds, ACF should make greater use of the
information it currently collects on the status and use of federal
funds. For example, ACF should reconcile all grantees' reported
expenditures with their actual withdrawals more frequently to ensure
that grantees are not drawing down excess funds at the beginning of
their grant period and have enough funds to provide services to
eligible children and their families for the entire year.
* Prior to refunding a grant, ACF should take steps to obtain
competition for the grant if it has determined that the current
recipient of those grant funds fails to meet program, financial
management, or other requirements. In these instances, ACF should use
its existing authority to conduct such competitions without giving
priority to the current grantee, while ensuring that the grantee is
afforded all applicable statutory protections, including reasonable
notice and an opportunity for a full and fair hearing.
Comments from the Administration for Children and Families and Our
Evaluation:
ACF provided written comments on a draft of this report; these comments
appear in appendix II. ACF also provided technical comments that we
incorporated as appropriate. ACF agrees that Head Start grantees must
be efficient, effective, and held accountable. ACF agreed to implement
a number of our recommendations to improve the processes it uses to
collect and analyze information on grantee performance--including
financial management.
ACF did not directly address our recommendation that it seek ways to
hold regional management accountable for following the PRISM framework
and for the quality of the reviews. ACF regulations require that
regional management assess grantee compliance with program
requirements. In order to ensure that grantees are held accountable, it
is also important to create a culture of accountability throughout ACF,
including the regional offices. To aid in accomplishing this objective,
we continue to recommend that ACF develop a method to hold regional
management accountable for following the PRISM framework and for the
quality of the PRISM reviews.
ACF did not directly address our recommendation that ACF develop plans
to collect data on and estimate improper payments made for unallowable
activities. ACF's technical comments noted that audit reports and other
reviews will identify other possible improper payments. However,
reliance on these oversight tools will not provide ACF with a
systematic way to assess risks associated with other types of improper
payments. We continue to recommend that in order to better estimate
program risks, ACF should develop plans to collect data on and estimate
the extent of improper payments made for other unallowable activities.
ACF expressed concerns about its authority to implement our
recommendation to recompete Head Start grants under certain
circumstances. ACF did not elaborate on its concerns other than to
state that in order to replace a grantee it must terminate the grant.
Because of ACF's uncertainty about the scope of its authority, Congress
may wish to consider clarifying ACF's authority to obtain competition
for any grant if it determines that the current recipient of those
grant funds fails to meet program or financial management requirements.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies of this report
to the Assistant Secretary for HHS's Administration for Children and
Families, relevant congressional committees, and other interested
parties. We will also make copies available to others upon request. In
addition, the report will be made available at no charge on GAO's Web
site at http://www.gao.gov.
Please contact me at (202) 512-7215 if you or your staffs have any
questions about this report. Other contacts and major contributors are
listed in appendix III.
Signed by:
Marnie S. Shaul:
Director, Education, Workforce, and Income Security Issues:
List of Congressional Requesters:
The Honorable Michael B. Enzi:
Chairman:
Committee on Health, Education, Labor, and Pensions:
United States Senate:
The Honorable Lamar Alexander:
Chairman:
Subcommittee on Education and Early Childhood Development:
Committee on Health, Education, Labor, and Pensions:
United States Senate:
The Honorable Judd Gregg:
United States Senate:
The Honorable John A. Boehner:
Chairman:
Committee on Education and the Workforce:
House of Representatives:
The Honorable Michael N. Castle:
Chairman:
Subcommittee on Education Reform:
Committee on Education and the Workforce:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To assess whether the Department of Health and Human Services' (HHS)
Administration for Children and Families (ACF) can consistently
identify Head Start grantees' financial management weaknesses, we
reviewed and analyzed agency policies, manuals, publications, and other
documents to identify the oversight framework and processes it uses to
manage grants and oversee Head Start grantees. We confirmed our
understanding of the key oversight processes in interviews with ACF and
Head Start Bureau headquarters officials. To learn how these oversight
processes are implemented, we interviewed Head Start officials and
reviewed selected case files during site visits to 4 ACF regional
offices. We also conducted telephone interviews with Head Start
officials at the 6 other ACF regional offices.
We viewed financial management[Footnote 18] weaknesses as occurring
when ACF, the grantee's auditor, or HHS' Office of Inspector General
(IG) determined that a grantee did not adhere to financial management
requirements contained in applicable laws, federal regulations, Office
of Management and Budget (OMB) circulars, and related HHS guidance. ACF
identifies financial management weaknesses through its monitoring
activities, such as its triennial reviews or its audit resolution
activities.[Footnote 19] The grantee's independent auditor identifies
financial management weaknesses as it performs the required annual
audit, and the IG's National External Audit Review Center (NEAR)
identifies financial management weaknesses through its review of the
annual audit and related documents.[Footnote 20] For example, a grantee
is required to have source documents and accounting records to support
the periodic statements it provides to its governing board, the
semiannual financial reports it sends to ACF, and the annual financial
statement that is subject to the Single Audit process. Other examples
of financial management weaknesses include failure to establish and
adhere to accounting policies or to maintain the source documents and/
or accounting records necessary to prepare periodic or annual
statement, concerns that a grantee has inadequate operating funds to
remain a going concern, and failure to obtain and properly account for
the required nonfederal 20 percent share of program costs.
We analyzed the Head Start oversight framework using the internal
control framework contained in our Standards for Internal Control in
the Federal Government and required by federal program management in
accordance with OMB's Circular A-123: Management Accountability and
Control. Our analysis of the Head Start oversight framework addressed
Head Start's control environment, ACF's analysis and assessment of the
risks the program faces, the control activities that ACF established to
address these risks and help ensure that program objectives are met,
ACF's methods of communicating the results of its oversight activities,
and ACF's efforts to monitor and track the results of its efforts to
improve program efficiency and effectiveness.
We assessed the reliability of information from two computer-based
systems that ACF uses to manage the program, report to Congress and the
public on program results, and record the results of on-site PRISM
monitoring reviews. The systems are the Program Information Reporting
(PIR) system used to collect enrollment, staffing, and program
information from each Head Start grantee and delegate; and the Program
Review Instrument for Systems Monitoring (PRISM) used to record the
results of on-site PRISM monitoring reviews. We conducted the data
reliability assessments to ascertain the internal consistency,
completeness, and timeliness of these automated data.
We assessed the reliability of PIR data for the 2002-2003 program year,
the most recent reporting year for which complete data were available
at the time of our review. Using software provided by the contractor,
grantees submit PIR survey data to the contractor for inclusion in the
PIR database. Grantee data undergoes internal consistency checks
developed by the contractor in consultation with the Head Start Bureau.
We conducted 29 tests to check for data consistency. Our tests were
designed to ensure the reliability of (1) some of the more than 700
tests already included in the PIR database and (2) grantee data that
were not covered by PIR checks for data consistency. These tests
included all three sections of the PIR database: enrollment and program
operations, program staff and qualifications, and child and family
services. In 18 of the 29 tests, PIR data contained different totals
than they should have, given the internal consistency checks, or
contained inconsistent data that did not sum to the expected totals.
Table 2: Summary of Results for PIR Data Reliability Tests, 2002-2003
Program Year:
Section of PIR database: Enrollment and Program Operations;
Number of PIR data elements tested: 6;
Number of tests that passed: 5;
Number of tests failed: 1.
Section of PIR database: Program Staff and Qualifications;
Number of PIR data elements tested: 10;
Number of tests that passed: 1;
Number of tests failed: 9.
Section of PIR database: Child and Family Services;
Number of PIR data elements tested: 13;
Number of tests that passed: 5;
Number of tests failed: 8.
Section of PIR database: Total;
Number of PIR data elements tested: 29;
Number of tests that passed: 11;
Number of tests failed: 18.
Source: GAO analysis.
[End of table]
These data inconsistencies occurred in 9 cases for which the PIR
contractor had already developed checks for data consistency and among
data for which such checks had not been developed. ACF, Head Start, and
contractor officials concurred with the technical approach we followed
as an appropriate strategy to assess the reliability of PIR data and
with the results of our assessment. As noted in our report, we found
some discrepancies in the database that raise questions about the
accuracy of the underlying data that grantees provided. As a result, we
did not use this database in our analysis.
We also assessed the reliability of automated data maintained in PRISM
data sets from the 2000 through 2003[Footnote 21] reporting periods.
PRISM review teams submit electronic information to the database
contractor, and the contractor enters the information in the PRISM data
sets. The database contractor reviews the information, submitted by
review teams to help prevent inaccuracies in the reported information
and the database contains other quality assurance procedures to help
ensure the consistency of the information it contains. To assess the
reliability of the PRISM data sets, we tested whether information for
each of the years 2000 through 2003 related only to PRISM reports
compiled for that year, whether chronological information had been
compiled in the correct order, and whether each year's database
contained all required information, including the information required
to determine if a grantee complied with standards for each area
reviewed. Our reliability assessment found the information contained in
the databases to be reliable for our purposes.
To assess the number of grantees with recurring financial management
problems, we analyzed the results of PRISM reviews conducted from 2000
through 2003. We identified grantees with financial management problems
as those cited for not complying with program requirements in financial
management, record-keeping and reporting, or program governance.
Financial management requirements include the development and
certification of grantee accounting systems for checking the accuracy
and reliability of financial information and promoting operating
efficiency. Record-keeping and reporting requirements include
communicating timely and accurate financial information to control
program quality, maintain program accountability, and advise grantee
management of program progress. Program governance requirements include
establishing and implementing appropriate internal controls to
safeguard federal funds.
To learn how ACF ensures that grantees effectively resolve their
financial management problems, we visited 4 regional offices and
selected a nonprobability sample[Footnote 22] of 55 grantees with known
financial management weaknesses and reviewed the regional offices'
files for these grantees for the period 2001 through 2004. The 4
regional offices we visited accounted for more than 50 percent of
grantees and more than 50 percent of Head Start funds allocated for
fiscal year 2003.
Table 3: Grantees and Head Start Funds Allocated to the Largest
Regional Offices:
Regional office: Atlanta;
Grantees (FY 2003): Number: 288;
Grantees (FY 2003): Percent of total grantees: 17%;
Allocated funds (FY 2003): Amount (in millions): $1,119;
Allocated funds (FY 2003): Percent of total Head Start funds: 18%.
Regional office: Chicago;
Grantees (FY 2003): Number: 269;
Grantees (FY 2003): Percent of total grantees: 16%;
Allocated funds (FY 2003): Amount (in millions): $983;
Allocated funds (FY 2003): Percent of total Head Start funds: 16%.
Regional office: Dallas;
Grantees (FY 2003): Number: 219;
Grantees (FY 2003): Percent of total grantees: 13%;
Allocated funds (FY 2003): Amount (in millions): $800;
Allocated funds (FY 2003): Percent of total Head Start funds: 13%.
Regional office: Philadelphia;
Grantees (FY 2003): Number: 178;
Grantees (FY 2003): Percent of total grantees: 11%;
Allocated funds (FY 2003): Amount (in millions): $481;
Allocated funds (FY 2003): Percent of total Head Start funds: 8%.
Total of 4 offices[A];
Grantees (FY 2003): Number: 954;
Grantees (FY 2003): Percent of total grantees: 57%;
Allocated funds (FY 2003): Amount (in millions): $3,382;
Allocated funds (FY 2003): Percent of total Head Start funds: 56%.
Source: GAO analysis of ACF data.
[A] Totals may not add due to rounding.
[End of table]
We limited our selection to grantees that received $1 million or more
annually. Furthermore, in selecting grantees with deficiencies and
noncompliances, we also considered the existence of audit findings. At
each office, we selected grantees from each group in proportion to
their prevalence. We reviewed 55 grantees in the 4 offices for the
reasons shown in table 4.
Table 4: Reasons for Selecting and Reviewing Grantees, by Region:
ACF region: Atlanta;
Basis for Selection: PRISM deficiency: 2;
Basis for Selection: PRISM noncompliance: 9;
Basis for Selection: Single Audit findings only: 3;
Total: 14.
ACF region: Chicago;
Basis for Selection: PRISM deficiency: 4;
Basis for Selection: PRISM noncompliance: 9;
Basis for Selection: Single Audit findings only: 1;
Total: 14.
ACF region: Dallas;
Basis for Selection: PRISM deficiency: 4;
Basis for Selection: PRISM noncompliance: 8;
Basis for Selection: Single Audit findings only: 3;
Total: 15.
ACF region: Philadelphia;
Basis for Selection: PRISM deficiency: 3;
Basis for Selection: PRISM noncompliance: 7;
Basis for Selection: Single Audit findings only: 2;
Total: 12.
ACF region: Total;
Basis for Selection: PRISM deficiency: 13;
Basis for Selection: PRISM noncompliance: 33;
Basis for Selection: Single Audit findings only: 9;
Total: 55.
Source: GAO analysis.
[End of table]
In making our selection, we used data from the information system used
to record PRISM data, which as discussed above, we had found reliable
for our purposes; and from the Single Audit Clearinghouse database
maintained by the Bureau of the Census. The Department of Commerce's
Inspector General determined that a high reliance can be placed on the
system of internal controls covering the accuracy and completeness of
the data in the clearinghouse database.
In reviewing each grant file, we recorded information on:
* the grantee's funding levels, years in the program, and contact
information,
* results of PRISM reviews and the related follow-up actions,
* Single Audit reports and related follow-up actions,
* PIR information,
* grant application processing, and:
* grantee monitoring.
Where necessary, we also met with program and financial specialists for
these grantees to obtain relevant information that was not in the grant
files. A second GAO analyst reviewed the data collection instrument to
ensure that information from the grant file was properly recorded.
Our work was conducted from January through December 2004 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Department of Health and Human Services:
DEPARTMENT OF HEALTH AND HUMAN SERVICES:
ADMINISTRATION FOR CHILDREN AND FAMILIES:
Office of the Assistant Secretary, Suite 60:
370 L'Enfant Promenade, S.W.
Washington, D.C. 20447:
DATE:
FEB 8 2005:
TO: Marnie S. Shaul:
Director, Education, Workforce, and Income Security Issues:
FROM: (Signed by): Wade F. Horn, Ph.D.:
Assistant Secretary for Children and Families:
SUBJECT: Comments on the General Accounting Office's Draft Report
entitled, "Head Start: Comprehensive Approach to Identifying and
Addressing Risks Could Help Prevent Grantee Financial Management
Weaknesses," (GAO-05-176):
Attached are the Administration for Children and Families' comments on
the above-referenced GAO draft report.
Should you have any questions regarding our comments, please contact
Joan E. Ohl, Commissioner, Administration on Children, Youth and
Families at (202) 205-8347.
Attachment:
COMMENTS OF THE ADMINISTRATION FOR CHILDREN AND FAMILIES ON THE GENERAL
ACCOUNTING OFFICE'S DRAFT REPORT TITLED "HEAD START: COMPREHENSIVE
APPROACH TO IDENTIFYING AND ADDRESSING RISKS COULD HELP PREVENT GRANTEE
FINANCIAL MANAGEMENT WEAKNESSES," (GAO-05-176):
The Administration for Children and Families (ACF) appreciates the
opportunity to comment on this General Accounting Office (GAO) draft
report.
GAO Recommendations:
To improve oversight of the Head Start program and the financial
management of Head Start grantees, GAO made the following eight
recommendations to the Assistant Secretary for Children and Families:
* Produce a comprehensive risk assessment of the Head Start program
that incorporates information from the various components of ACF with
oversight responsibilities for Head Start grantees and assesses actual
or potential risks of mismanagement. This assessment should be updated
periodically to provide reasonable assurances to Head Start management
that the program's grantees are financially sound and that program
objectives are being met.
- To better establish and assess program risks, ACF should develop
plans to collect data on and estimate the extent of improper payments
made for unallowable activities, payments to grantees whose programs
are significantly underenrolled or other unauthorized payments. ACF
currently collects data on the extent to which over-income families are
enrolled in Head Start programs and has estimated the number of such
families nationwide. Additional efforts should be made to collect data
on other types of improper payments and to use the data to more
comprehensively assess the program's risks.
- To improve the processes it currently uses to collect and analyze
information on program risks ACF should:
** ensure that training and certification for all Program Review
Instrument for Systems Monitoring (PRISM) reviewers, including federal
team leaders, is provided to enable the reviewers to perform their
responsibilities in accordance with the review framework developed by
the Head Start Bureau;
** develop an approach that can be applied uniformly across all of
ACF's regional offices to assess the results of the PRISM reviews and
ensure consistent treatment of grantees with similar problems when
determining whether grantees should be deemed deficient; and:
** implement a quality assurance process to ensure that the framework
for conducting on-site reviews is implemented as designed, including
holding ACF's regional management accountable for following this
framework and for the quality of the reviews.
- To enhance the usefulness of the data ACF collects through its annual
Program Information Reports (PIR) survey in assessing the program's
risks, ACF should ensure that information it uses for program
management-and reports to the Congress and the public-is accurate. This
may require independently verifying key data submitted through the
annual survey or ensuring that the grantee has a system in place to
collect and report accurate, verifiable data.
- To more quickly identify financial risks associated with
mismanagement of federal funds, ACF should make greater use of the
information it currently collects on the status and use of federal
funds. For example, ACF should reconcile all grantees' reported
expenditures with their actual withdrawals more frequently to ensure
that grantees are not drawing down excess funds at the beginning of
their grant period and have enough funds to provide services to
eligible children and their families for the entire year.
* Prior to refunding a grant, ACF should take steps to obtain
competition for the grant if it has determined that the current
recipient of those grant funds has failed to meet program, financial
management, or other requirements. In these instances, ACF should use
its existing authority to conduct such competitions without giving
priority to the current grantee, while ensuring that the grantee is
afforded all applicable statutory protections, including reasonable
notice and an opportunity for a full and fair hearing.
ACF Comments:
ACF believes effective results-oriented oversight and management of the
Head Start program is vital to ensure that local Head Start programs
are providing high-quality services and achieving the Administration's
ultimate goal of strengthening Head Start for the children and families
of this great nation. Therefore, ACF agrees that the nation's 1,670
Head Start grantees must be efficient, effective and accountable so
that children will achieve better outcomes as they prepare for school.
ACF will take the necessary steps to develop and implement an annual
comprehensive risk assessment that draws information from a variety of
data sources and Operating Divisions, including data relating to Head
Start program oversight and/or management responsibilities, either
directly or indirectly. Also, with regard to other specific
recommendations:
* ACF will continue to focus on ensuring that Head Start grantees are
serving all of the children for which the grantees have been funded and
will take appropriate steps in those situations where grantees are
found to be underenrolled.
* ACF, in the last several months, has provided PRISM training to
federal team leaders and to fiscal and early childhood consultants. ACF
will schedule additional training events for consultants in other areas
of expertise later this year to ensure that all reviewers have been
appropriately trained.
* ACF, in FY 2005, will be implementing a quality-assurance system
designed to ensure that all reviews are being conducted in an
appropriate manner and that there is consistency among ACF Regional
Offices in the conduct and outcomes of PRISM reviews.
* ACF will continue to explore ways to increase the accuracy of PIR
data.
* ACF has serious concerns about GAO's legal interpretation of ACF's
authority to recompete Head Start grants. Therefore, the Head Start
Bureau will work with GAO to resolve this issue.
* ACF agrees that improving ACF's reconciliation of funds drawn to
funds expended could be improved. ACF will explore a variety of methods
for comparing expenditure data that ACF has with grantee drawdown
information provided by the Program Support Center's Payment Management
System.
[End of section]
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Betty Ward-Zukerman, (202) 512-2732, wardzukermanb@gao.gov;
Bill J. Keller, (202) 512-8971, kellerbj@gao.gov:
Acknowledgments:
In addition to those named above, Kimberly Brooks, Richard Burkard,
Gabrielle Fagan, Neal Gottlieb, Curtis Groves, Diane Morris, Luann Moy,
Corinna Nicolaou, James Rebbe, Tovah Rom, Kathryn Rooney, and Mark Ward
made key contributions to the report.
[End of section]
Related GAO Products:
Head Start and Other Early Childhood Programs:
Head Start: Better Data and Processes Needed to Monitor
Underenrollment. GAO-04-17. Washington, D.C.: December 4, 2003.
Head Start: Increased Percentage of Teachers Nationwide Have Degrees,
but Better Information on Classroom Teachers Qualifications Needed. GAO-
04-3. Washington, D.C.: October 1, 2003.
Education and Care: Head Start Key among Array of Early Childhood
Programs, but National Research on Effectiveness Not Completed. GAO-03-
840T. Washington, D.C.: July 22, 2003.
Head Start and Even Start: Greater Collaboration Needed on Measures of
Adult Education and Literacy. GAO-02-348. Washington, D.C.: March 29,
2002.
Early Childhood Programs: The Use of Impact Evaluations to Assess
Program Effects. GAO-01-542. Washington, D.C.: April 16, 2001.
Title I Preschool Education: More Children Served, but Gauging Effect
on School Readiness Difficult. GAO/HEHS-00-171. Washington, D.C.:
September 20, 2000.
Early Education and Care: Overlap Indicates Need to Assess Crosscutting
Programs. GAO/HEHS-00-78. Washington, D.C.: April 28, 2000.
Early Childhood Programs: Characteristics Affect the Availability of
School Readiness Information. GAO/HEHS-00-38. Washington, D.C.:
February 28, 2000.
Education and Care: Early Childhood Programs and Services for Low-
Income Families. GAO/HEHS-00-11. Washington, D.C.: November 15, 1999.
Head Start: Challenges in Monitoring Program Quality and Demonstrating
Results. GAO/HEHS-98-186. Washington, D.C.: June 30, 1998.
Head Start Programs: Participant Characteristics, Services, and
Funding. GAO/HEHS-98-65. Washington, D.C.: March 31, 1998.
Internal Controls:
TANF and Child Care Programs: HHS Lacks Adequate Information to Assess
Risk to Assist States in Managing Improper Payments. GAO-04-723.
Washington, D.C.: June 18, 2004.
Major Challenges and Program Risks: Department of Health and Human
Services. GAO-03-101. Washington, D.C.: January 2003.
Strategies to Manage Improper Payments: Learning From Public and
Private Sector Organizations. GAO-02-69G. Washington, D.C.: October
2001.
Internal Control Management and Evaluation Tool. GAO-01-1008G.
Washington, D.C.: August 2001.
Standards for Internal Controls in the Federal Government. GAO/AIMD-00-
21.3.1. Washington, D.C.: November 1999.
Grants Management:
Single Audit: Single Audit Act Effectiveness Issues. GAO-02-877T.
Washington, D.C.: June 26, 2002.
Single Audit: Actions Needed to Ensure that Findings Are Corrected. GAO-
02-705. Washington, D.C.: June 26, 2002.
Welfare Reform: Federal Oversight of State and Local Contracting Can Be
Strengthened. GAO-02-661. Washington, D.C.: June 11, 2002.
Single Audit: Survey of CFO Act Agencies. GAO-02-376. Washington, D.C.:
March 15, 2002.
Single Audit: Update on the Implementation of the Single Audit Act
Amendments of 1996. GAO/AIMD-00-293. Washington, D.C.: September 29,
2000.
Federal Grants: Design Improvements Could Help Federal Resources Go
Further. GAO/AIMD-97-7. Washington, D.C.: December 18, 1996.
Single Audit: Refinements Can Improve Usefulness. GAO/AIMD-94-133.
Washington, D.C.: June 21, 1994.
FOOTNOTES
[1] For 2003, the federal poverty line for a family of four was $18,400
within the 48 contiguous states and the District of Columbia. In Alaska
and Hawaii, the guidelines were $23,000 and $21,160, respectively. The
poverty guidelines are updated periodically in the Federal Register, by
the U.S. Department of Health and Human Services under the authority of
42 U.S.C. 9902(2).
[2] See GAO, Federal Grants: Design Improvements Could Help Federal
Resources Go Further, GAO/AIMD-97-7 (Washington, D.C.: Dec. 18, 1996),
36.
[3] GAO, Major Challenges and Program Risks: Department of Health and
Human Services, GAO-03-101 (Washington, D.C.: Jan. 2003).
[4] These audits are conducted under OMB Circular A-133 and the Single
Audit Act (31 U.S.C. §§ 7501-7507). Under the act and implementing
guidance, independent auditors audit federal awards to state and local
governments and nonprofit organizations to assess compliance with
federal financial requirements, including those for Head Start.
Organizations are required to have single audits if they spent at least
$300,000 in federal funds for fiscal years before December 31, 2003,
and $500,000 for years after. The single audit focuses audit resources
on the grantees' internal controls which cover an entity's operations
and financial reporting for all its federal awards. In addressing
compliance issues, the single audit may only review provisions of laws
and regulations that have a direct and material effect governing
selected grant awards.
[5] For more information on internal controls, see GAO-02-69G and GAO/
AIMD-00-21.3.1.
[6] The Payment Management System is a fully automated cash management
system that is designed to receive payment requests from grantees, edit
them for accuracy, transmit the payment to the grantee's bank account,
and record the payment transactions and corresponding disbursements in
the appropriate account. PMS is operated out of HHS's Division of
Payment Management and is used by HHS agencies (including ACF) and
other federal departments and agencies.
[7] A material weakness is a condition in which the design or operation
of one or more internal control components--or monitoring processes--
does not reduce to a relatively low level the risk that any
noncompliance would be material and not be detected within a timely
period by employees in the normal course of performing their assigned
duties.
[8] Department of Health and Human Services, Office of Inspector
General, Review of Facility Purchases by the Head Start Program during
Fiscal Years 1993 and 1994 (A-09-94-00085) (Washington, D.C.: 1996).
[9] HHS's Balanced Scorecard initiative seeks to improve its management
activities by measuring its performance, making improvements, and
assessing how well the organization is positioned to perform in the
future. The balanced scorecard is a private-sector concept introduced
by Robert Kaplan and David Norton in 1992 to assess organizational
performance and is used by several federal agencies.
[10] GAO, Head Start: Challenges in Monitoring Program Quality and
Demonstrating Results, GAO/HEHS-98-186 (Washington, D.C.: June 30,
1998).
[11] The Head Start Act requires that whenever possible the review
teams are lead by HHS staff familiar with the Head Start program--PRISM
team leaders are usually ACF regional office staff that work on the
Head Start program. In October 2004, the Head Start Bureau provided
regional office staff that will lead PRISM reviews in 2005 with a half-
day training course via video conference on recent changes to the PRISM
guide for 2005.
[12] GAO, Head Start: Better Data and Processes Needed to Monitor
Underenrollment, GAO-04-17 (Washington, D.C.: Dec. 4, 2004).
[13] We have previously reported that ACF made limited use of audit
reports. See GAO, Welfare Reform: Federal Oversight of State and Local
Contracting Can Be Strengthened, GAO-02-661 (Washington, D.C.: June 11,
2002) for more information.
[14] Grantees are required to have their financial statements audited
within 9 months after the end of their fiscal year.
[15] We interviewed managers in other offices who generally described
similar procedures. For more information on selection criteria and our
methodology, see appendix I.
[16] 42 U.S.C. 9836(c)(1). See also, Action For Boston Community
Development, Inc., v. Shalala, 136 F.3d 29 (1st Cir. 1998). In that
case, the court found that a Head Start grantee with deficiencies at
one of the Head Start centers it operated was not entitled to priority
in a competition for a grant to replace another grantee at a different
location.
[17] Whenever ACF terminates or suspends a grant, it brings in a
contractor to continue serving children and families until a new
grantee is found to serve that community.
[18] Financial management encompasses the systems and processes
(policies) a grantee uses to authorize, document, record, and report
transactions and related events.
[19] We identified financial management weaknesses as occurring when
ACF cited a PRISM noncompliance in either fiscal management or
recordkeeping and reporting. We included record-keeping and reporting
as indicators of financial management weaknesses because of the close
relationship, recognized in the PRISM guidance, between authorizing and
recording financial transactions and reporting them to the appropriate
parties.
[20] We identified financial management weaknesses as occurring when
the auditor or the IG NEAR office reports included reportable
conditions, questioned costs, or weaknesses in the grantee's internal
controls.
[21] Because ACF was in the midst of its 2004 PRISM cycle at the time
of our review, we did not include that information in our reliability
assessment.
[22] A nonprobability sample is selected on the basis of a population's
characteristics. The results from a nonprobability sample cannot be
generalized to the population from which the selections were made.
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