Grants Management
Attention Needed to Address Undisbursed Balances in Expired Grant Accounts Gao ID: GAO-08-432 August 29, 2008In 2006, the subcommittee concluded there was a need for increased accountability and transparency for unspent funds in federal programs and agencies, and requested GAO review the status of balances not drawn down by grantees by the time the grants' period of availability had ended. GAO was asked to answer these questions: (1) to what extent are there undisbursed grant balances in expired grant accounts and do they share any program characteristics?; and (2) do these expired grants share grant management challenges and how have federal agencies improved grant closeout and diminished undisbursed balances? To do this, GAO analyzed grant balance data from the largest federal grant payment system; reviewed grant management problems and corrective actions from more than 150 audit reports; and reviewed guidance from the Office of Management and Budget (OMB) and the Code of Federal Regulations.
During calendar year 2006, about $1 billion in undisbursed funding remained in expired grant accounts in the largest civilian payment system for grants--the Payment Management System (PMS). PMS is administered by the Department of Health and Human Services and makes payments for about 70 percent of grants and for 12 federal entities. Undisbursed funding is funding the federal government has obligated through a grant agreement, but which the grantee has not entirely spent. Among all of the expired grant accounts in PMS that remained open, these undisbursed funds typically represented about 1 percent of the total funds originally made available for these grants--meaning grantees had spent most of their available funds. However, when expired grant accounts with no funds remaining were excluded and the focus was narrowed to just expired grant accounts with undisbursed balances, GAO found the amount of undisbursed funding represented, on average, about 26 percent of the original funding made available. The expired but still open grant accounts were associated with thousands of grantees and over 325 different federal programs. GAO also found that expired grant accounts with the largest undisbursed balances in PMS for calendar years 2003 through 2006 shared a few common program characteristics. However, the results could not be compared to program characteristics for all closed federal grants or all closed grants using PMS, during this period, due to the burden of collecting comparable data for all closed federal grants from eight other federal civilian payments systems or for all closed grants from PMS. Past audits of federal agencies by GAO and Inspectors General and annual performance reports by at least 8 federal agencies in 2006 and 2007 suggested that grant management challenges including grant closeouts and undisbursed balances are a long-standing problem. Closeout procedures ensure grantees have met all financial requirements, provided final reports, and that unused funds are deobligated. The audits generally attributed the problems to inadequacies in awarding agencies' grant management processes, including closeouts as a low management priority, inconsistent closeout procedures, poorly timed communications with grantees, or insufficient compliance or enforcement. However, when federal agencies, such as the Departments of Health and Human Services and Justice, and the Environmental Protection Agency, took corrective actions, there were improvements in grant closeouts and resolution of undisbursed funding. The actions taken by these three agencies generally focused on making grant closeouts a higher agency management priority, as noted in their recent performance reports, and on improving overall closeout processing. Using federal payment systems to track undisbursed funding in expired grant accounts and including the status of grant closeouts in annual performance reports could raise the visibility of the problem both within the agency and governmentwide, and lead to improvements in grant closeouts and minimize undisbursed balances. OMB circulars do not currently require federal agencies to track and report on undisbursed funding in expired grant accounts.
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-08-432, Grants Management: Attention Needed to Address Undisbursed Balances in Expired Grant Accounts
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Report to the Subcommittee on Federal Financial Management, Government
Information, Federal Services, and International Security, Committee on
Homeland Security and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
August 2008:
Grants Management:
Attention Needed to Address Undisbursed Balances in Expired Grant
Accounts:
GAO-08-432:
GAO Highlights:
Highlights of GAO-08-432, a report to the Subcommittee on Federal
Financial Management, Government Information, Federal Services, and
International Security, Committee on Homeland Security and Governmental
Affairs, U.S. Senate.
Why GAO Did This Study:
In 2006, the subcommittee concluded there was a need for increased
accountability and transparency for unspent funds in federal programs
and agencies, and requested GAO review the status of balances not drawn
down by grantees by the time the grants‘ period of availability had
ended. GAO was asked to answer these questions: (1) to what extent are
there undisbursed grant balances in expired grant accounts and do they
share any program characteristics?; and (2) do these expired grants
share grant management challenges and how have federal agencies
improved grant closeout and diminished undisbursed balances? To do
this, GAO analyzed grant balance data from the largest federal grant
payment system; reviewed grant management problems and corrective
actions from more than 150 audit reports; and reviewed guidance from
the Office of Management and Budget (OMB) and the Code of Federal
Regulations.
What GAO Found:
During calendar year 2006, about $1 billion in undisbursed funding
remained in expired grant accounts in the largest civilian payment
system for grants”the Payment Management System (PMS). PMS is
administered by the Department of Health and Human Services and makes
payments for about 70 percent of grants and for 12 federal entities.
Undisbursed funding is funding the federal government has obligated
through a grant agreement, but which the grantee has not entirely
spent. Among all of the expired grant accounts in PMS that remained
open, these undisbursed funds typically represented about 1 percent of
the total funds originally made available for these grants”meaning
grantees had spent most of their available funds. However, when expired
grant accounts with no funds remaining were excluded and the focus was
narrowed to just expired grant accounts with undisbursed balances, GAO
found the amount of undisbursed funding represented, on average, about
26 percent of the original funding made available. The expired but
still open grant accounts were associated with thousands of grantees
and over 325 different federal programs. GAO also found that expired
grant accounts with the largest undisbursed balances in PMS for
calendar years 2003 through 2006 shared a few common program
characteristics. However, the results could not be compared to program
characteristics for all closed federal grants or all closed grants
using PMS, during this period, due to the burden of collecting
comparable data for all closed federal grants from eight other federal
civilian payments systems or for all closed grants from PMS.
Past audits of federal agencies by GAO and Inspectors General and
annual performance reports by at least 8 federal agencies in 2006 and
2007 suggested that grant management challenges including grant
closeouts and undisbursed balances are a long-standing problem.
Closeout procedures ensure grantees have met all financial
requirements, provided final reports, and that unused funds are
deobligated. The audits generally attributed the problems to
inadequacies in awarding agencies‘ grant management processes,
including closeouts as a low management priority, inconsistent closeout
procedures, poorly timed communications with grantees, or insufficient
compliance or enforcement. However, when federal agencies, such as the
Departments of Health and Human Services and Justice, and the
Environmental Protection Agency, took corrective actions, there were
improvements in grant closeouts and resolution of undisbursed funding.
The actions taken by these three agencies generally focused on making
grant closeouts a higher agency management priority, as noted in their
recent performance reports, and on improving overall closeout
processing. Using federal payment systems to track undisbursed funding
in expired grant accounts and including the status of grant closeouts
in annual performance reports could raise the visibility of the problem
both within the agency and governmentwide, and lead to improvements in
grant closeouts and minimize undisbursed balances. OMB circulars do not
currently require federal agencies to track and report on undisbursed
funding in expired grant accounts.
What GAO Recommends:
GAO recommends OMB instruct all executive departments and independent
agencies to track undisbursed balances in expired grant accounts and
report on the resolution of this funding in their annual performance
plan and Performance and Accountability Reports. OMB said it supported
the intent of our recommendations but did not specify whether it would
implement them.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-432]. For more
information, contact Stanley L. Czerwinski at (202) 512-6806 or
czerwinskis@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Undisbursed Balances in Expired Grant Accounts in PMS Were about $1
Billion during 2006:
Grant Closeout Problems Attributed to Several Causes but Can Be
Mitigated:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, Methodology, and Additional Information
on Program Characteristics:
Appendix II: Federal Agencies Using PMS:
Appendix III: Comments from the Office of Management and Budget:
Appendix IV: GAO Contact and Staff Acknowledgments:
Abbreviations:
AHRQ: Agency for Healthcare Research and Quality, Department of Health
and Human Services:
CFDA: Catalog of Federal Domestic Assistance:
CFR: Code of Federal Regulations:
CMIA: Cash Management Improvement Act:
CNS: Corporation for National and Community Service:
DHS: Department of Homeland Security:
DOE: Department of Energy:
DOI: Department of the Interior:
DOJ: Department of Justice:
DOL: Department of Labor:
DOS: Department of State:
DOT: Department of Transportation:
DPM: Division of Payment Management, Department of Health and Human
Services:
EOP: Executive Office of the President:
EPA: Environmental Protection Agency:
GAN: Grant Adjustment Notice:
GMS: Grants Management System:
GOALS: Government On-Line Accounting Link System:
GPRA: Government Performance and Results Act of 1993:
GSA: General Services Administration:
HHS: Department of Health and Human Service:
HRSA: Health Resources and Services Administration, Department of
Health and Human Service:
HUD: Department of Housing and Urban Development:
IG: Inspector General:
NASA: National Aeronautics and Space Administration:
NASACT: National Association of State Auditors, Comptrollers and
Treasurers:
NGMA: National Grants Management Association:
NIH: National Institutes of Health, Department of Health and Human
Service:
OIG: Office of the Inspector General:
OJP: Office of Justice Program, Department of Justice:
OMB: Office of Management and Budget, Executive Office of the
President:
ONDCP: Office of National Drug Control Policy, Executive Office of the
President:
PAR: Performance and Accountability Report:
PMS: Payment Management System:
SSA: Social Security Administration:
TANF: Temporary Assistance for Needy Families:
USAID: The United States Agency for International Development,
Department of State:
U.S.C.: United States Code:
USDA: Department of Agriculture:
VA: Department of Veterans Affairs:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
August 29, 2008:
The Honorable Tom Carper:
Chairman:
The Honorable Tom Coburn, M.D.
Ranking Member:
Subcommittee on Federal Financial Management, Government Information,
Federal Services, and International Security:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The federal government's reliance on grants to achieve national
objectives and respond to significant trends, such as an aging
population and changing threats to national security, has grown
significantly. According to Office of Management and Budget (OMB)
estimates, from 2000 through 2006, federal grant awards to nonfederal
entities, such as states and nonprofit organizations, increased from
$300 billion to over $450 billion.[Footnote 1] Grants now represent
about one-sixth of the federal budget. If even a small fraction of
total grant funding is not spent in a prudent and timely fashion, it
can create potential problems for the federal government. The existence
of unspent funds can hinder the achievement of national objectives in
various ways, such as leaving projects incomplete, preventing the
reallocation of scarce resources to address other needs, or making
federal funds more susceptible to improper spending or accounting as
monitoring diminishes over time. In times of constrained resources, it
is vital for federal agencies to maximize the performance of their
programs in order to meet long-term goals.
In the spring of 2006, your subcommittee concluded there was a need for
increased accountability and transparency for unspent funds in federal
programs and agencies. You requested that we review the status of grant
funds that grantees had not drawn down by the time the grants' period
of availability had ended (i.e., "expired"). To respond to your
request, we identified and analyzed data from the largest federal
civilian grant payment management system--accounting for about 70
percent of federal disbursements to grantees in 2006--to focus on
agency-level grant accounts that remained open after their expiration
date (hereafter, referred to as "expired grant accounts") and had
unspent funds in the form of undisbursed balances. Undisbursed balances
are funds that the federal government has obligated by entering into a
grant agreement, but the grantee has not drawn down ("disbursed").
These funds were obligated from the federal perspective. However, once
the grant's period of availability to the grantee has expired, the
grant could be closed out and the funds deobligated by the awarding
agency. Grant closeout procedures ensure that grantees have met all
financial requirements, provided their final reports, and returned any
undisbursed balances.
Based on your request, this report answers these questions: (1) to what
extent are there undisbursed grant balances in expired grant accounts
and do they share any program characteristics?; and (2) do these
expired grants share grant management challenges and what actions have
federal agencies taken to improve grant closeout and diminish
undisbursed balances?
To address our objectives, we analyzed data on undisbursed balances in
expired agency grant accounts and reviewed federal regulations, audit
reports, and annual performance reports relating to grant closeouts. To
identify the status of undisbursed balances in expired grant accounts,
we collected and analyzed 4 calendar years (from 2003 through 2006) of
quarterly payment data for grants with defined spending periods that
executed payments through the Department of Health and Human Services'
(HHS) Payment Management System (PMS). PMS is the largest of the nine
civilian federal payment systems. In 2006, it handled about 70 percent
of all federal grant disbursements. As of August 2007, PMS provided
payment services to nine federal departments, an independent agency, a
government corporation, and the Office of National Drug Control Policy
(ONDCP) within the Executive Office of the President. [Footnote 2]We
used program information from the Catalog of Federal Domestic
Assistance (CFDA) to identify key program characteristics that were
associated with the expired grant accounts in PMS. We analyzed payment
data for expired grant accounts in PMS, from 2003 through 2006, as a
complete set of current PMS customers, rather than analyzing specific
federal agencies or grant programs. To identify federal guidelines on
grant closeouts, we reviewed related OMB circulars and agency
regulations. To identify federal guidelines on performance reporting we
reviewed related OMB circulars. To identify what other auditors found
and recommended as strategies to diminish unspent funds in expired
grant accounts, we conducted a Web-based literature search for related
audit reports and reviewed over 150 reports that we and various federal
Inspectors General (IG) issued from 2000 through 2007, and contacted
officials from several federal IG offices. [Footnote 3]In addition, we
reviewed the 2006 and 2007 Performance and Accountability Reports (PAR)
for 15 cabinet-level executive departments and the Environmental
Protection Agency (EPA). [Footnote 4]
Appendix I provides more information on our methodology and on PMS and
CFDA. We conducted this performance audit from October 2006 to June
2008, in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Results in Brief:
During calendar year 2006, about $1 billion in undisbursed funding
remained in expired grant accounts in the largest of the nine federal
civilian payment systems--HHS's Payment Management System (PMS), which
serves offices from 12 federal departments and agencies and accounts
for about 70 percent of all federal grant disbursements. [Footnote 5]
While this was a significant amount of undisbursed funding, it did not
mean grantees using PMS were not spending most of their grant funding.
This balance represented about 1 percent of the total funds made
available for all expired grant accounts in PMS during 2006. When we
excluded the expired grant accounts with no funds remaining from our
data analysis and narrowed our focus just to those accounts with
remaining undisbursed balances, we found that, in 2006, the amount of
undisbursed funding represented, on average, about 26 percent of the
original funding made available.[Footnote 6] Expired grant accounts
with undisbursed funds were not confined to a few federal awarding
agencies, grant programs, or grantees. Rather these accounts were
associated with thousands of grantees in over 325 different federal
grant programs. We also found that expired grant accounts with the
largest undisbursed balances in PMS for calendar years 2003 through
2006 shared a few common program characteristics. However, the results
could not be compared to program characteristics for all closed federal
grants or all closed grants using PMS, during this period, due to the
burden of collecting comparable data for all closed federal grants from
eight other federal civilian payments systems or for all closed grants
from PMS.
Taken together, dozens of past audit reports we reviewed from multiple
agencies[Footnote 7] and the 2006 and 2007 Performance and
Accountability Reports for at least three federal agencies--EPA, HHS,
and DOJ--suggested that undisbursed balances in expired grant accounts
were a long-standing challenge and that these grants shared common
grants management problems. The audits generally attributed the
problems to inadequacies in the awarding agencies' grant management
processes, including closeouts as a low management priority,
inconsistent closeout procedures, poorly timed communications with
grantees, or insufficient compliance or enforcement. Yet when agencies
such as HHS, DOJ, and EPA made concerted efforts to address the
problem, IGs and auditors reported the agencies were able to improve
the timeliness of grant closeouts and decrease the amount of
undisbursed funding in expired grant accounts. The approaches taken by
the agencies administering the grants generally focused on elevating
timely grant closeouts to a higher agency management priority and on
improving overall closeout processing.
Recognizing the potential effect on performance in the area of
financial management, several federal agencies have elevated this issue
as a management challenge in their annual performance plans and PARs.
Current OMB circulars do not instruct federal departments and agencies
to track and report on expired grants and undisbursed grant funding.
Given the federal government's constrained fiscal position, it seems
appropriate to minimize the amount of undisbursed funding remaining in
expired grant accounts. Our analysis of the PMS data showed that a
federal payment data system can track undisbursed funding and the
amounts of undisbursed funding can be substantial. In addition, our
analysis of audit reports and agency PARs showed that when agencies
paid attention to grant closeouts, improvements were made and
undisbursed balances were reduced. All federal civilian departments and
agencies could annually track and report this information, if OMB
provided governmentwide instructions. Therefore, we recommend that the
Director, OMB, instruct all executive departments and independent
agencies to take the following two actions: (1) annually track the
amount of undisbursed grant funding remaining in expired grant
accounts; and (2) report on the status and resolution of the
undisbursed funding in their annual performance plan and in their
annual PAR.
In commenting on our draft report, OMB said it supported the intent of
our recommendations but did not commit to implementing them through its
grants management guidance. OMB did not favor requiring agencies to
report these balances in their PARs. Given that such reporting has
raised the internal and external visibility of the issue of undisbursed
balances in expired grant accounts and agencies have improved their
performance, we continue to believe that the PARs would be appropriate
vehicles to address the issue on a governmentwide basis.
Background:
The federal government uses grants, along with other policy tools, such
as direct services and loans, to achieve national priorities through
nonfederal parties, including state and local governments, educational
institutions, and nonprofit organizations. The federal government uses
grants[Footnote 8] to implement over 1,200 different programs through
over 28 federal departments and agencies. These programs awarded
funding to over 60,000 grantees. The Catalog of Federal Domestic
Assistance (CFDA) provides descriptions of these grant programs, as
well as other domestic assistance programs.[Footnote 9]
The design and implementation of federal grants varies. For example,
grant programs generally use one of three ways to award funding to
grantees. Formula grants award funds based on distribution formulas
prescribed by legislation or regulation. Project grants generally award
funding for specific periods or specific projects, products, or
services. As a third method, some grant programs award funds using a
hybrid of formula and project-based awarding methods. In addition,
federal agencies use a variety of organizational approaches to
implement grant programs. Some agencies administer many grants through
multiple, decentralized components, while other agencies have small,
centralized grant-making offices that administer only a few grant
programs.
Federal grants are typically subject to a wide range of requirements
derived from a combination of program statutes, agency regulations, and
other guidance. They are also subject to many crosscutting requirements
that apply to most federal assistance programs, including statutory
provisions applicable to recipients of federal funds and administrative
requirements such as audit and record keeping and the allowability of
costs.
As a general rule, grant programs are governed by detailed legislation
as well as implementing regulations issued by the responsible agency.
Prior to 1988, each agency issued regulations to govern its grant
management, and OMB Circular No. A-102, Grants and Cooperative
Agreements With State and Local Governments, also provided some
governmentwide guidance for grants to state and local governments. OMB
Circular No. A-110, Uniform Administrative Requirements for Grants and
Agreements With Institutions of Higher Education, Hospitals, and Other
Non-Profit Organizations, provided some guidance for grants to other
types of grantees like hospitals and other nonprofit institutions. In
1987, a memorandum from the President directed OMB to revise Circular
No. A-102 to specify uniform, governmentwide terms and conditions for
grants to state and local governments, and directed executive branch
departments and agencies to propose and issue common regulations
adopting these terms and conditions verbatim, modified where necessary
to reflect inconsistent statutory requirements. Pursuant to this
direction, the first iteration of what has come to be known as the
"common rule" system was published on June 9, 1987.
There are currently a number of OMB circulars on grants, which provide
guidance only to federal (grantor) agencies; they do not apply directly
to grantees. Therefore, each federal agency has issued largely
identical sets of regulations that prescribe requirements that are
binding on their grantees. These regulations are referred to as the
"common rules." Each agency's common rule regulations are codified in
the Code of Federal Regulations.
Grant programs also share a common life cycle for administering the
grants: announcement of grant opportunity, application, award,
postaward, and closeout. During the award stage, the federal awarding
agency enters into an agreement with the grantee. The grant agreement
stipulates the terms and conditions for the use of grant funds such as
the period of time funds are available for the grantee's use, as noted
by a start and end date. In addition, the awarding agency establishes
an account in a federal payment system to execute payments to the
grantee.[Footnote 10]
During the postaward stage, the grantee carries out the requirements of
the agreement and requests payments, while the awarding agency approves
payments and oversees the grantee. The Payment Management System (PMS),
operated by HHS, went online in 1984 and, as of 2006, was the largest
of the nine civilian federal payment systems. The system, which handled
about 70 percent of all federal grant disbursements in 2006, serves
nine federal departments, an independent agency, a government
corporation, and ONDCP. Appendix I provides a description of PMS and
appendix II provides a recent list of department-and agency-level PMS
customers. According to HHS, PMS is a full-service centralized grants
payment and cash management system. The system is fully automated to
receive payment requests, edit them for accuracy and content, transmit
the payment to either the Federal Reserve Bank or the U.S. Treasury for
deposit into the grantee's bank account, and record the payment
transactions and corresponding disbursements to the appropriate
accounts. Federal agencies pay HHS a service fee for maintaining
accounts and executing payments through PMS. PMS continues to charge
agency customers a servicing fee until an account is closed.
When the grantee has completed all the work associated with a grant
agreement or the end date for the grant has arrived, or both, the
awarding agency and grantee close out the grant. Closeout procedures
ensure that grantees have met all financial requirements, provided
their final reports, and returned any unexpended balances. To close out
a grant, federal regulations generally require that the:
* awarding agency ensures the grantee has completed all work and
administrative requirements;
* grantee settles (liquidates) all obligations 90 days after grant end
date;
* grantee submits all final financial, performance, and other reports
within 90 days of grant end date; and:
* grantee requests an extension of the reporting deadline from the
awarding agency, if required.
These requirements apply when the awarding agency has specified a
funding period for the grant (a start and end date) and has prohibited
the grantee from having carryover balances. In this report, we refer to
grants that were not closed after their end date as "expired" grants
and PMS grant accounts that remained open after the grant's end date as
"expired grant accounts."
PMS issues a quarterly report to its customers, referred to as the
"closeout report," listing expired grant accounts that remain open, and
for each account includes data on the funds made available and the
amount of funds disbursed (i.e., "drawn down" or"charged"). GAO
recommended HHS develop and distribute this type of report in 1987.
[Footnote 11] HHS lists an account on a quarterly PMS closeout report
if the end date for the account was 3 months old and there was no
disbursement in the preceding 9 months.
The closeout is an important grant management procedure because it is
the final point of accountability for grantees. An undisbursed balance
in an expired grant account can be an indication of a potential grant
management problem. Grantees that do not expend their funding may not
be meeting the program objectives for the intended beneficiaries. These
balances may also suggest that awarding agencies or grantees, or both,
may not be managing the funding efficiently or effectively. Effective
grants management, including the completion of grant closeout,
increases the likelihood that awarded grants contribute to agency
goals.
An agency or grant program office can track its performance in closing
grants and other grant management procedures using a variety of
measures. In this report, we use the amount of undisbursed funding to
assess one aspect of the performance of the expired grants--their
financial status. Other types of measures track other aspects of
performance, such as the grants' service quality and customer
satisfaction. The amount of undisbursed funding measures the amount of
funds remaining potentially available for deobligation.
Agencies report to the President and Congress regarding their strategic
plans and actual program performance, including, among other things,
progress on improving grants management and other management
initiatives under the auspices of the Government Performance and
Results Act of 1993 (GPRA). GPRA is part of a statutory framework that
seeks to create a more focused, results-oriented management and
decision-making process within both Congress and the executive branch.
The act requires federal agencies to develop strategic plans with long-
term strategic goals, annual goals linked to achieving the long-term
goals, and annual reports on the results achieved. An agency's annual
performance plan contains the annual performance goals and associated
measures for its programs, as well as mission-critical management
problems identified by the administration, the agency's financial
audit, and other agency assessments. An agency's annual performance
report compares its performance against its goals, summarizes the
findings of program evaluations completed during the year, and
describes the actions needed to address any unmet goals. OMB is
responsible for providing guidelines to agencies on preparing their
plans and reports, and for receiving and reviewing agencies' strategic
plans, annual performance plans, and annual performance reports.
Currently, most agencies report on their annual performance in their
PAR. OMB Circular No. A-11, Preparation, Submission and Execution of
the Budget, provides guidelines on the content of the performance
accountability portion of the PAR, while Circular No. A-136, Financial
Reporting Requirements, provides guidance on the content of the
financial accountability portion of the PAR.
Undisbursed Balances in Expired Grant Accounts in PMS Were about $1
Billion during 2006:
In our review of the closeout data for expired grants that executed
payments through HHS's PMS, we found the quarterly amount of
undisbursed funding reported as remaining in expired grant accounts
increased from about $600 million in 2003 to about $1 billion during
2006.[Footnote 12] These balances typically represented about 1 percent
of the total funds made available for all expired grants in PMS during
this period. This proportion included expired grant accounts with a
zero undisbursed balance (no undisbursed funding) and expired grant
accounts with a positive undisbursed balance (undisbursed funds
remaining). Once we excluded expired grant accounts with a zero balance
from the calculation and narrowed our focus solely to expired grant
accounts with undisbursed balances, the proportion of undisbursed
funding relative to total funds made available increased substantially.
Among this smaller set of expired grant accounts, we found the
undisbursed funding ranged between an average of 14 and 26 percent of
the total funds made available for these grants. We found that, among
PMS customers, numerous federal agencies and grant programs had expired
grant accounts containing undisbursed funds.
Expired Grant Accounts with Undisbursed Balances Had Not Spent between
an Average of 14 and 26 Percent of Funds Made Available:
When we analyzed the quarterly PMS closeout data for 2003 through 2006,
we identified two sets of expired grants accounts. One set consisted of
expired grant accounts for which all of the funds made available had
been disbursed, but still had not been closed. As stated earlier, grant
accounts remain open in PMS, and HHS continues to charge service fees
to the awarding agencies for maintaining accounts and executing
payments, until the awarding agencies indicate to HHS that the account
can be closed. Thus, even though all grant funds have been disbursed,
these grant accounts are continuing to cost the awarding agency through
accumulated PMS service fees.[Footnote 13] Moreover, the presence of
expired grant accounts at the awarding agency suggests more than a
minor administrative oversight. It suggests that the final point of
accountability for these grants, which includes such important tasks as
the submission of financial and performance reports, was not completed.
We identified a second set of accounts that included those expired
accounts reported as still having an undisbursed balance.[Footnote 14]
On the basis of our review of expired grant accounts with undisbursed
balances, we found that, from March 2003 through March 2005, the
quarterly totals of undisbursed funding ranged between an average of 14
and 16 percent of the funding made available for the grants. However,
from June 2005 through December 2006, the quarterly balances of
undisbursed funding for these expired grants was near $1 billion,
ranging between an average of 24 and 26 percent of the funds made
available. These results are for grant accounts with specific time
limits and do not include grant accounts that do not have specific time
limits, such as TANF or Medicaid, because without a specific time
limit, the grants, once awarded, do not expire. The PMS closeout data
results described in the remainder of this report only pertain to the
set of expired grant accounts with undisbursed balances, unless
otherwise noted.
Numerous Grant Programs Had Expired Grant Accounts Containing
Undisbursed Funds:
As stated previously, in 2006 PMS was the largest of the nine federal
payment systems, handled about 70 percent of federal grant
disbursements, and served nine federal civilian departments, an
independent agency, a government corporation, and ONDCP. In analyzing
the expired grant accounts with undisbursed balances in the PMS
closeout data from 2003 through 2006, we found these accounts were not
confined to a few federal awarding agencies, grant programs, or
grantees. Instead we found, in 15 of the 16 quarters, at least four of
the federal departments using PMS had over 100 expired grant accounts
with undisbursed funding. Lastly, we found that over 325 different
programs administered the expired grant accounts with undisbursed
funding and that thousands of grantees were associated with these
grants.[Footnote 15]
We analyzed the quarterly balances of undisbursed funding over 4
calendar years, from 2003 through 2006, according to four program
characteristics: size of the funding originally made available to the
grantee; whether program funding was awarded based on a formula or on a
project basis; the grantee organization (entity) receiving the grant;
and whether the program required the grantee to make a contribution to
support the grant activity. We selected these four characteristics
because they are fundamental elements of grant design that could be
readily analyzed using the information from the PMS and the CFDA data
sets.
When we compared the undisbursed balances among the types within each
of the four program characteristic categories, we found, for the first
three characteristics, certain types of grants consistently had the
largest quarterly balances. We found the largest quarterly balances of
undisbursed funding to be consistently among expired grant accounts
that had neither the smallest nor the largest funding awards, but
rather in the mid-range of funding awards--that is, with funding awards
from over $100,000 to $100 million. We found accounts with program
funding awarded on a project basis had the largest undisbursed balances
compared to those awarded on a formula basis. Lastly, we also found
accounts with grants awarded to a state organization consistently had
the largest undisbursed balances compared to other types of grantees.
However, these results cannot be compared to the program
characteristics of all closed federal grants or closed grants with
payments processed through PMS from 2003 through 2006, due to the
burden of collecting comparable data from eight other federal civilian
payments systems or for all closed grants in PMS. Without comparative
data, we cannot know whether the program characteristics for these
expired grant accounts represented a disproportionate share, compared
to all closed federal grants or all closed grants in PMS. Appendix I
provides further information on our methodology and program
characteristics findings.
Grant Closeout Problems Attributed to Several Causes but Can Be
Mitigated:
In our review of past audit reports, we observed that the reports
generally focused on expired grants in specific agencies or grant
programs. We also found that, when taken together, they suggested the
presence of undisbursed balances in expired grant accounts was a long-
standing problem. We and agency Inspectors General (IG) have reported
for years that specific grant programs or awarding agencies have had
expired grant accounts with undisbursed funding. Moreover, by
synthesizing the observations from these reports, we found that these
grants shared common grants management problems. In recent years, three
federal agencies, the Department of Justice's (DOJ) Office of Justice
Programs (OJP), HHS's National Institutes of Health (NIH), and the
Environmental Protection Agency (EPA), have made concerted efforts to
improve their grant closeout processes. In 2006 and 2007, several
auditors highlighted grants management problems as mission critical in
their agency's Performance Accountability Report (PAR). In 2006, EPA
went further and reported a financial performance measure to track the
agency's progress in closing grants.
Several Grant Management Issues Contribute to Closeout Problems:
We have reported that the timely closeout of expired grants was a
problem at various agencies over the past three decades.[Footnote 16]
In two recent examples, we reported that the State Department's (DOS)
United States Agency for International Development (a PMS customer) did
not routinely follow prescribed closeout processes to identify and
recover inappropriate expenditures or undisbursed funds[Footnote 17]
and that EPA (an agency that does not use PMS) closed out only 37
percent of grants in fiscal year 2005 within 180 days after the grant
project ended as required by its own policy.[Footnote 18] IG reports
identified a variety of awarding agencies or programs with closeout
problems dating back to 2000. Maintaining undisbursed balances in
expired grant accounts may prevent the deobligation of funding or
expose the funding to improper spending or accounting. For example, the
DOJ Office of Inspector General (OIG) reported in 2006 that $172
million in undisbursed funding could have been deobligated and that
several million dollars in funding used from expired grant accounts was
either unallowable or unsupportable.
Audit reports identified several awarding agencies or programs with
closeout problems. They generally attributed the problems to
inadequacies in awarding agencies' grant management processes,
including closeouts as a low management priority, inconsistent closeout
procedures, poorly timed communications with grantees, or insufficient
compliance or enforcement. While we reviewed several audit reports
examining closeout problems, this section summarizes examples from an
HHS OIG and DOJ OIG report, and a GAO report on EPA--all issued within
the last 3 years.
Auditors indicated that grant closeouts were a low priority, at either
the grantee organization or federal agency, which contributed to delays
in grant closeouts. The audit reports described closeouts as a low
priority in the context of staff-related issues. NIH and EPA reported
that grantee staff resources were limited, staff were overburdened with
other responsibilities, and staff considered grant closeout a low
priority. NIH, DOJ, and EPA officials reported similar problems among
agency grant staff. Staff turnover, at either the agency or the grantee
organization, also led to lapses in the supervision of grants and the
transfer of grant-specific information to new staff. Agency staff also
reported that delaying grant closeout added to staff workload. For
instance, NIH and EPA reported that as time elapsed it became more
burdensome for staff to close out an expired account.
Auditors noted that grant offices did not always have consistent grant
closeout procedures, such as due dates for closeout completion. For
example, we reported that EPA used closeouts to ensure that grant
recipients had met all financial requirements and had provided final
reports, and that any unexpended balances were returned to the agency.
EPA's policy stated that closeouts should occur within 180 days after
the grant's project end date. However, agency officials did not always
comply with this policy--in fiscal year 2005 EPA closed out only 37
percent of the grants within 180 days. In its 2006 report, the DOJ OIG
reported that two of the three DOJ grant offices had a deadline for
closing out grants, while the third office did not; that each of the
three DOJ grant offices conducted the closeouts process differently;
and that each office had undefined and undocumented "workarounds" that
had evolved over time.
Auditors reported that agency communication with grantees, either the
content or the timing of the communication, also delayed grant
closeouts. The communication of inconsistent policies and procedures
contributed to grantee confusion, especially for grantees who work with
multiple federal programs of offices. For instance, DOJ reported OJP
grantees, especially those who dealt with multiple offices, were
confused by the variation in language, time frames, requirements, and
communications. Auditors found the mistiming of the agency closeout
reminders, or the lack of such reminders, also contributed to delays in
report submissions. For example, NIH reminded its grantees about their
closeout reporting a year ahead of time, too far ahead to serve as a
timely reminder.
Lastly, auditors also noted awarding agencies were not enforcing their
closeout requirements through the application of controls, corrective
actions, or penalties. For example, EPA grant officials told GAO they
had no realistic options for taking strong action against grantees,
usually state governments, for submitting late reports because the
states had continuing grants for environmental programs. The HHS OIG
found NIH program guidelines provided few specifics about what type of
corrective actions were appropriate and when the grant office should
apply the actions. The OIG noted that NIH grant offices could impose
special award conditions on the grantees, such as additional monitoring
or withhold future funding. However, the OIG found that grant officials
rarely resorted to withholding future funding from a grantee due to
late closeout because agency officials thought this penalty too severe
and would slow down future project development.
Three Agencies Took Action to Improve Grant Closeouts:
In response to auditors' concerns, three federal agencies, DOJ's OJP,
HHS's NIH, and EPA, undertook actions to improve their grant closeout
processes. To varying degrees, the agencies' actions included elevating
grant closeouts to a higher agency priority in order to improve
monitoring, standardization of procedures, communications with
grantees, compliance, or enforcement, or a combination of the above.
Auditors reported that when federal grant managers took these actions,
agencies generally improved the timeliness of grant closeouts, reduced
grant closeout backlogs, or improved their ability to identify and
deobligate unspent funds from expired grants, or a combination of the
above.
In 2000, DOJ's OJP initiated a pilot project called "Operation
Closeout" to deal with grant closeout backlogs. The agency reported
that this initiative accelerated the grant closeout process through
revised closeout guidelines and elevated the importance of the closeout
function as a required procedure in the administration of grants. Over
a period of 6 months, "Operation Closeout" closed 4,136 grants,
resulting in over $30 million in deobligated funds.[Footnote 19] In
2006, the DOJ OIG reported that since 2002 grant closeout was a higher
priority within DOJ and that its awarding agencies made improvements in
the timeliness of grant closeouts.[Footnote 20] For example, from 2001
to 2005, OJP reduced its backlog of expired grants from 11,356 to
6,237. The report also indicated that OJP was recommending, among
several recommendations, establishing a performance measure to monitor
efficiency and compliance with its closeout process. In 2006, the DOJ
OIG also reported that OJP updated the grant monitoring requirements in
its Grant Manager's Manual, automated its Grant Adjustment Notice (GAN)
process, shortened its timeline for closeouts from 180 days to 120
days, and addressed the backlog of grants overdue for closure. By
automating the GAN process, auditors reported that OJP reduced the time
to respond to grant adjustment requests by 10 days and planned to
notify grantees of decisions regarding grant adjustment requests
through the Grants Management System (GMS). OJP required that its grant
staff conduct and document all its programmatic monitoring efforts in
GMS.[Footnote 21]
To address its grant closeout problems, NIH undertook several
corrective actions in 2002 and 2003. The agency stated that it
continued to emphasize to grantees that the submission of final
closeout reports was an agency priority and improve agency monitoring.
To address its backlog of expired accounts and reduce the burden on
monitoring staff, NIH management assigned dedicated staff to resolving
the backlog of accounts. Corrective actions included creating a
database to track receipt of final reports, which allowed NIH to send
individualized reminders to grantees of outstanding reports. Another
planned action was to provide technical assistance to grantees through
general outreach efforts or through targeted follow-up with individual
grantees. NIH also established a workgroup and a reminder system to
improve grantee compliance with its closeout guidelines.[Footnote 22]
Between 1995 and 2005, EPA efforts led to substantial progress in
resolving its backlog of expired grants. By 2005, the agency nearly
eliminated its backlog of over 23,000 expired grants accumulated
between 1999 and 2003. To continue its efforts and to hold program
managers more accountable for grants management, EPA developed a
corrective action plan. EPA planned to require all managers and
supervisors to complete online grants management training; require
baseline monitoring for all grants documented in the agency's
Integrated Grants Management System; and integrate grants with
financial data and eliminate duplicate data entry. This plan also
included incorporating grants management performance measures into the
performance standards of project officers, supervisors, and managers
with grants management responsibilities.[Footnote 23]
Agencies' Performance and Accountability Reports Address Grant
Closeouts:
In 2006 and 2007, eight agencies highlighted grants management problems
as a management challenge or concern in their agency's PAR to the
President and Congress.[Footnote 24] Moreover, DOJ, HHS, and EPA
reported to the President and Congress that timely grant closeout was a
long-standing grants management challenge.[Footnote 25] In the 2006 DOJ
and HHS PARs, both the IG and the independent auditor[Footnote 26]
specifically addressed grant closeout problems and agency progress in
addressing the problems. In each case, the IG listed grant closeouts as
contributing to the department's difficulties with grants management at
several of its agencies. In response, the departments described both
agency-level and departmentwide initiatives to address the problems. In
HHS's 2006 PAR, the independent auditors reported the department had
more than 64,000 grants, with a remaining balance of $1.6 billion,
eligible for closeout, and that 75 percent of these grants had been
expired for more than 2 years. In the HHS 2007 Agency Financial Report,
[Footnote 27] the HHS Inspector General continued to cite grant
management, and specifically grant closeouts, as a management
challenge. In DOJ's 2006 and 2007 PAR, the independent auditors
highlighted the IGs findings and explained that the closeout delays
contributed to misstatements in the department's financial statements.
In its 2007 PAR, DOJ cited grant management process improvements by
several of its program offices but also stated that grant management
and closeout continued to be a major challenge.
In our review of the 2006 EPA PAR, we found that EPA had a financial
performance measure--the percentage of eligible grants closed out--
specifically to track the agency's progress in closing grants. The EPA
assessed its performance by calculating the percent of grants closed
out in the current year that had a "project end date" in the previous
year. In 2005, EPA had goal of 90 percent grant closure, and it
reported in its 2006 PAR achieving a 95 percent grant closure rate. In
2006, we concluded that, while EPA's performance measure did not assess
compliance since it did not reflect the 180-day closeout standard, the
measure was a valuable tool for determining if grants were ultimately
closed.[Footnote 28] As indicated earlier, EPA also planned to
incorporate its grant performance measures into performance standards
for its grants professionals.
EPA's 2007 PAR reported that the agency had successfully put into place
grant management process improvements to correct long-standing problems
identified by GAO and the OIG. EPA is also developing a new Grants
Management Plan that will go into effect in 2008 to replace and update
the plan established in 2003. Also in 2007, the EPA OIG removed the
agency's use of assistance agreements, including grants, from its list
of EPA's management challenges. The OIG attributed the removal of these
agreements from its list of management challenges to the substantial
actions EPA had taken to improve its management of these agreements.
The OIG noted that EPA planned to evaluate implementation of its new
policies and the OIG would continue to monitor the agency's corrective
actions in this management area.
As previously discussed, OMB Circulars No. A-102 and No. A-110
establish standards for consistency and uniformity among federal
agencies in the administration of grants through the preaward,
postaward, and closeout phases of the grant life cycle, and Circulars
No. A-11 and No. A-136 provide agencies with guidance on preparing and
submitting their PARs in terms of performance and financial
accountability. However, in our review of these circulars as well as
selected agency regulations,[Footnote 29] we found no explicit
instruction to agencies to track or report on undisbursed balances
remaining in expired grant accounts.
Although not explicitly directed to do so by the OMB circulars, we
found that the inclusion of undisbursed balances in expired grant
accounts in a department or agency's GPRA documents--as has been done
by DOJ, HHS, and EPA--has the potential to raise the internal and
external visibility of the problem. As we reported in 2004, developing
strategic plans and reporting on progress toward performance goals can
lead to cultural changes within an agency.[Footnote 30] The focus on
results can also stimulate internal problem solving and discussions
about performance. Externally, OMB and Congress use GPRA documents,
like the PAR, in discussions of agency performance and resource
allocation.
Conclusion:
The existence of undisbursed grant balances in expired grant accounts
may hinder the achievement of program objectives, limit deobligating
funding for other uses, and expose the funding to improper spending or
accounting. Our analysis showed that, taken together, quarterly
undisbursed balances for expired grant accounts in HHS's Payment
Management System--which in 2006 handled about 70 percent of all
federal grant disbursements--can be significant. Audit reports from
agencies not participating in PMS indicate they also have expired
grants with undisbursed balances. Data analysis of grant accounts in
other federal payment systems may reveal additional expired grants with
undisbursed balances.
In reviewing audit reports for three agencies, we found that grant
closeouts processes can improve when given a high priority and the
agency addresses the multiple causes in a concerted fashion. The
financial status of long-expired grant accounts is one aspect of agency
performance that has implications for broader program and agency-level
performance. By elevating this issue as a management priority in their
annual performance plans and PARs, the three agencies made grant
closeouts a priority for improving program and agency-wide performance.
However, OMB circulars relating to grants management and performance
reporting do not currently instruct federal agencies to track and
annually report on undisbursed funding in expired grant accounts. Given
the federal government's constrained fiscal position, the executive
branch could minimize undisbursed funding in expired grant accounts if
OMB instructed federal awarding agencies to use its federal financial
information systems and GPRA's performance-reporting infrastructure to
track and annually report this information.
Recommendations for Executive Action:
We recommend that the Director, OMB, instruct all executive departments
and independent agencies to take the following two actions: (1)
annually track the amount of undisbursed grant funding remaining in
expired grant accounts; and (2) report on the status and resolution of
the undisbursed funding in their annual performance plan and report in
their annual PAR on:
* the amount of undisbursed grant funding in expired grant accounts,
* why these funds were undisbursed,
* the actions taken to resolve the undisbursed funding and close the
expired grants and related accounts, and:
* outcomes associated with these actions.
Agency Comments and Our Evaluation:
We provided a draft of this report to OMB and HHS for review and
comment. HHS replied via e-mail and had no substantive comments. OMB
responded with written comments, which we have reprinted in appendix
III.
OMB said it supported the intent of our recommendations to strengthen
grants management by explicitly requiring federal agencies to track and
report the amount of undisbursed grant funding remaining in expired
grant accounts and that it believes agencies should design processes
with strong internal controls to promote effective funds management for
all types of obligations. OMB's comments did not indicate a commitment
to implement our recommendations. OMB stated that, during its regular
review, it would consider revising its grants management guidance,
Circulars A-102, Grants and Cooperative Agreements with State and Local
Government, and A-110, Uniform Administrative Requirements for Grants
and Other Agreements with Institutions of Higher Education, Hospitals,
and Other Nonprofit Organizations, to include instructions for agency
grant managers to track and report this information. OMB added that it
does not favor having agencies report on these balances in their PARs
and so would not offer instructions under its performance reporting
guidance, Circular A-136, Financial Reporting Requirements.
We agree that OMB should have discretion in instructing departments and
agencies on how to track and report undisbursed balances in expired
grant accounts. Our draft report recommended OMB instruct agencies to
annually track and report in their PARs the amount of undisbursed
expired grant balances. As we reported, some federal agencies such as
EPA, HHS, and DOJ have already voluntarily included in their annual
PARs their actions to track and reduce undisbursed balances in expired
grant accounts. We found that such reporting had raised the internal
and external visibility of the challenge and that these agencies had
improved their performance. Accordingly, we continue to believe that
the PARs would be appropriate vehicles to address on a governmentwide
basis the issue of undisbursed balances in expired grant accounts. Such
reporting may not be necessary for every department or agency, every
year. Should it choose, OMB could always attenuate its requirements by
setting a threshold as part of its instructions for reporting these
balances in the PARs.
We will send copies of this report to the congressional committees with
jurisdiction over HHS and its activities, the Secretary of HHS, and the
Director of OMB. We will also make copies available to others upon
request. In addition, the report will be available at no charge on the
GAO Web site at [hyperlink, http://www.gao.gov].
If you have any questions about this report, please contact me at (202)
512-6806 or czerwinskis@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report are listed in
appendix IV.
Signed by:
Stanley J. Czerwinski:
Director, Strategic Issues:
[End of section]
Appendix I: Objectives, Scope, Methodology, and Additional Information
on Program Characteristics:
Our objectives were to address the following: (1) to what extent are
there undisbursed grant balances in expired grant accounts and do they
share any program characteristics?; and (2) do these expired grants
share grant management challenges and what actions have federal
agencies taken to improve grant closeout and diminish undisbursed
balances? In the course of our work, we did not evaluate the
implementation of closeout procedures for any specific grant program or
awarding agency. The following describes the various procedures we
undertook to answer these objectives.
Review of Relevant OMB Circulars and Federal Regulations:
We began our study by reviewing the key federal guidelines on grant
closeouts: Office of Management and Budget (OMB) Circulars No. A-102,
Grants and Cooperative Agreements with State and Local Governments, and
No. A-110, Uniform Administrative Requirements for Grants and Other
Agreements With Institutions of Higher Education, Hospitals, and Other
Non-Profit Organizations. Since the President directed executive branch
departments to adopt these OMB circulars in their regulations, we also
reviewed applicable regulations for eight executive departments (the
Departments of Agriculture [USDA], Education (Education), Energy
[DOE]), Health and Human Services [HHS], Housing and Urban Development
[HUD], Justice [DOJ], Labor [DOL], and State [DOS]), the Social
Security Administration (SSA), and the Environmental Protection Agency
(EPA) to identify any differences in grant closeout guidelines between
the OMB circulars and the agency regulations. We selected these agency
regulations for review because a recent audit had indicated that either
a grantee or program had problems with grant closeouts. To identify
federal governmentwide guidance relating to federal agency performance
reporting, we reviewed OMB Circular No. A-11, Preparation, Submission
and Execution of the Budget and Circular No. A-136, Financial Reporting
Requirements.
Collection and Review of Related Audit Reports and PARs:
To identify what other auditors found and recommended as strategies to
diminish unspent funds in expired grant accounts, we interviewed
various grant program experts from GAO and federal Offices of
Inspectors General (OIG),[Footnote 31] as well as experts from the
National Grants Management Association (NGMA), and the National
Association of State Auditors, Comptrollers and Treasurers (NASACT). We
also conducted a Web-based literature search for related audit reports
and reviewed over 150 reports issued by GAO and various federal OIGs
and independent agencies from 2000 to 2006 to identify some common
grants management problems related to closing expired grants. During
the 2000 to 2006 period, auditors issued reports to the following
departments or independent agencies regarding either a grantee or
program with grant management problems relating to closing expired
grants: USDA, Education, DOE, HHS, HUD, DOJ, DOL, DOS, SSA, and EPA. We
reviewed the 2006 and 2007 Performance and Accountability Reports (PAR)
from EPA and the 15 cabinet-level executive departments[Footnote 32] to
determine whether grant management, specifically timely grant closeouts
and undisbursed balances from expired grants, were identified as a
problem, and strategies agencies were employing to address the problem.
Analysis of Expired Grant Account Data from PMS:
To identify the amount of undisbursed funding remaining in expired
grants, we collected and analyzed data from HHS's Payment Management
System (PMS) and the U.S. General Services Administration (GSA) Catalog
of Federal Domestic Assistance (CFDA). This section describes these two
data systems, our collection of selected data from each system, our
analysis of the data collected, and the results for the program
characteristics analysis.
Description of Payment Management System:
PMS is a centralized grants payment and cash management system,
operated by HHS's Program Support Center (PSC) in the Division of
Payment Management (DPM). According to DPM, the main purpose of PMS is
to serve as the fiscal intermediary between awarding agencies and the
recipients of grants and contracts. Its main objectives are to expedite
the flow of cash between the federal government and recipients;
transmit recipient disbursement data back to the awarding agencies; and
manage cash flow advances to grant recipients.
PMS is the largest of the nine civilian federal payment systems and
executes payments for nine federal departments, one independent agency,
a government corporation and the Office of National Drug Control Policy
(ONDCP), which, in 2006, represented about 70 percent of all federal
grant disbursements. According to HHS, PMS is a full-service
centralized grants payment and cash management system. The system is
fully automated to receive payment requests, edit them for accuracy and
content, transmit the payment to either the Federal Reserve Bank or the
U.S. Treasury for deposit into the grantee's bank account, and record
the payment transactions and corresponding disbursements to the
appropriate account(s).
Appendix II lists the current PMS customers. A few statistics help to
illustrate the volume of PMS's payment processing. In 2006, PMS
processed over $320 billion in payments to grant recipients. As of June
2007, according to an HHS official, PMS contained over 200,000 open
grants. Cumulatively, the grants executing payments through PMS
represent a significant amount of funding--open grants in PMS, as of
May 2007, represented over $1.3 trillion in total funding. Over the
years, PMS has executed payments for tens of thousands of grantees.
The DPM described its role, in operating the PMS, as an intermediary
between awarding agencies and grant recipients. DPM personnel operate
PMS, making payments to grant recipients, maintaining user/recipient
liaison, and reporting disbursement data to awarding agencies. Awarding
agencies' responsibilities include PMS registration of grant recipients
(DPM personnel perform this function for cross-serviced agencies),
entry of authorization data into PMS, programs and grants monitoring,
grant closeout, and reconciliation of their accounting records to the
PMS information. Awarding agencies pay HHS a service fee for
maintaining accounts and executing payments through PMS. PMS continues
to charge agency customers a servicing fee until an account is closed.
Several federal agencies collaborate with HHS in executing grant
payments including the U.S. Treasury and Federal Reserve Bank.
According to DPM, the U.S. Department of the Treasury is responsible
for establishing cash management policies, operating the Government On-
Line Accounting Link System and the electronic system for processing of
payments, check payments, and certain transactions. The Federal Reserve
Bank's responsibilities include direct deposit payments to payees'/
recipients' bank accounts.
HHS documentation indicated that other public and private organizations
also have roles in executing payments, including the grant recipients
and their financial institutions. Grantee responsibilities include
executing grants, reporting cash disbursements to PMS, and maintaining
their own accounting records. The grantee's financial institutions are
responsible for receiving payments for credit to recipient accounts,
and maintaining recipient bank accounts.
An independent auditor assessed PMS in 2006. The auditor reported that
DPM's internal controls were suitably designed and tested to provide
reasonable assurance that control objectives, including proper payments
and remittances, and accurate reporting, were met.[Footnote 33]
Collection and Reliability Testing of PMS Closeout Data:
To identify the status of undisbursed balances in expired grant
accounts, we narrowed our focus to grants executing their payments
through PMS. The awarding agencies provide the descriptive information
for each grant account to PMS. The data set for each grant account
contains over 900 unique data fields. One of the required data fields
in each PMS account record is the CFDA number for the assistance
program that is associated with each account.
Each quarter, PMS distributes to its customers a "closeout" report
listing the expired grant accounts that, according to the data system,
have not completed all of their closeout procedures. HHS listed an
account on a quarterly PMS closeout report if both the latest end date
for the account was 3 months old and the latest date of disbursement
was 9 months old. PMS does not close a grant account until instructed
to do so by the awarding agency. For each grant account, the report
includes such information as the identification number, the amount of
funding authorized for the grant, the amount charged, and the beginning
and end dates for the grant.
We initially requested that HHS provide PMS quarterly closeout reports
for the period 2000 through 2006, then narrowed our focus to the 2003
through 2006 period. As part of the data request, we requested that HHS
append to the closeout data additional information available in PMS for
each grant account: the CFDA numbers and the type of grantee
organization. Having the associated CFDA number for each grant account
enabled us to link the grant account information in the closeout report
with the associated program information as listed in the catalog.
To test the reliability of PMS closeout data, we (1) reviewed existing
documentation related to PMS, including the most recent system audit by
the independent auditor, (2) interviewed officials responsible for
administration of the database on data entry and editing procedures and
the production of closeout reports, and (3) conducted electronic
testing for obvious errors in completeness and accuracy. We worked
closely with HHS officials responsible for the administration of the
database and the production of the closeout reports. When we found
discrepancies, we brought them to the attention of the agency officials
and worked with them to make corrections before the analyses began. For
example, our testing revealed that there were accounts in the PMS
closeout data sets that: had CFDA numbers that did not match existing
CFDA numbers; were for nongrant programs that were not intended to be
entered into the grant payment system; and were for grants that did not
have a defined expiration date. We excluded these extraneous entries
from our analysis. After conducting these assessment steps, we found
that the closeout data were sufficiently reliable for the purposes of
this report.
Description of Catalog of Federal Domestic Assistance:
The Catalog of Federal Domestic Assistance (CFDA) is the single
authoritative, governmentwide compendium and source document for
descriptions of federal programs that provide assistance or benefits to
the American public. According to GSA, the catalog does not include
solicited contracts; foreign activities that do not benefit the
domestic economy; personnel recruitment programs; benefits or
assistance only available for federal employees; new programs that do
not have enacted appropriations; or inactive programs with expired
authorization or appropriation.
OMB created the catalog pursuant to the Federal Program Information Act
[Footnote 34] to ensure that comprehensive information on federal
assistance programs was readily available to the public and interested
parties. Later amended in November 1983,[Footnote 35] revised
guidelines transferred the responsibilities of the Federal Program
Information Act from OMB to GSA. OMB serves as an intermediary agent
between federal agencies and GSA, with oversight responsibility for the
necessary collection of program data.
OMB Circular No. A-89 provides the federal guidelines for the
collection and dissemination of the program information. GSA is
responsible for maintaining and distributing CFDA information. By law,
federal agencies submit program data to OMB for review. OMB reviews the
information and provides any comments to and obtains updates and
clarifications from the agency. OMB then submits each program
description to GSA, which incorporates these submissions into the CFDA.
According to a GSA official, GSA does not verify the accuracy of the
information that the federal agencies provide for the program
description. Each federal agency is responsible for assuring, among
other things, the adequacy and timeliness of program information
submitted to OMB.
The law authorizing CFDA required that GSA establish and maintain a
computerized retrieval system capable of identifying all existing
federal domestic assistance programs. GSA now maintains the
comprehensive database information on all federal domestic assistance
programs. Information about these programs is made available to the
public through periodic update and annual issuance of the catalog.
Until 2006, GSA distributed printed copies of the CFDA for free. GSA's
free CFDA Web site [hyperlink, http://www.cfda.gov] is now the
principal means of distributing the catalog. This Web site enables
users to download an electronic file of the catalog or search its
contents online. CFDA program description contains a wealth of
financial and nonfinancial information, including program objectives,
type of programs assistance provided, applicant eligibility
requirements, and guidance on how to apply for assistance.
Collection and Reliability Testing of CFDA Data:
To identify expired grants in PMS and two of the four program
characteristics analyzed--funding award method and the contribution
requirement--we obtained the October 2006 CFDA as an electronic data
file from the GSA. We were able to crosswalk the CFDA program data to
the PMS data using the CFDA number. The CFDA number is a five-digit
number assigned to each assistance program listed in the catalog. In
creating a grant account in PMS, HHS requires the awarding agencies to
enter the CFDA number for the assistance program that is funding the
grant. At our request, HHS appended the CFDA number to each of the
accounts listed in the quarterly PMS closeout data given to GAO. We
used information from the catalog to identify those grants that had
specific time limits, and thus, that we could consider "expired" once
the period of availability had ended. We also used CFDA program
information to identify the type of funding award method (project or
formula-based), and whether a grantee was required to contribute
resources, such as matching funds, to the grant project.
According to a GSA official, GSA does not verify the accuracy of the
program description information submitted by the awarding agency for
the catalog. To test the reliability of CFDA data, we selected a random
sample of 25 CFDA program descriptions and compared selected
information from the CFDA program description to the same program
information from other federal sources. Specifically, we checked the
reliability of six data fields: the CFDA number, awarding agency,
program name, funding award method, contribution requirement and the
period of availability of the grant. As we found only one discrepancy
for one of six data fields, we can be 95 percent confident that fewer
than 17.6 percent of cases in the catalog contain discrepancies between
the electronic catalog and information available from other federal
sources for these fields. We thus determined the selected CFDA data
used in our analyses were sufficiently reliable for the purposes of
this report.
Expired Grant Accounts Included in and Excluded from Analyses:
Prior to conducting the analysis of the 2003 through 2006 expired
grants in PMS, we excluded extraneous accounts that appeared in the
closeout data. The purpose of these exclusions was to avoid including
accounts that might unduly distort the results on undisbursed funds in
expired PMS grant accounts.
We included accounts that were associated with grants or cooperative
agreements. We excluded accounts if we could not associate them with a
grant program. For instance, we found some PMS accounts were for
nongrants. We also decided to exclude accounts that lacked a CFDA
number, since without this number we could not verify that the account
was for a grant or obtain other information used in our analyses.
We included grant accounts that had a time limit for spending the funds
made available and a zero or positive undisbursed balance. As described
by HHS staff, the purpose of the PMS closeout report is to alert
awarding agencies of accounts in PMS that remain open after their
posted end date. If a grant does not have a defined end date, such as
the Temporary Assistance for Needy Families (TANF), then HHS staff
consider the PMS closeout report merely as a reminder to the awarding
agency of the open account and that PMS continues to charge fees on
this open account. We identified "expired" grants, grants that had
defined end dates, by conducting a content analysis of their associated
CFDA program descriptions. Through the content analysis we identified
26 grant programs (HHS and non-HHS), and associated PMS grant accounts,
where the CFDA program description indicated no time limit on the
availability of grant funding, and excluded these grant accounts from
our analysis.
We included grant accounts that met the previous criteria and also had
a readily identifiable CFDA number. We found well over 100 CFDA numbers
listed for grant accounts in PMS that did not have a program
description in the October 2006 edition of the CFDA. We searched the
1999 to 2005 editions of the CFDA and the catalog's historical index to
find the program descriptions for these CFDA numbers. We excluded an
account if we could not find any information on the CFDA number either
in the CFDA or in the CFDA Historical Index, or if the CFDA number and
program description had been deleted from the catalog before the 1999
edition of the CFDA. We excluded these grant accounts associated with
very old CFDA numbers because pre-1999 catalogs are not readily
available, making it unduly burdensome to obtain program information.
We also excluded accounts in the 2003 through 2004 PMS closeout data if
their associated CFDA numbers (1) were not in the 1999 through 2006
CFDAs, and (2) the accounts associated with the CFDA number did not
have a cumulative undisbursed balance of greater than $100,000 for two
consecutive quarters. We felt that, where the cumulative amounts of
undisbursed funding for the accounts associated with these CFDA numbers
were less than 0.1 percent of the quarterly totals and, by 2005, were
at or near zero, it was unduly burdensome to collect the CFDA program
information that was more than 7 years out of date.
We also excluded expired accounts for several block grants in keeping
with the 2006 independent audit of PMS which stated that (1) the funds
for these block grants continued to be available to the grantees until
the obligation/expenditure period expired, and (2) traditional
financial reporting requirements do not apply to these programs. We
excluded expired grant accounts associated with the following HHS block
grant programs from our analysis based on this audit: Community Mental
Health Services Block Grant, Preventive Health and Health Services
Block Grant, Substance Abuse and Preventive Treatment Block Grant,
Maternal and Child Health Services Block Grant, Social Services Block
Grant, Low Income Housing Energy Assistance Block Grant, and Community
Services Block Grant.
To summarize, our reported results describe accounts listed in PMS's
quarterly closeout reports from 2003 through 2006, that:
* were grants or cooperative agreements;
* had a time limit for spending;
* had a zero or positive undisbursed balance;
* had a readily identifiable CFDA number;
* had a program description in the 1999 through 2006 CFDAs; and:
* did not have special financial reporting procedures.
Analysis of the PMS and CFDA Data to Quantify Undisbursed Funding in
Expired Grant Accounts and Related Program Characteristics:
Having excluded the extraneous accounts, we analyzed the 2003 through
2006 payment closeout data as a complete set of current PMS customers,
rather than analyzing specific federal agencies or grant programs. When
we analyzed the quarterly PMS closeout data for the 2003 through 2006
period, we identified two sets of expired grants accounts. One set
consisted of expired accounts for which all of the funds made available
had been disbursed, but still had not been closed. We identified a
second set of accounts that included those expired accounts reported
with a positive undisbursed balance. Most of our analysis focused on
those expired accounts with undisbursed balances. For each quarter we
totaled the amount of undisbursed funding in the expired grant
accounts, without adjusting the amounts for inflation.
To identify common program characteristics of the expired grants with
undisbursed balances, we conducted further analysis by linking data
from the PMS closeout reports to selected program information from the
CFDA. We identified four program characteristics for analysis: size of
the funding award originally made available to the grantee; whether
program funding was awarded based on a formula or on a competitive,
project-by-project basis; the grantee organization (entity) receiving
the grant; and whether the program required the grantee to make a
contribution to support the grant activity. We selected these four
characteristics because they are fundamental elements of grant design
that could be readily analyzed using the information from the PMS and
the CFDA data sets. While grant programs have other fundamental design
characteristics such as the purpose of the program (e.g., grant funds
are to be used for construction or providing services), they could not
be as readily analyzed. PMS grant closeout data provided the data on
grant funding size and grantee organization. The CFDA data provided
information for the funding award method and the contribution
requirement.
We began our analyses by sorting the expired grants with undisbursed
balances into 13 ranges of funding award size. These ranges were used
because the average percentage of funds undisbursed were similar from
quarter to quarter and minimally overlapped with the average percent
for an adjacent range, reflecting natural breaks in the data analysis.
The ranges varied from relatively small grants of under $25,000 to very
large grants of up to $1 billion. For each funding range, we identified
the quarterly balances of undisbursed funds for each of the 16 quarters
from 2003 through 2006.
We next sorted the expired grants with undisbursed balances according
to the method used to award the funds to grantees. As described
earlier, federal awarding agencies typically award their grant funding
using a formula or on a project basis, or by using a hybrid of both
methods. Our guideline in sorting by funding award method was that if a
program description had more than one allocation method, we sorted the
grant according to the first allocation method listed in the CFDA
program description. Using this information, we found that of 328
unique grant programs in the 2003 through 2006 PMS closeout data with
positive undisbursed balances, 54 were awarded on a formula basis and
274 were awarded on a project basis.
Next, we analyzed the expired grants with undisbursed balances
according to the type of grantee organization receiving the grant. For
the grant organization characteristic, we collapsed the organization
types used in PMS into six types (state, county, city, domestic
nonprofit, domestic for-profit, and other).
Lastly, we compared the quarterly undisbursed funding balances for
those expired grants that required some form of grantee contribution to
those that did not. As described in the CFDA, grant program regulations
can require grantees to contribute some form of resources to support
grant-related activities, such as requiring the grantee to provide
matching funds, share in the costs, or provide in-kind contributions.
We sorted grants as having required contribution if the CFDA program
description indicated grantees were required to contribute some form of
resources to support grant-related activities, such as requiring the
grantee to provide matching funds, share in the costs, or provide in-
kind contributions.
For each program characteristic, we totaled the undisbursed funding
according to the various types within each characteristic category. For
example, for the method of funding award characteristic there were two
types, project or formula-based. All of the program characteristic
results are in comparison to other types of grants in the same
characteristic category, such as sizes of grant authorizations or type
of funding award method.
Expired Grant Accounts with Largest Undisbursed Balances Share Program
Characteristics:
When we compared the undisbursed balances among the types within each
of the four program characteristic categories, we found certain types
of grants consistently had the largest quarterly balances. Among the 13
funding award ranges, we found the largest quarterly balances of
undisbursed funds in midsize grants, that had original funding awards
ranging from over $100,000 to $100 million (in nominal dollars) for
expired grants from 2003 through 2006. We also found that, between the
two funding awards methods, grants awarded on a project basis
consistently had the largest quarterly balances of undisbursed funding
and that, among the six types of grantees, state grantees had the
largest quarterly amounts of undisbursed funding, followed distantly by
nonprofit organizations. When comparing grants requiring a grantee
contribution and those grants that did not have this requirement--the
fourth characteristic examined--we found that neither type had
consistently larger quarterly amounts of undisbursed funding.
Our analysis has several limitations. First, each analysis of the
quarterly undisbursed funding by program characteristic was an
independent assessment of the variation in undisbursed funding among
expired grant accounts. Consequently, the results for each program
characteristic cannot be combined into a general statement about the
four characteristics. Second, the results are limited to the expired
grant accounts with undisbursed grants balances listed in the PMS
closeout report from 2003 through 2006. We were not able to compare
these results to all closed federal grants or all closed grants in PMS
due to the burden of collecting comparable data for all closed federal
grants from the eight other federal civilian payments systems or for
all closed grants from PMS. Lastly, we did not interview policy experts
or agency grant managers to explore why expired grants with different
program characteristics might have larger undisbursed balances.
[End of section]
Appendix II: Federal Agencies Using PMS:
The following is a list of the nine federal departments, one office
within the Executive Office of the President, the independent agency,
and the government corporation served by the Department of Health and
Human Services' (HHS) Division of Payment Management, Payment
Management System (PMS), as of August 2007:
Department of Health and Human Services:
* Administration for Children and Families:
* Administration on Aging:
* Agency for Healthcare Research and Quality:
* Centers for Disease Control and Prevention:
* Centers for Medicare & Medicaid Services, legacy Health Care
Financing Administration:
* Food and Drug Administration:
* Health Resources and Services Administration:
* Indian Health Service:
* National Institutes of Health:
* Substance Abuse and Mental Health Services Administration:
Department of Agriculture:
* Agricultural Research Service:
* Cooperative State Research, Education and Extension Service:
* Food Safety and Inspection Service:
* Forest Service:
Department of Energy:
* Schenectady Naval Reactors Office:
Department of Homeland Security:
* Customs and Border Protection, legacy Customs:
* Emergency Preparedness and Response, legacy Federal Emergency
Management Agency:
* Immigration and Customs Enforcement:
Department of the Interior:
* National Park Service:
* U.S. Fish and Wildlife Service:
* U.S. Geological Survey:
Department of Labor:
* Bureau of Labor Statistics:
* Employment and Training Administration:
* Mine Safety and Health Administration:
* Occupational Safety and Health Administration:
* Veterans' Employment and Training Service:
Department of State:
* Bureau of Administration, Office of Overseas Schools):
* Bureau of African Affairs:
* Bureau of Democracy, Human Rights and Labor:
* Bureau of Diplomatic Security:
* Bureau of East Asian and Pacific Affairs:
* Bureau of Economic and Business Affairs:
* Bureau of Educational and Cultural Affairs, Fulbright Commission,
Europe:
* Bureau of Educational and Cultural Affairs, Fulbright Commission,
Western Hemisphere:
* Bureau of Educational and Cultural Affairs, Fulbright Commission,
East Asia:
* Bureau of Educational and Cultural Affairs, Fulbright Commission,
Near East/South Asia:
* Bureau of Educational and Cultural Affairs, legacy U.S. Information
Agency:
* Bureau of European and Eurasian Affairs:
* Bureau of Human Resources:
* Bureau of Intelligence and Research:
* Bureau of International Narcotics and Law Enforcement Affairs:
* Bureau of Near Eastern Affairs:
* Bureau of Nonproliferation:
* Bureau of Nonproliferation, Office of Export Control Cooperation:
* Bureau of Oceans and International Environmental Scientific Affairs:
* Bureau of Political-Military Affairs, Office of Humanitarian Demining
Programs:
* Bureau of Population, Refugees and Migration:
* Bureau of South Asian Affairs:
* The United States Agency for International Development:
Department of the Treasury:
* Community Development Financial Institution Fund:
* Internal Revenue Service:
* Office of Financial Institutions:
Department of Veterans Affairs:
* Health Care for Homeless Veterans:
* National Cemetery Administration:
* Veterans Health Administration:
Executive Office of the President:
* Office of National Drug Control Policy:
Independent federal agencies:
* National Aeronautics and Space Administration:
* Ames Research Center:
* Dryden Flight Research Center:
* Goddard Space Flight Center:
* Johnson Space Center:
* Kennedy Space Center:
* Langley Research Center:
* Marshall Space Flight Center:
* Stennis Space Center:
Government corporations:
* Corporation for National and Community Service:
[End of section]
Appendix III: Comments from the Office of Management and Budget:
Executive Office Of The President:
Office Of Management And Budget:
Washington, D.C. 20503:
August 8, 2008:
Mr. Thomas M. James:
Assistant Director, Strategic Issues:
United States Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. James:
Thank you for the opportunity to review, and provide you with the
comments of the Office of Management and Budget (OMB) regarding, the
draft GAO report entitled, Attention Needed to Address Undisbursed
Balances In Expired Grant Accounts. We appreciate GAO's focus on this
issue.
OMB supports the intent of GAO's recommendation to strengthen grants
management by explicitly requiring Federal agencies to track and report
the amount of undisbursed grant funding that remains in expired grant
accounts. In the draft report, GAO recommends that OMB include such
instructions for agency grant managers in OMB Grant Circulars A-110 (2
CFR Part 115), Uniform Administrative Requirements for Grants and Other
Agreements with Institutions of Higher Education, Hospitals and Other
Non-Profit Organizations, and A-102, Grants and Cooperative Agreements
With State and Local Government. OMB will take this recommendation into
consideration during our regular review of these circulars.
The draft report also recommends that OMB revise Circular A-136,
Financial Reporting Requirements, to mandate on the agencies
prescriptive reporting requirements that would capture undisbursed
grants obligation amounts in an agency's Performance and Accountability
Report (PAR). We do not believe that such prescriptive reporting is the
optimal way to achieve the desired results. Instead, we believe that
agencies should design processes with strong internal controls to
promote effective funds management for all types of obligations.
Given its government-wide application, Circular A-136 is designed to
address all aspects of financial management for a multitude of agencies
with very diverse missions and practices. For this reason, rather than
providing agencies with prescriptive, rule-based guidance, the Circular
sets forth principle-based guidance that gives each agency the
necessary flexibility to tailor its implementation of these principles
so as to meet the agency's unique situations. If, by contrast, OMB
required all agencies to follow prescriptive guidance that addresses
issues that are of relevance only for certain agencies, the Federal
Government would have a financial reporting environment that is overly
complex and that would impose additional burdens and costs on agencies
that would not be justified in terms of benefits from improved
financial reporting.
Again, we appreciate the opportunity to review the draft report and
provide you with our comments. If you have any additional questions or
comments, please feel free to contact Ms. Carrie Hug, Chief, Financial
Standards and Grants Branch, Office of Federal Financial Management at
202-395-3993.
Sincerely,
Signed by:
Danny Werfel:
Deputy Controller:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Stanley J. Czerwinski, (202) 512-6806:
Acknowledgments:
In addition to the contact named above, Thomas James, Assistant
Director; Patricia Farrell Donahue, Analyst-in-Charge; Carlos Diz;
Wesley Dunn; Sharon Hogan; Elizabeth Hosler; Susan Mak; Anna Maria
Ortiz; Neill Martin-Rolsky; Minette Richardson; Jay Smale; and William
Trancucci made key contributions to this report.
[End of section]
Footnotes:
[1] Office of Management and Budget, 2000 Federal Financial Management
Report (Washington, D.C., 2000); 2007 Federal Financial Management
Report (Washington, D.C., 2007).
[2] As of August 2007, PMS served grant-administering offices from the
Departments of Health and Human Services (HHS); Agriculture (USDA);
Energy (DOE); Homeland Security (DHS); the Interior (DOI); Labor (DOL);
State (State); the Treasury (Treasury); and Veterans Affairs (VA). PMS
also served the Office of National Drug Control Policy (ONDCP) within
the Executive Office of the President, the Corporation on National
Community Service, and the National Aeronautics and Space
Administration. See app. II for further detail.
[3] The Offices of Inspector General we contacted for this review
included HHS; the U.S. Department of Justice (DOJ); DOI; USDA; DOE; and
DOL.
[4] We reviewed the 2006 and 2007 PARs for USDA, the Department of
Commerce (DOC), the Department of Defense (DOD), the Department of
Education (Education), DOE, HHS, DHS, the Department of Housing and
Urban Development (HUD), DOI, DOJ, DOL, the Department of State (DOS),
the Department of Transportation, Treasury, and VA.
[5] All dollar figures throughout the report are in nominal ’then-year“
dollars and were not adjusted for inflation.
[6] These results exclude PMS accounts associated with grant programs
for which the duration of the grant is not limited to a specified time
period, such as Temporary Assistance for Needy Families (TANF) and
Medicaid grants to states (see app. I). Some grant-authorizing statutes
limit the duration of grants, once awarded, to a specific time period
(e.g., grants may be made for a period not to exceed 5 years). In some
grant programs, agency implementing regulations restrict the duration
of grants. Other grant programs do not limit the duration of a grant.
For example, TANF grants have no specified duration, once awarded.
[7] We reviewed audit reports from the following agencies covering the
period from 2000 through 2006: DOE, DOJ, DOL, Education, EPA, HHS, HUD,
the Social Security Administration (SSA), DOS, and USDA.
[8] Federal grants and cooperative agreements are forms of assistance
authorized by statute in which a federal agency transfers something of
value, such as money, to a party for a purpose, undertaking, or
activity of the grantee that the government has chosen to assist. The
distinction between these two forms of assistance is that substantial
involvement is expected between the executive agency and the state,
local government, or other recipient when carrying out the activity
contemplated in a cooperative agreement, whereas such involvement is
not expected in carrying out a grant agreement (see 31 U.S.C. 6304 and
31 U.S.C. 6305). Given the similarity between these two forms of
assistance, we refer to grants and cooperative agreements as grants in
the remainder of this report.
[9] For more information about the CFDA, see app. I.
[10] Grant payments to states are generally made in accordance with the
Cash Management Improvement Act (CMIA) of 1990 (P.L. 101-453), as
amended. CMIA is intended to ensure greater efficiency, effectiveness,
and equity in the exchange of funds between the federal government and
the states. The CMIA requires, among other things, that federal
agencies and the states minimize the time that elapses between
transfers of funds to the states and payments for federal grant program
purposes.
[11] See GAO, Accounting Systems: HHS Grant Payment Operation Has
Improved and Additional Corrective Actions Are Underway, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/AFMD-88-18] (Washington, D.C.:
Dec. 30, 1987), 11.
[12] All dollar figures throughout the report are in nominal ’then-
year“ dollars (not adjusted for inflation) because funds made available
for federal grants are not indexed to inflation. Therefore, over the
performance period of the grant, and into the postexpiration period,
there are no increases in funding to account for the effects of
inflation.
[13] Because of the data processing required to identify the expired
grant accounts in PMS, as described in app. I, we could not readily
calculate the fees PMS charged its client agencies for continuing to
service these expired accounts.
[14] To be included in these analyses, each expired grant account had
to have a positive balance of undisbursed funding (see app. I for
details).
[15] As of June 2007, there were over 45,000 grantees in PMS with
grants posted to their organization. This count includes all grantees
that had a grant posted in PMS, at some time. The grantee may or may
not have had an active account, as of that date.
[16] See GAO, HEW Must Improve Control Over Billions in Cash Advances,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?FGMSD-80-6] (Washington,
D.C.: Dec. 28, 1979); Accounting Systems: HHS Grant Payment Operation
Has Improved and Additional Corrective Actions Are Underway,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AFMD-88-18]
(Washington, D.C.: Dec. 30, 1987); and Environmental Protection: EPA‘s
Progress in Closing Completed Grants and Contracts, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-27] (Washington, D.C.:
Nov. 20, 1998).
[17] See GAO, Foreign Assistance: U.S. Democracy Assistance for Cuba
Needs Better Management and Oversight, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-147] (Washington, D.C.: Nov.
15, 2006).
[18] See GAO, Grants Management: EPA Has Made Progress in Grant Reforms
but Needs to Address Weaknesses in Implementation and Accountability,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-625] (Washington,
D.C.: May 12, 2006).
[19] GAO, Office of Justice Programs: Problems with Grant Monitoring
and Concerns about Evaluation Studies, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-02-507T] (Washington, D.C.: Mar.
7, 2002).
[20] Department of Justice, Office of the Inspector General, The
Department of Justice‘s Grant Closeout Process, Audit Report 07-05
(Washington, D.C., December 2006).
[21] Department of Justice, FY 2006 Performance and Accountability
Report (Washington, D.C., 2006).
[22] Department of Health and Human Services, Office of Inspector
General, NIH Grants Management: Late Closeouts Audit Report, OEI-01-03-
00021 (Washington, D.C., 2004).
[23] Environmental Protection Agency, FY 2006 Performance and
Accountability Report (Washington, D.C., 2006).
[24] In 2006, PARs from the following departments or agencies listed
grants management as a management challenge or concern: USDA, DOI, DOC,
Education, EPA, HHS, DHS, and DOJ. In 2007, PARs from the following
departments or agencies listed grants management as a management
challenge or concern: DOI, DOC, Education, EPA, HHS, DHS, DOJ, and DOL.
[25] Department of Health and Human Services, FY 2006 Performance and
Accountability Report (Washington, D.C., 2006). Department of Justice,
FY 2006 Performance and Accountability Report (Washington, D.C., 2006).
Environmental Protection Agency, FY 2006 Performance and Accountability
Report (Washington, D.C., 2006). Department of Health and Human
Services, FY 2007 Agency Financial Report (Washington, D.C., 2007).
Department of Justice, FY 2007 Performance and Accountability Report
(Washington, D.C., 2007). EPA, FY 2007 Performance and Accountability
Report (Washington, D.C., 2007).
[26] Independent auditors are independent accounting experts who
conduct impartial audits of the financial statements of public and
private organizations to ensure there are no misstatements and assess
whether the organization‘s systems to detect and prevent fraud
(internal controls) are effective.
[27] In fiscal year 2007 OMB initiated a pilot alternative to the
annual PAR. The goal of the pilot is to allow agencies different
formats to present financial and performance information that is more
meaningful and transparent to the public. The pilot includes three
components: (1) the Agency Financial Report (AFR); (2) the Annual
Performance Report (APR); and (3) Highlights. The pilot requires the
AFR to be published by November 15, 2007, and the other two reports by
February 2008. HHS is one of the agencies participating in this pilot.
[28] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-625].
[29] We reviewed the applicable regulations for eight executive
departments (USDA, Education, DOE, HHS, HUD, DOJ, DOL, and DOS), SSA,
and EPA to identify any differences in grant closeout guidelines
between the OMB circulars and the agency regulations.
[30] See GAO, Results-Oriented Government: GPRA Has Established a Solid
Foundation for Achieving Greater Results, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-04-38] (Washington, D.C.: Mar.
10, 2004).
[31] The OIGs we contacted for this review included those of HHS; DOJ;
DOI; USDA; DOE; and DOL.
[32] USDA, the departments of Commerce and Defense, Education, DOE,
HHS, the Department of Homeland Security, HUD, the Department of the
Interior, DOJ, DOL, DOS, and the Departments of Transportation, the
Treasury, and Veterans Affairs.
[33] Department of Health & Human Services, Division of Payment
Management, Report of Independent Auditor on Controls Placed in
Operation and Tests of Operating Effectiveness for the Payment
Management System (PMS), for the Period October 1, 2005 to June 30,
2006 (Washington, D.C., August 2006).
[34] Pub. L. No. 95-220.
[35] Pub. L. No. 98-169.
[End of section]
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