Head Start
Comprehensive Approach to Identifying and Addressing Risks Could Help Prevent Grantee Financial Management Weaknesses Gao ID: GAO-05-473T April 5, 2005In fiscal year 2004, the 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 around the country raised questions about the effectiveness of the oversight provided 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. This testimony discusses (1) the processes ACF uses to assess the programs' risks, (2) whether those processes could be improved to ensure the accuracy and reliability of the information ACF collects on its Head Start grantees, and (3) whether ACF ensures that grantees with financial management weaknesses correct those problems in a timely manner.
ACF has not developed a comprehensive risk assessment system to identify financial management weaknesses of Head Start grantees. ACF has many processes it uses to collect information on how well grantees are performing and managing their federal grant funds. But different organizations within ACF conduct these activities, and we could not identify a systematic process that ACF uses to bring together information gained from the different data collection processes. Moreover, when we looked more closely at each of the processes ACF uses to oversee Head Start grantees, we identified flaws that limit the quality, accuracy, and reliability of the information ACF collects. ACF does not ensure that its on-site reviews are conducted in accordance with its own guidelines for grantee compliance; it does not verify the accuracy of the data grantees submit on key performance indicators each year; and it does not reconcile grantees' actual withdrawals with reported expenditures until all the funds have been spent. In addition, many of the staff we spoke with said that they often learn about problems after they get calls from parents and teachers--an ad-hoc, reactive approach on which ACF relies too heavily instead of comprehensive, proactive risk assessment. Our analysis of the data shows that more than half the grantees cited for failure to comply with rules related to financial management were out of compliance again with one or more financial management standards during their next review. We also found poor linkages between grantee performance and funding. ACF rarely invokes its authority to terminate grantees when a community is being served by a poorly-performing grantee. Instead, ACF usually tries to convince a grantee to relinquish its grant, and only then will look for another grantee to serve that community. Opening competition to qualified applicants to replace a poorly-performing grantee may be a necessary step toward ensuring that as many eligible children as possible are provided with services that meet Head Start's standards. A comprehensive risk assessment system would provide ACF with the information it needs to target its oversight more effectively, reduce the risks inherent in managing a large federal grant program, and help grantees manage resources more effectively.
GAO-05-473T, Head Start: Comprehensive Approach to Identifying and Addressing Risks Could Help Prevent Grantee Financial Management Weaknesses
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Testimony:
Before the Senate Committee on Health, Education, Labor and Pensions
Subcommittee on Education and Early Childhood Development:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 9:30 a.m. EST:
Tuesday, April 5, 2005:
Head Start:
Comprehensive Approach to Identifying and Addressing Risks Could Help
Prevent Grantee Financial Management Weaknesses:
Statement of Marnie S. Shaul, Director, Education, Workforce, and
Income Security Issues:
GAO-05-473T:
GAO Highlights:
Highlights of GAO-05-473T, a testimony before the Senate Committee on
Health, Education, Labor and Pensions Subcommittee on Education and
Early Childhood Development:
Why GAO Did This Study:
In fiscal year 2004, the 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 around the country raised questions about the effectiveness of
the oversight provided 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. This
testimony discusses (1) the processes ACF uses to assess the programs‘
risks, (2) whether those processes could be improved to ensure the
accuracy and reliability of the information ACF collects on its Head
Start grantees, and (3) whether ACF ensures that grantees with
financial management weaknesses correct those problems in a timely
manner.
What GAO Found:
ACF has not developed a comprehensive risk assessment system to
identify financial management weaknesses of Head Start grantees. ACF
has many processes it uses to collect information on how well grantees
are performing and managing their federal grant funds. But different
organizations within ACF conduct these activities, and we could not
identify a systematic process that ACF uses to bring together
information gained from the different data collection processes.
Moreover, when we looked more closely at each of the processes ACF uses
to oversee Head Start grantees, we identified flaws that limit the
quality, accuracy, and reliability of the information ACF collects. ACF
does not ensure that its on-site reviews are conducted in accordance
with its own guidelines for grantee compliance; it does not verify the
accuracy of the data grantees submit on key performance indicators each
year; and it does not reconcile grantees‘ actual withdrawals with
reported expenditures until all the funds have been spent. In addition,
many of the staff we spoke with said that they often learn about
problems after they get calls from parents and teachers”an ad-hoc,
reactive approach on which ACF relies too heavily instead of
comprehensive, proactive risk assessment.
Our analysis of the data shows that more than half the grantees cited
for failure to comply with rules related to financial management were
out of compliance again with one or more financial management standards
during their next review. We also found poor linkages between grantee
performance and funding. ACF rarely invokes its authority to terminate
grantees when a community is being served by a poorly-performing
grantee. Instead, ACF usually tries to convince a grantee to relinquish
its grant, and only then will look for another grantee to serve that
community. Opening competition to qualified applicants to replace a
poorly-performing grantee may be a necessary step toward ensuring that
as many eligible children as possible are provided with services that
meet Head Start‘s standards.
A comprehensive risk assessment system would provide ACF with the
information it needs to target its oversight more effectively, reduce
the risks inherent in managing a large federal grant program, and help
grantees manage resources more effectively.
What GAO Recommends:
This testimony repeats recommendations we made in our report: Head
Start: Comprehensive Approach to Identifying and Addressing Risks Could
Help Prevent Grantee Financial Management Weaknesses (GAO-05-176, Feb.
28, 2005) for improving ACF‘s oversight of Head Start grantees.
www.gao.gov/cgi-bin/getrpt?GAO-05-473T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Marnie S. Shaul at (202)
512-7215 or shaulm@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss our recent report on oversight
of the Head Start program by the Department of Health and Human
Services (HHS) to ensure that federal funds are used to achieve Head
Start's goals. Head Start is the federal government's single largest
investment in early childhood education and care for low-income
children. HHS's Administration for Children and Families (ACF) manages
Head Start and relies on hundreds of different grantees throughout the
country to provide services to more than 900,000 children and their
families. Head Start funding increased three-fold in real terms during
the 1990s. Currently, ACF disburses about $6.8 billion annually to Head
Start grantees. As you can imagine, managing a program of this size,
with this many grantees and beneficiaries, can present many challenges.
The reauthorization of Head Start presents an opportunity to discuss
some of these management challenges. Although Head Start is a popular
program and millions of low income children have benefited from the
program over the past 40 years, it is important to ensure that all
grantees are held accountable for achieving program results and
properly managing their federal funds.
My testimony today will focus on how well ACF manages the financial
risks associated with the Head Start program. Specifically, I will
discuss (1) ACF's processes to assess financial risks, (2) how those
processes can be improved to ensure the accuracy and reliability of the
information ACF collects on its Head Start grantees, and (3) the
effectiveness of the approaches ACF uses to make sure Head Start
grantees address any financial management weaknesses in a timely
manner.
My written statement is drawn from our recent report on Head Start risk
management, which was completed for the Committee in accordance with
generally accepted government auditing standards.[Footnote 1]
In summary:
ACF does not have a comprehensive risk assessment process it can use to
collect information on how well grantees are performing and managing
their federal grant funds. Such an assessment should be able to provide
ACF with the information it needs to target its oversight activities,
reduce the risks inherent in managing a large federal grant program,
and help prevent grantees from failing financially, through earlier
intervention. While ACF has many processes it uses to collect
information on its grantees, these efforts are conducted by different
organizations within ACF, and ACF does not have a process in place to
systematically bring the information together in one place to do an
assessment of how well the program is operating.
When we looked more closely at ACF's oversight processes, we identified
flaws that limit the quality, accuracy, and reliability of the
information ACF collects on its grantees. For example, ACF does not
have a quality assurance process that could validate the findings of
the reviews it conducts of its grantees at least every 3 years; it does
not verify the accuracy of the data it asks its grantees to submit on
key performance indicators each year; and it does not reconcile a
grantee's actual withdrawals with its reported expenditures until all
of the funds have been spent. These flaws limit the information ACF has
on Head Start grantee's financial status and operations and, as a
result, 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.
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. 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 grant funds too quickly and
did not adequately manage their grants to ensure that there would be
funds available throughout the school year.
When ACF identified grantees with financial management problems, we
found that it took limited actions to ensure that grantees quickly
corrected their problems and made lasting changes to their programs so
the problems would not surface again. This is a concern because ACF's
data show that more than 76 percent of Head Start programs that were
reviewed in 2000 were out of compliance with financial management
standards, and more than half of these grantees were still out of
compliance during their next review. When we looked at the approach ACF
takes to ensure that grantees correct their problems, we found that ACF
most frequently relies on grantees to self-certify that they have
corrected their problems without ever visiting the grantees for
verification. 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 ACF
regional offices to determine the severity of the problem. As a result,
one grantee could be deemed deficient while another, with similar
problems, would not. We also found that ACF makes limited use of its
authority to terminate its relationship with poorly performing
grantees. ACF does not seek competition for a grant until after the
current grantee has exhausted all its appeals or it has convinced a
poorly performing grantee to voluntarily relinquish its grant. The
process to remove a grantee that fails to perform up to standards is
protracted, and that grantee can continue to receive funds long after
financial management weaknesses have been identified. In the meantime,
the community has no other option for Head Start services and low-
income children may not receive the quality or intensity of services
that they need.
We made a number of recommendations in our report and ACF agreed to
implement many of them. Implementing these recommendations will go a
long way 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. More importantly, however, these improvements should help ACF
prevent grantee financial management weaknesses before the problems
become too severe. We also recommended that ACF make greater use of its
authority to seek competition by taking steps to seek qualified
applicants where the current grantee fails to meet program
requirements. While such a step should be taken after carefully
considering all available options, competition would help to ensure
that children are no longer served by poorly performing grantees.
Ultimately, enforcing all the program's requirements--especially
financial management requirements--strengthens the federal commitment
to poor children and their families by effectively managing scarce
federal resources and making sure as many eligible families as possible
can participate in the program.
Background:
Begun in 1965 as part of the Johnson Administration's War on Poverty,
Head Start offers poor children and their families a range of services,
including preschool education, family support, health screenings,
dental care, and assistance in accessing medical services. The program
may either provide the services directly or facilitate access to
existing services. Eligibility for Head Start is generally limited to
children who are below the age of school entry and from families with
incomes below the federal poverty level or receiving cash assistance
from the Temporary Assistance for Needy Families program. To accomplish
Head Start's goals for these poor children and families, the Congress
last year provided $6.8 billion in federal funds, which HHS awards
directly to nearly 1,700 grantees nationwide. As funding for this
longstanding program has grown, so has the risk associated with any
mismanagement of program funds.
While effective oversight of federal funds is always a guiding
principle in managing the various federal government programs,
accounting scandals in the private sector in 2001-2002 reinforced the
need for organizations to have stronger financial oversight. Since that
time, both public sector and private sector organizations --including
many not-for-profit organizations--are paying closer attention to
managing the risks in their operations. Indeed, the Office of
Management and Budget (OMB) recently revised its guidance for federal
agencies' financial managers to better integrate and coordinate their
risk assessments and other management activities.
The primary goal in managing any federal program is to provide
reasonable assurance that the program is operating as intended and is
achieving expected outcomes. A key step in the process of providing
this assurance is conducting a risk assessment. A risk assessment is a
comprehensive review and analysis of program operations, especially the
management of federal funds, to identify risks and to measure the
potential or actual impact of those risks on program operations. The
potential for such risks exist in all federal grant programs; for
example, the diversion of funds to other purposes, inefficient use of
funds, failure to contribute the grantee's share of funds, or other
problems that reduce the effectiveness with which financial resources
are brought to bear on achieving program goals. When a federal program
relies heavily on grantees to provide services, as the Head Start
program does, the risk assessment process can become more complex.
Processes must be developed to assess the operations of every grantee
to ensure that each complies with program rules and to measure whether
each achieves expected results.
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 of these
grantees operate other federal, state, or local programs in addition to
the Head Start program. Many of these Head Start grantees also provide
services by subcontracting with other organizations, known as delegate
agencies. In 2003, there were about 800 delegates providing services in
the Head Start program. Some grantees had multiple delegate agencies
while others had none. The various layers of grantees, the
administrative complexity of the program, and the interrelationship
between programs operated by the same grantee add to the challenges of
overseeing the Head Start program.
ACF uses a number of processes to collect information on grantee
performance and financial management. Table 1 summarizes ACF key
processes for monitoring Head Start grantees.
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]
Various offices within ACF have roles in developing and implementing
processes to monitor grantee performance and financial management. (See
fig. 1). The Head Start Bureau develops program policies and designs
the program-specific oversight processes to collect information on
grantee performance. Staff from the ten regional offices implement the
policies developed by the other offices within ACF, ensure that all
grantees are in compliance with program rules, and frequently develop
additional policies to aid in their oversight responsibilities.
Figure 1: ACF Organizational Chart:
[See PDF for image]
[End of figure]
ACF Lacks a Comprehensive Strategy to Assess Head Start Risks:
ACF uses many processes to collect information on grantee performance
and financial management but does not bring together this information
to comprehensively assess the program's risks or identify areas where
it might need new or improved processes to collect information. Staff
in ACF regional offices maintain day-to-day contact with the Head Start
grantees and monitor the operations of those grantees throughout the
country. Many of those regional office staff told us that they most
frequently learn if a grantee is having a problem through a call from a
parent or a teacher. The staff in the regional offices said these calls
are a routine part of their day-to-day monitoring activities. Over-
reliance on this approach can result in missed opportunities to help
grantees address management challenges before they become problems.
Greater linkages among the various programs offices and oversight
activities could produce a more comprehensive approach to assessing
program risks and help prevent financial management weaknesses in Head
Start grantees. (See fig. 2).
Figure 2: Head Start Oversight Activities Undertaken by Several
Offices:
[See PDF for image]
[End of figure]
In our review of ACF's management of the Head Start program, we noted a
number of on-going activities that were not well-integrated and did not
present a comprehensive view of the program's risks. For example, Head
Start's 2004 Management Initiative targeted risks that were identified
in recent GAO reports, news articles, and congressional inquiries. The
Initiative targeted well-known problems such as underenrollment,
overenrollment of children from families that did not meet income
eligibility requirements, and excessive executive compensation at some
Head Start programs. However, efforts to address broader concerns about
program governance--the skills and knowledge of local Head Start
governing boards to effectively manage their programs--were notably
absent from the Initiative.
In another example of an ACF oversight process that is too limited in
scope, we reported that before 2004 ACF had not collected information
it could use to estimate the extent of improper payments made by
grantees or the Head Start Bureau. But when ACF began to collect this
information, the agency focused on just one type of improper payments
to grantees--payments made to grantees that enrolled too many children
from families that did not meet the program's income eligibility
requirements. These improper payments pose a program risk because
eligible children may not have access to services. While this effort is
an important step in systematically assessing risks, the study
overlooked many other possible forms of improper payments, such as
those made to contractors, to grantees that are significantly
underenrolled, or for unallowable program activities.
Finally, we noted in our report that ACF relies on its regional offices
to assess their own operations for gaps that might pose risks to all
ACF programs, including Head Start. Such gaps might include failure to
follow ACF grant management policies or to maintain files on property
acquired or renovated with Head Start funds. Self-assessments can be an
important tool, but ACF had not recently conducted an independent
compliance review to ensure that its own grant policies are enforced
and that the federal government's financial interests are protected.
Processes ACF Uses to Collect and Analyze Information on Grantees are
Flawed:
We found that the main processes ACF uses to collect information on its
grantees' financial management--on-site reviews, annual grantee
surveys, and analyses of financial reports and audits--have flaws that
limit the value of the information collected. The on-site review
process, mandated by the Head Start Act and often known as PRISM--the
name of the review protocol--is ACF's main tool to assess whether
grantees are in compliance with statutory and regulatory requirements.
While the Head Start Bureau has made progress in improving its on-site
reviews, we found that problems remain. We found that the Bureau has no
process to ensure that the teams of reviewers follow the Bureau's
guidance. This is a concern because there is evidence that some PRISM
reviewers might not follow the guidance for the on-site reviews. For
example, comparisons of simultaneous on-site reviews of the same
grantees by two different teams--a PRISM review team and an improper
payments study team--revealed significant discrepancies. Notably, 21 of
the 50 grantees in the improper payments study were cited for enrolling
too many children that did not meet the income eligibility guidelines,
but the PRISM review teams cited only 3 of those same grantees for
failing to comply with income eligibility criteria.
The effectiveness of on-site reviews to systematically identify
grantees with financial management weaknesses depends on some assurance
that the on-site review is implemented as designed and that the
reviewers have the necessary skills to assess grantees' compliance with
Head Start performance standards. The review teams are lead by staff
from ACF's regional offices and include a number of reviewers under
contract with Head Start. Many of these contractors are employees of
Head Start programs throughout the country. While this level of
experience should indicate a familiarity with Head Start program
requirements, ACF does not check reviewer credentials or test their
knowledge of the rules before they are sent to conduct reviews. ACF
seeks feedback, on a voluntary basis, on the contractors' performance
but ACF's Director of Regional Operations expressed reluctance to
solicit feedback on the team leaders' performance.
ACF also uses an annual survey of its grantees to collect information
on the status of their programs to measure results, but ACF does not
verify the information collected. We reported last year that important
information, such as enrollment in many Head Start programs, is often
reported inaccurately. Also, our analysis raises concerns about the
reliability of the survey data. ACF relies on 700 checks of internal
consistency to ensure that data are reported accurately. Many ACF
officials said that the checks make it difficult for grantees to
provide inaccurate information. However, our own review of the internal
consistency of the data found problems; as long as grantees complete
the survey consistently, the data--whether accurate or not--would pass
the tests. While ACF officials said they would be able to address the
problems we identified in our analysis, because the data are used
widely by policymakers and the public to assess the program's results,
until ACF takes steps to ensure the accuracy of the database we urge
caution in using data from the survey to monitor Head Start grantees.
All Head Start grantees report on the status of their funds through
periodic financial reporting and annual audits of their financial
statements. We found that ACF made limited use of the information
collected through these two processes to analyze Head Start grantees'
financial status. For example, ACF does not routinely reconcile a
grantee's withdrawals with its reported expenditures until after the
funds have all been spent. It is therefore difficult for ACF to
identify grantees that might be drawing down excess funds at the
beginning of the grant period and risking shortfalls at the end of the
period. Regarding audits, all grantees must obtain an annual audit of
their financial statements and compliance with selected federal laws
and regulations. These audits are conducted under a framework mandated
by the Single Audit Act. While these audits may not be as comprehensive
as an on-site program review, they are designed to ensure that federal
grantees' financial statements are accurate, that they have adequate
checks and balances in place to protect federal funds, and that they
are in compliance with key regulations. However, ACF officials cited
limitations in the scope and timing of the audits for failing to use
them more systematically in their day-to-day oversight activities. In
focusing on the limitations of these audits, ACF officials may overlook
some valuable information on grantees' financial management practices.
ACF Does Not Ensure that Grantees Effectively Resolve Financial
Management Problems:
One way to assess the effectiveness of the approaches ACF uses to
address grantees' financial management weaknesses is to examine whether
grantees resolve their problems and then stay in compliance. ACF's data
from its on-site reviews from 2000-2003 show that many grantees that
were cited for failing to comply with financial management requirements
in one review still had problems in their next review.[Footnote 2] Our
analysis of the data shows that more than half of the grantees cited
for failure to comply with financial management-related rules were out
of compliance again with one or more financial management standards
during their next review. (See fig. 3).
Figure 3: High Incidence of Continued Noncompliance with Head Start
Standards among Grantees Reviewed by ACF in 2000:
[See PDF for image]
[End of figure]
Moreover, the number of areas of financial management in which grantees
were noncompliant did not decrease with subsequent reviews. As figure 4
shows, of the 70 grantees cited in 2000 for problems in all three major
areas of financial management--fiscal management, program governance,
and record keeping/reporting--69 still had one or more problems in each
area at the next review.
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 consistently on time, the
improved performance may not be sustained:
Figure 4: Grantees with Recurring Financial Management Problems (2000-
2003):
[See PDF for image]
[End of figure]
When grantee problems are identified through on-site reviews or audits,
ACF often relies largely on grantees' self-certification that they have
corrected problems rather than imposing special conditions or
conducting a site visit. While self-certification may be appropriate in
cases when minor problems can be corrected quickly, the analysis in
figure 4 suggests that many grantees with problems are not getting the
help they need to correct their problems and make lasting improvements
in their financial management capabilities. We reviewed the files of 34
grantees with financial management problems identified by ACF during
its on-site reviews. In 18 cases, ACF determined that the grantees'
problems were not severe enough to be deemed deficient--a term ACF uses
to identify grantees with severe problems. Of those 18 grantees ACF
required 16 to submit letters certifying that they had corrected the
problems and no further action was pursued. In the other 2 cases, ACF
returned to the review the grantees and found that they had not
corrected their problems. 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. Because the
two grantees had not corrected their problems, as required by law, ACF
deemed them deficient and required them to develop a quality
improvement plan.
ACF also relies primarily on self-certification to resolve problems
identified in grantees annual audits. In each of the 30 audits we
tracked from the date the auditor completed a report identifying
financial weaknesses until the regional office judged the audit
findings resolved, that judgment was based on a letter from the grantee
rather than a site visit or other follow-up. Regional staff said they
relied on subsequent audits to ensure that such findings are resolved,
but we found it frequently takes up to 2 years from the point an audit
identifies a problem until the regional office receives the next audit,
during which the grantee continues to receive federal funds. While the
results of our review in four regional offices may not represent the
range of actions taken by all ACF regional offices nationwide, we
interviewed managers in other regional offices who generally described
similar procedures.
To the extent that grantees have recurring financial management
problems, more aggressive approaches might be appropriate. ACF has the
authority to impose special award conditions--such as requiring
grantees to seek approval for every withdrawal of grant funds--but ACF
rarely imposes these conditions. ACF can also make a follow-on visit to
ensure that the grantee has implemented corrective actions and is in
compliance with the program's rules. The Head Start Act requires ACF to
conduct follow-on visits when it determines that a grantee has such
severe problems that it deems the grantee deficient; ACF can also
return to grantees with less severe problems, but we found ACF rarely
does so. We could not discern an objective rationale for when ACF
regional offices decide that a grantee is deficient and when they do
not. 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 problems cited, but the regional
offices deemed only 10 of the grantees deficient. Regional office staff
and their managers in the offices we visited said they meet to discuss
any problems identified during the on-site review to determine whether
to deem the grantee deficient, but they said they treat each case
differently and largely base their determinations on their previous
experiences with the grantee.
The most aggressive approach ACF can take to ensure that a community is
served by a Head Start grantee with sound financial management is to
seek a new grantee if the current grantee cannot perform as expected.
However, we found that ACF rarely terminates its relationships with
poorly-performing grantees. Instead, ACF said that, in lieu of
terminating a poorly performing grantee, it will try to convince such a
grantee to voluntarily relinquish its right to its grant. When ACF does
undertake the protracted process of terminating its relationship with a
grantee, the grantee will continue to receive funding even if it
appeals ACF's decision--regardless of the appeal's merits. Under ACF's
current regulations, it must also fund a grantee's legal costs until
the grantee has exhausted its appeals before HHS' Departmental Appeals
Board. According to an Administrative Judge on the Appeals Board, no
other HHS grant program except Head Start allows grantees to continue
receiving funding throughout the appeals process.
When ACF decides to award a grant, the Head Start Act requires that ACF
give priority to grantees already operating a Head Start program in
that community. This aspect of the law provides important continuity
for Head Start services in a community. It also provides important
stability for grantees. However, the act allows the Secretary to deny
priority to any grantee the Secretary finds fails to meet the program's
performance or financial management requirements. Denial of priority
status to current Head Start grantees would open up the possibility of
competition for the grant among other qualified applicants. ACF could
seek a new grantee that can demonstrate the ability to manage federal
funds responsibly, in accordance with program rules, and that can
provide high-quality Head Start services to eligible children in the
community. Obviously, denying priority status to a grantee that has
been a part of a community for years, has educated multiple generations
of children from that community, and has employed a number of staff
from the community is a major step that should be taken after carefully
considering all available options. But, denial of priority status is a
step that ACF should take if a grantee fails to make the necessary
changes to effectively manage its program. Ultimately, enforcing all
the program's requirements--especially financial management
requirements--is really about strengthening our commitment to future
generations of children, seeking better ways of managing scarce federal
resources, and making sure that we reach as many eligible families as
possible.
We made 8 recommendations in our report to improve the overall
management of the Head Start program, strengthen the tools ACF uses to
collect useful information on its grantees, and improve ACF's analysis
of the information it collects. Specifically we recommended that the
Assistant Secretary for Children and Families:
* Produce a comprehensive risk assessment of the Head Start program and
update it periodically. Such an assessment should:
* Consider plans to collect data on and estimate the extent of improper
payments made for unallowable activities, payments to grantees that are
significantly underenrolled, or other unauthorized activities,
* Aim to improve the processes ACF currently uses to collect and
analyze information on program risks; for example, ACF should:
* Train and/or certify its on-site reviewers to ensure they have the
skills and knowledge necessary to perform their responsibilities,
* Develop an objective approach for regional office management to use
in assessing the severity of the problems identified during on-site
reviews and for finding grantees deficient or not, 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.
* Verify key data from the annual survey of grantees to enhance the
usefulness of this data in overseeing its grantees and managing the
program, and:
* Seek ways to make greater use of the data it collects on the status
and use of federal funds through a periodic reconciliation of grantees'
reported expenditures with their withdrawals.
* Take steps to obtain competition for a grant if ACF has determined
that the current grantee fails to meet program, financial management,
or other requirements. Such a competition could be held without giving
priority to the current grantee.
ACF agreed to implement most of our recommendations. However, ACF
expressed concerns about our last recommendation, suggesting that it
did not have the authority to seek competition from other qualified
applicants for grant funds in communities that are currently served by
poorly performing grantees without first terminating its relationship
with such grantees. Seeking other qualified applicants under these
circumstances would strengthen the linkages between a program's
performance--including financial management--and its funding. Congress
may wish to seek other qualified applicants and clarify the extent of
ACF's authority to deny priority status to grantees it determines fail
to meet program, financial management, and other requirements.
Mr. Chairman, that concludes my prepared statement. At this time, I
would be happy to take any questions you or other Committee Members may
have.
GAO Contact and Staff Acknowledgments:
For more information regarding this testimony, please call Marnie S.
Shaul at (202) 512-7215. Individuals making key contributions to this
testimony include Betty Ward-Zukerman, Bill J. Keller, Mark Ward, and
Neal Gottlieb of our Education, Workforce and Income Security Team; Kim
Brooks, Diane Morris, and Gabrielle Fagan of our Financial Management
and Assurance Team; Curtis Groves of our Applied Research and
Methodology Team; and Richard Burkard and James Rebbe of our General
Counsel.
FOOTNOTES
[1] GAO, Head Start, Comprehensive Approach to Identifying and
Addressing Risks Could Help Prevent Grantee Financial Management
Weaknesses, GAO-05-176 (Washington, D.C.: Feb. 28, 2005).
[2] The data base for on-site reviews, PRISM, contains both grantees
and grantees with any delegate agencies reviewed. The data presented in
this section contains both types of entities. When we analyzed the
grantees separately, we obtained the same results about percentages of
grantees that were non-compliant and had recurrent problems in their
next review.
