Budget Issues: The Importance of Increased Accuracy of Budget Outlay Estimates

Published by the Government Accountability Office on 1999-08-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

United States General Accounting    Office                             Accounting and Information
Washington,  DC 20548                                                         Management Division

          B-2831 12

          August 30,1999

          The Honorable Richard W . Riley
          The Secretary of Education

           Subject:    Budget Issues: The Imnortance of Increased Accuracv of Budget Outlay

          Dear Mr. Secretary:

          In May, we briefed the staff of the Subcommittee on Labor, Health and Human
          Services, Education and Related Agencies, House Committee on Appropriations, on
          how the Department of Education estimates, tracks, and reports on its budget
          outlays. In the course of this earlier work, we found that the Department of
          Education has the opportunity to better monitor budget outlay rates and potentially
          increase the accuracy of budget outlay estimates.

          Results     in Brief

          In an environment in which the caps on new discretionary budget authority and on
          outlays are increasingly constraining federal spending, it is important that
          congressional decisionmakers have accurate estimates of program outlays. More
          accurate estimates provide greater confidence that program funding will be within
          overall discretionary limits without restricting spending further than is necessary.
          Moreover, management reforms such as the Government Performance and Results
          Act (GPRA) and the Chief Financial Officers (CFO) Act reinforce the need for better
          planning and cost data.

          The increased importance of budget outlay estimates raises questions about whether
          the department’s outlay estimating process is as accurate as it can be. The
          department currently groups similar grant programs and then estimates that they will
          spend funds at the same rate. While this is an acceptable practice, it can mask
          differences between programs and changes that can occur over time. For example,
          spending patterns may change as a new program matures and program requirements
          are fully established or as the result of a change in policy. The recent implementation
          of Education’s Grant Administration and Payment System (GAPS) enables the
          department to identify and track separately the actual rate of budget outlays at the
          program level and provides an opportunity for improving budget outlay estimates.

                                 GAOLAIMD-99-235R Increased Accuracy of Budget Outlay Estimates

Scope and Methodology

We selected the following grant programs to use as case studies: Technology
Literacy Challenge Fund, Migrant Education-Basic State Grant, Migrant Education-
High School Equivalency, Special Education-Grants for Infants and Families, and
Technology Innovation Challenge Grants. We based our selections on information
from officials at the Department of Education, data provided by the Offrce of
Management and Budget (OMB), and consultation with congressional staff and the
Congressional Budget Office (CBO).

Once we completed our selections, we interviewed Department of Education officials
from each of the selected grant programs and the offices of Budget Service, the CFO,
and the Inspector General. We reviewed data provided by each of the programs and
by the offices of Budget Service and the CFO. We conducted our work in accordance
with generally accepted government auditing standards from December 1998 through
April 1999.

Accurate     Outlay Estimates        Are Increasiwlv         ImDortant

A changing budget environment has led to an increased emphasis on the need for and
use of budget outlay data.’ The advent of initiatives such as the GPRA and the CFO
Act make good cost data, and by extension accurate budget outlay information,
necessary requisites.

Under the Budget Enforcement Act of 1990 (BEA), as amended: budget authority
(BA) and budget outlays for discretionary programs are constrained by spending
caps.3 If the amount of outlays for a year estimated to result from budget authority
exceeds the cap on outlays, the BEA requires a procedure, called sequestration, for
reducing spending. A sequestration reduces spending for most programs by a
uniform percentage.4 As budget outlay limits have become more restrictive, the
accuracy of budget outlay estimates has gained in importance.

‘To develop outlay estimates, agencies calculate what they expect to outlay each year from available
budget authority, i.e., new budget authority and authority provided in earlier years that is likely to be
spent that fiscal year. The rate at which a program spends budget authority during the period that
authority is available is called the outlay rate.

?TheBudget Enforcement Act of 1990and subsequent amendments (the Omnibus Budget
Reconciliation Act of 1993and the Budget Enforcement Act of 1997)are collectively referred to as the
Budget Enforcement Act (BEA). These acts are all amendments to the Balanced Budget and
Emergency Deficit Control Act of 1985 (the Deficit Control Act).

%EA divides federal spending into (1) direct, or mandatory, spending controlled by permanent law and
(2) discretionary spending controlled through annual appropriation acts, which is further subdivided
and capped. These caps were most recently extended through fiscal year 2002 in the Budget
Enforcement Act of 1997(ESEA-97).

 4TheBEA specifies special rules for reducing some programs and exempts some programs from

 Page 2                GAO/AIMD-99-235R Increased Accuracy of Budget Outlay Estimates

Management reforms also provide an impetus for improving the accuracy of budget
outlay information. We have stated in the past that to operate, manage, and oversee
programs and activities efficiently and effectively, agencies need reliable, timely
program performance and cost information and the analytic capacity to use that.

Agencies need to have reliable data during their planning efforts to set realistic goals
and later, as programs are being implemented, to gauge their progress toward
reaching those goals. GPRA requires that agencies update strategic operating plans
at least every 3 years, and that agencies submit annual performance plans to the
Congress starting with the budget submission for the fiscal year 1999. Although it is
not a requirement, the availability of reliable budget outlay and cost data is necessary
to increase the usefulness of performance plans for decision-making6

The CFO Act also has set expectations for the development of better performance
and cost measures and for results-oriented reports on the government’s financial
condition and operating performance.7 The Federal Financial Management
Improvement Act of 1996 (FFMIA) requires that agencies comply substantially with
applicable federal accounting standards. Statement of Federal Financial Accounting
Standards No. 4, paragraph 32, states that cost information is essential for (1)
budgeting and cost control, (2) performance measurement, (3) determining
reimbursements and setting fees, (4) program evaluations, and (5) making economic

Education    Budget    Outlav    Estimating     Practices

Education’s Offke of Budget Service develops most of its budget outlay rates at the
account level by grouping similar grant programs and assuming that they draw down
or spend at the same rate. Although OMB requires agencies to report outlays only at
the account level, the increased importance of outlay estimates for decision-making
raises the question of whether Education can improve its process by using
information on the actual rates of spending for the various grant programs within an

Education grant officials told us that spending varied for their programs, although
much of the evidence provided was anecdotal. Under the Education Payment
Management System (EDPMS),8 most of the department’s grant funds were pooled.
In turn, recipients with multiple awards drew funds from their pool of grant funds.

%anaping for Results: Building on Agencies’Strategic Plans to Improve Federal Management (GAO/l’-
GGD/tiMD-98-29, October 30,1997).

“Ewer, Sid R. “Managerial Cost Accounting: A Step Toward Accountabiity and Reliable Costing of
Federal Programs,” The Government Accountants Journal, spring 1999, p. 52.

7Financial Management:Continued Momentum Essential to Achieve CFO Act Goals (GAO/T&MD-96
10, December 14,1995).

?EDPMS,the department’s legacy pay system, was used until May 1998.

Page 3              GAOLAIMD-99-235R Increased Accuracy of Budget Outlay Estimates
B-2831 12

Consequently, the department could not identify drawdowns to specific awards or
even programs as they occurred. Expenditures to specific programs were not known
until the recipients reported their expenditures back to the department.

According to the grant managers we interviewed, the action of the grantee is a
primary factor in the timing of budget outlays. They told us that states may rely less
on federal funds during good economic times and that this can change spending
patterns. For example, spending in the Migrant Education-Basic State Grant program
can vary greatly by the recipient state, the type of migrant population it serves, and
changes in the economy. Policy decisions also can affect the rate of budget outlays.
Budget outlay rates slowed considerably for several of the grant programs we
reviewed after the Congress granted them expanded authority to carry over fund
balances from one year to the next.

The department’s recent experience with the Technology Literacy Challenge Fund
(TLCF) grant program provides a specific example of account level estimates that
were not sufficiently accurate to meet the needs of budget decisionmakers.
Generally, the Office of Budget Service develops budget outlay rates at the.account
level. However, because concerns were raised that spending for the TLCF grant
program was slower than expected, the department, according to a Budget Service
official, required states to use special award and grant recipient numbers when
drawing down funds for these grants. In this way, the department was able to
identify obligations and outlays for the TLCF program separately and confirm that
spending was slower than for other grant programs in the same account. As a result,
the department lowered its estimates for the Education Reform account with the
agreement of OMB and CBO. Although the department is required to report outlays
 at the account level, the Education Reform account is the only account that
 incorporates actual program level detail in developing budget outlay estimates.

The Deuartment’s Cauacitv to Monitor and Estimate
Budget Outlaw Has Been Aurnnented Recently

GAPS-a component of Education’s recently implemented integrated financial
management and information system-provides Education with significantly
enhanced ability to provide more reliable budget outlay information than in the past.
Prior to GAPS, the department did not have timely information, as noted above, on
how grants were allocated when multiple awards were given to one grantee. It took
approximately 4 months for the grantee to report whether a drawdown was for one
award or more, or even if a drawdown had actually occurred. With GAPS, each
drawdown is immediately matched to the specific grant program and account.
Budget outlay data at the program level are available to the Office of Budget Service,
the Office of the CFO, and the program offices as the budget outlays occur. This
enables the department to incorporate actual program level detail for all grant
programs in developing outlay estimates.

 Education Central Automated Processing Systems (EDCAPS). The GAPS component of EDCAF’S was
 implemented on May 1,1998.

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Accurate budget outlay estimates are critical to decisonmakers when considering
program funding needs. The current budgetary environment, which caps
discretionary spending, and the emergence of recent management reforms have
heightened the significance of accurate budget outlay data. Although the
Department of Education’s current practice of developing budget outlay data at the
account level meets OMB’s reporting requirements, the department now has the
capability to monitor outlay data at the program level. Recently, Education
implemented a management information system that potentially can produce more
accurate budget outlay estimates or, at least, provide assurance that the current
method of estimating budget outlays is as accurate as it can be. We found, however,
that the use of budget outlay data varies by grant program offices, and, most
important, that the Office of Budget Service is not using this information for
estimating future spending. Except for the TLCF program, the Offke of Budget
Service does not use program level data to develop and update budget outlay


We, therefore, recommend that you direct the Offke of Budget Service to
systematically monitor budget outlay data available through GAPS and use this
information to estimate and adjust spendout rates at the account level to reflect
actual program level data.

Agency Comments

On July 27,1999, we provided a draft of this letter to the Department of Education.
On August 11,1999, the Director of the Office of Budget Service provided written
comments stating that the department concurred with our recommendation and will
use actual program outlay data to develop account level outlay estimates beginning
with the fiscal year 2001 budget submissions to OMB and the Congress. In his
response, the Director stated that his offke strongly supports the new GAPS system
and its ability to provide more accurate data, but noted that in the past the outlay
rates used by Education were jointly agreed upon by Budget Service, OMB, and CBO.
Moreover, account level rates were designed to reduce the number of projection rates
used and facilitated outlay estimating by the Congress during the appropriations
process. We have incorporated additional technica and clarifying comments as

This letter contains a recommendation to you. The head of a federal agency is
required by 31 U.S.C. 720 to submit a written statement on action taken on this
recommendation to the Senate Committee on Governmental Affairs and the House
Committee on Government Reform not later than 60 days after the date of this letter.
A written statement must also be sent to the House and Senate Committees on

Page 5           GAOLAIMD-99-235RIncreased Accuracy of Budget Outlay Estimates

Appropriations with the agency’s first request for appropriations made more than 60
days after the date of this report.

We are sending copies of this report to Senator Tom Harkin, Senator James Jeffords,
Senator Edward Kennedy, and Senator Arlen Specter and to Representative William
Clay, Representative William Goodling, Representative David Obey, and
Representative John Edward Porter, in their capacities as Chairmen or Ranking
Minority Members of Senate and House Committees. We are also sending copies to
other interested Members of the Congress, and we will send copies to others on
request. If you or your staff have any questions regarding this letter, please contact
me at (202) 512-9573. This report was prepared under the direction of Denise
Fantone, Assistant Director. Other key contributors were Hannah Laufe and Marcus

Sincerely yours,

Paul L. Posner
Director, Budget Issues


 Page 6            GAO/AIMD-99-235R Increased Accuracy of Budget Outlay Estimates
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