oversight

Environmental Protection Agency: Problems Persist in Effectively Managing Grants

Published by the Government Accountability Office on 2003-06-11.

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

                             United States General Accounting Office

GAO                          Testimony
                             Before the Subcommittee on Water
                             Resources and Environment, Committee
                             on Transportation and Infrastructure,
                             House of Representatives
For Release on Delivery
Expected at 10:00 a.m. EDT
Wednesday, June 11, 2003     ENVIRONMENTAL
                             PROTECTION AGENCY
                             Problems Persist in
                             Effectively Managing Grants
                             Statement of John B. Stephenson, Director,
                             Natural Resources and the Environment




GAO-03-628T
                                                June 2003


                                                ENVIRONMENTAL PROTECTION AGENCY

                                                Problems Persist in Effectively Managing
Highlights of GAO-03-628T, testimony to         Grants
the Subcommittee on Water Resources
and Environment, Committee on
Transportation and Infrastructure, House
of Representatives




Over the years, EPA has had                     EPA faces four key problems in managing its grants: (1) selecting the most
persistent problems in managing its             qualified grant recipients from a large applicant pool, (2) effectively
grants. Grants constituted one-half             overseeing grantees throughout the life of the grant, (3) measuring the
of the agency’s annual budget, or               results of the grantees’ work, and (4) effectively managing its grants staff
about $4.2 billion in fiscal year               and resources. EPA must resolve these problems in order to improve its
2002. EPA uses grants to
implement its programs to protect
                                                management of grants.
human health and the environment
and awards them to over 3,300                   In recent years, EPA has taken a series of actions to address two of its key
recipients, including state and local           problem areas: grantee oversight and resource management. EPA actions
governments, tribes, universities,              include issuing several oversight policies, conducting training, and
and nonprofit organizations. EPA’s              developing a new data system for grants management. However, these past
ability to efficiently and effectively          actions were not consistently successful in resolving grants management
accomplish its mission largely                  problems because of weaknesses in implementation and insufficient
depends on how well it manages its              management emphasis. For example, between 1998 and 2002, EPA issued
grant resources and builds in                   three policies designed to improve oversight of grantees, but EPA staff did
accountability.                                 not consistently carry them out.
Since 1996, GAO and EPA’s Office
of Inspector General have                       Late in 2002, EPA launched new efforts to address some of its grants
repeatedly reported on EPA’s                    management problems. In September 2002, EPA, for the first time, issued a
problems in managing its grants.                policy to promote competition in awarding grants. In December 2002, it
Because these problems have                     issued a new policy designed to better ensure effective grant oversight.
persisted, in January 2003, GAO                 Finally, in April 2003, EPA issued a 5-year grants management plan to
cited grants management as a                    address its long-standing grants management problems. GAO is still
major management challenge for                  reviewing these new efforts.
EPA. GAO is currently reviewing
EPA’s efforts to improve grants                 Although EPA’s recent actions seem promising, the agency has a long history
management at the request of the                of undertaking initiatives to improve grants management that have not
Chairman of the House Committee
on Transportation and
                                                solved its problems. If the future is to be different from the past, EPA must
Infrastructure and Representative               work to aggressively implement its new policies and its ambitious 5-year
Anne Northup. For this testimony                plan through a sustained, coordinated effort. It will be particularly
GAO is reporting on results of its              important for all agency officials involved in managing grants to be
previously issued reports and on                committed to and held accountable for achieving the plan’s goals and
the grants problems EPA faces,                  objectives.
past actions to address these
problems, and recently issued EPA
policies and a 5-year grants
management plan to address its
long-standing grants management
problems.



www.gao.gov/cgi-bin/getrpt?GAO-03-628T

To view the full testimony, click on the link
above.
For more information, contact John B.
Stephenson at (202) 512-3841 or
stephensonj@gao.gov.
    Mr. Chairman and Members of the Subcommittee:

    We are pleased to be here today to discuss the Environmental Protection
    Agency’s (EPA) management of its grants. My testimony is based on issued
    GAO reports and ongoing work we are conducting at the request of the
    Chairman of the House Committee on Transportation and Infrastructure
    and Representative Anne Northup. We plan to issue our report this
    summer.

    As you know, over the years, EPA has had persistent problems in
    managing its grants. Grants constituted one-half of the agency’s annual
    budget or about $4.2 billion, in fiscal year 2002. EPA uses grants to
    implement its ongoing programs to protect human health and the
    environment and awards grants to over 3,300 recipients, including state
    and local governments, tribes, universities, and nonprofit organizations.
    With about half of its budget devoted to grants, EPA’s ability to efficiently
    and effectively accomplish its mission largely depends on how well it
    manages its grant resources and builds accountability into its efforts.
    Because of its grants management problems, which we and the EPA
    Inspector General have repeatedly reported on, we designated EPA’s
    grants management as a major management challenge in January 2003.1

    Our testimony today describes the (1) major problems EPA faces in
    managing its grants, (2) actions EPA has taken in the past to address these
    problems, and (3) recently issued EPA policies and a 5-year plan to resolve
    these problems. In addition to our own reports, we examined EPA’s Office
    of Inspector General reports, EPA’s internal management reviews,2 and
    other documents to identify EPA’s key grants management problems.

    In summary:

•   EPA faces four key problems in managing its grants: (1) selecting the most
    qualified grant recipients from a large applicant pool, (2) effectively
    overseeing grantees throughout the life of the grant, (3) measuring the
    results of its grantees’ work, and (4) effectively managing its grants staff



    1
     See U.S. General Accounting Office, Major Management Challenges and Program Risks:
    Environmental Protection Agency, GAO-03-112 (Washington, D.C.: Jan. 2003).
    2
     EPA conducts three types of internal management reviews designed to assess the
    effectiveness of grants management: Management Oversight Reviews, Management
    Effectiveness Reviews, and Post-Award Validation Reviews.



    Page 1                                         GAO-03-628T EPA's Grants Management
                 and resources. EPA must resolve these problems in order to improve its
                 grants management.

             •   EPA has taken a series of actions in the past to correct these problems,
                 but several of these actions were not consistently successful because of
                 weaknesses in implementation and insufficient management emphasis.
                 For example, EPA issued three policies designed to improve grantee
                 oversight, but EPA staff did not consistently carry them out.

             •   Late in 2002, EPA launched new efforts to address some of its grants
                 management problems. In September 2002, EPA, for the first time, issued a
                 policy to promote competition in awarding grants. In December 2002, it
                 issued a new policy designed to better ensure effective grant oversight.
                 Finally, in April 2003, EPA issued a 5-year grant management plan to
                 address its long-standing grants management problems. While these
                 actions show promise, we are still early in our review of EPA’s new
                 efforts.

                 EPA offers two types of grants—nondiscretionary and discretionary:
Background
             •   Nondiscretionary grants support water infrastructure projects, such as
                 renovating municipal drinking water facilities, and continuing
                 environmental programs, such as the Clean Air Program for monitoring
                 and enforcing Clean Air Act regulations. For these grants, Congress directs
                 awards to one or more classes of prospective recipients who meet specific
                 criteria for eligibility. These continuing environmental grants are often
                 awarded on the basis of formulas prescribed by law or agency regulation.
                 In fiscal year 2002, EPA awarded about $3.5 billion in nondiscretionary
                 grants. EPA has primarily awarded these grants to states or other
                 governmental entities.

             •   Discretionary grants fund a variety of activities, such as environmental
                 research and training. EPA has the discretion to independently determine
                 the recipients and funding levels for these grants. In fiscal year 2002, EPA
                 awarded about $719 million in discretionary grants. EPA has awarded
                 these grants to nonprofit organizations and universities in addition to
                 governmental entities.

                 EPA administers and oversees grants through the Grants Administration
                 Division within the Office of Grants and Debarment, 12 program offices in
                 headquarters, and EPA’s 10 regional offices. The Grants Administration
                 Division develops overall grants policy. About 102 grant specialists in
                 headquarters and the regions are responsible for overseeing the
                 administration of grants. EPA also has approximately 3,000 project


                 Page 2                                    GAO-03-628T EPA's Grants Management
    officers within headquarter program offices and the regions. These officers
    are responsible for overseeing the technical or programmatic aspects of
    the grants. While grant specialists are dedicated to grants management,
    EPA staff members who serve as project officers have other primary
    responsibilities.

    The grant process has four phases:

•   Pre-award. EPA reviews the application paperwork and makes an award
    decision.

•   Award. EPA prepares the grant documents and instructs the grantee on
    technical requirements, and the grantee signs an agreement to comply
    with all requirements.

•   Post-award. EPA provides technical assistance and oversight; the grantee
    completes the work, and the project ends.

•   Closeout of the award. The project officer ensures that the project is
    completed; the grants management office prepares closeout documents
    and notifies the grantee that the grant is completed.

    EPA has had persistent problems in managing its grants. In 1996, EPA’s
    Inspector General testified before Congress that EPA did not fulfill its
    obligation to properly monitor grants.3 Acknowledging these problems,
    EPA identified oversight, including grant closeouts, as a material
    weakness—a management control weakness that the EPA Administrator
    determines is significant enough to report to the President and Congress.
    EPA’s fiscal year 1999 Integrity Act report indicated that this oversight
    material weakness had been corrected, but the Inspector General testified
    that the weakness continued. In 2002, the Inspector General and the Office
    of Management and Budget recommended that EPA, once again, designate
    grants management as a material weakness. EPA ultimately decided to
    maintain this issue as an agency-level weakness, which is a lower level of
    risk than a material weakness. EPA made this decision because it believes
    its ongoing corrective action efforts will help to resolve outstanding grants
    management problems. However, in adding EPA’s grants management to
    GAO’s list of EPA’s major performance and accountability challenges in


    3
     Testimony of John Martin, Inspector General, U.S. Environmental Protection Agency,
    before the House Subcommittee on National Economic Growth, Natural Resources and
    Regulatory Affairs of the Committee on Government Reform and Oversight, July 30, 1996.



    Page 3                                         GAO-03-628T EPA's Grants Management
                            January 2003, we signaled our concern that EPA has not yet taken action
                            to ensure that it can manage its grants effectively.


                            EPA faces four major, persistent problems in managing its grants. It must
EPA Continues to            resolve these problems in order to improve its grants management.
Face Problems in            Specifically, EPA has not always
Managing Its Grants     •   awarded its discretionary grants competitively or ensured that it solicits
in Four Key Areas           these grants proposals from a large pool of applicants;

                        •   effectively overseen its grantees’ progress and compliance with the terms
                            of the grant;

                        •   managed its grants so that they are effectively used to achieve
                            environmental results; and

                        •   effectively managed its grants management resources by holding its staff
                            accountable for performing their duties, ensuring that the staff are
                            adequately trained and appropriately allocated, and providing them with
                            adequate management information.


EPA Has Not Always          Until September 2002, EPA did not have a policy for competing the
Awarded Grants              discretionary grants that might be eligible for competition—about $719
Competitively and Ensured   million of its total $4.2 billion in grant funding in fiscal year 2002.
                            Consequently, EPA was not promoting competition. According to EPA’s
Widespread Solicitations    own internal management reviews and an Inspector General report, EPA
                            did not always compete its discretionary grants when competition might
                            have been warranted. By competitively soliciting grants, EPA would be
                            able to choose the best project at the least cost to the government and is
                            encouraged by the Federal Grant and Cooperative Agreement Act of 1977.

                            EPA can award its discretionary grants noncompetitively; however, it is
                            required by agency guidance to document the reasons for these decisions
                            in a “decision memorandum.” It has not consistently done so, according to
                            EPA’s internal management reviews. Lack of documentation raises
                            questions about the award process and ultimately about whether EPA is
                            providing its grant funds to the best-qualified applicants.

                            Furthermore, EPA has not always engaged in widespread solicitation
                            when it could be beneficial to do so. This type of solicitation would
                            provide greater assurance that EPA receives proposals from a variety of


                            Page 4                                   GAO-03-628T EPA's Grants Management
                             eligible and highly qualified applicants who otherwise may not have
                             known about grant opportunities. According to a 2001 EPA Inspector
                             General report,4 program officials indicated that widespread solicitation
                             was not necessary because “word gets out” to eligible applicants.
                             Applicants often sent their proposals directly to these program officials
                             who funded them using “uniquely qualified” as the justification for a
                             noncompetitive award. This procedure creates the appearance of
                             preferential treatment by not offering the same opportunities to all
                             potential applicants. In addition, the agency provided incomplete or
                             inconsistent public information on its grant programs in the Catalog of
                             Federal Domestic Assistance and therefore the public and potential
                             applicants may not have been adequately informed of funding
                             opportunities.


EPA Has Not Always           EPA has faced five persistent problems in overseeing its grants. First,
Effectively Overseen Grant   EPA’s internal reviews found that grantees’ progress reports, one of the
Recipients                   best sources of information for monitoring recipients, did not include
                             required financial information, and grantees had not always submitted
                             progress reports in a timely fashion. EPA generally requires recipients to
                             submit progress reports to the project officer within a specified time
                             frame. These reports are to include progress to date, any difficulties
                             encountered, a discussion of expenditures compared to work completed,
                             and an explanation of significant discrepancies. Although the recipient is
                             responsible for submitting timely progress reports that discuss the
                             project’s financial status, the project officer is responsible for ensuring
                             that the recipient has done so.

                             Second, project officers and grant specialists did not always document
                             their monitoring activities, which raises questions about the extent of the
                             monitoring they did conduct. According to an EPA internal review, for
                             example, one grants management office developed a form to ensure
                             monitoring activities were completed, but the form was missing from 50
                             percent of the grant files reviewed, and when the monitoring form was
                             used, it was not always completed. Furthermore, project officers did not




                             4
                             EPA Office of Inspector General, EPA’s Competitive Practices for Assistance Awards,
                             Report No. 2001-P-00008 (May 21, 2001).



                             Page 5                                         GAO-03-628T EPA's Grants Management
always document that they had monitored required key areas, such as
ensuring compliance with the terms and conditions of the grant award.5

Third, EPA has not always ensured that different types of grantees have
adequate financial and internal controls to ensure that they use federal
funds properly. For example, in 2001,6 we reported that EPA’s oversight of
nonprofit grantees’ costs did not ensure that grant funds were used for
costs allowed under guidance published by the Office of Management and
Budget.7 In particular, EPA’s on-site reviews were flawed. The reviews did
not include transaction testing to identify expenditures that are not
allowed, such as lobbying. We also found that EPA had conducted on-site
reviews at only 4 percent of nonprofit grantees who might have had
inexperienced staff and inadequate financial and internal controls. In 2000
and 2002, the EPA Inspector General reported that one state’s department
of environmental management and two tribes, respectively, lacked
adequate financial and internal controls.8 These problems could have been
identified through EPA oversight of grantees.

Fourth, EPA has sometimes not ensured that grantees are complying with
certain grant regulations, such as those pertaining to grantee procurement
and conflict-of-interest. In 2002, the EPA Inspector General reported that
EPA did not monitor grantees’ procurements to determine if the grantees
were using a competitive process to obtain the best products, at the best
price, from the most qualified firms.9 In 1999 and 2002, the EPA Inspector
General reported conflict-of-interest problems because grant recipients
had awarded contracts to parties who had assisted them in preparing their




5
The monitoring of key areas is required under EPA Order 5700.4, Interim Grantee
Compliance Assistance Initiative Policy, (Feb. 2002).
6
 U.S. General Accounting Office, Environmental Protection: EPA’s Oversight of Nonprofit
Grantees’ Costs Is Limited, GAO-01-366 (Washington, D.C.: Apr. 6, 2001).
7
 The Office of Management and Budget has issued three circulars defining what are
allowable costs for different types of grantees: A-21, A-87, and A-122.
8
EPA Office of Inspector General, Grant Management Practices of Rhode Island
Department of Environmental Management, Audit No. 2000-1-00416 (Sep. 21, 2000); EPA
Office of Inspector General, EPA Grants Awarded to the Lower Brule Sioux Tribe, Report
No. 100370-2002-1-000099 (Mar. 29, 2002); EPA Office of Inspector General, EPA Grants
Awarded to the Crow Tribe, Report No. 100370-2002-1-000098 (Mar. 27, 2002).
9
EPA Office of Inspector General, Procurements Made by Assistance Agreement
Recipients Should Be Competitive, Report No. 2002-P-00009 (Mar. 28, 2002).



Page 6                                          GAO-03-628T EPA's Grants Management
                        grants and therefore had advance knowledge about grantees’ plans to
                        award contracts.10

                        Finally, EPA has not fully ensured that recipients are submitting final
                        reports in a timely manner and meeting grant objectives. For example, in
                        2000, we reported that EPA had not adequately tracked its Science To
                        Achieve Results research grants to ensure their on-time completion.11 We
                        found that 144 of the nearly 200 grants we reviewed had missed their
                        deadline for submitting final reports, even after some extensions had been
                        given. Also, in 1998, EPA’s Inspector General reported that EPA had not
                        monitored training assistance grants to nonprofit grantees to determine
                        how many students were being trained or how much the training cost.12


EPA Has Not Always      EPA awarded some grants before considering how the results of the
Managed Its Grants to   grantees’ work would contribute to achieving environmental results. In
Achieve Environmental   2001, we reported that EPA program officials treated EPA’s strategic goals
                        and objectives not as a tool to guide the selection of grants, but rather as a
Results                 clerical tool for categorizing grants after the funds were already awarded.13
                        By assessing the relevance of these grants to EPA’s strategic plan after
                        selecting the grantees, EPA cannot ensure that it is selecting the projects
                        that will best help it accomplish its mission.

                        EPA has also not developed environmental measures and outcomes for all
                        of its grant programs. In 2000, we reported that EPA did not have program
                        criteria to measure the effectiveness of its Science To Achieve Results
                        program.14 Instead, EPA’s management of the program focused on the
                        procedures and processes of awarding grants. As a result, EPA was


                        10
                          EPA Office of Inspector General, Assistance Agreement X993795-01 Awarded by EPA to
                        the Lake Wallenpaupack Watershed Management District, Report No. 2002-M-00007 (Jan.
                        18, 2002); and EPA Office of Inspector General, Report of Audit on the Center for
                        Chesapeake Communities, Report No. E6DEP8-03-0014-9100117 (Mar. 31, 1999).
                        11
                         U.S. General Accounting Office, Environmental Research: STAR Grants Focus on
                        Agency Priorities, but Management Enhancements Are Possible, GAO/RCED-00-170
                        (Washington, D.C.: Sep. 11, 2000).
                        12
                         EPA Office of Inspector General, EPA’s Training Assistance Agreements, Report No.
                        E1XMF6-03-0224-8100070 (Mar. 4, 1998).
                        13
                         U.S. General Accounting Office, Environmental Protection: Information on EPA Project
                        Grants and Use of Waiver Authority, GAO-01-359 (Washington, D.C.: Mar. 9, 2001).
                        14
                         GAO/RCED-00-170.



                        Page 7                                        GAO-03-628T EPA's Grants Management
                          uncertain what the program was achieving. Similarly, the Office of
                          Management and Budget recently evaluated four EPA grant programs to
                          assess the programs’ effectiveness at achieving and measuring results.15
                          The office found that these four EPA grant programs lacked outcome-
                          based measures—measures that demonstrated the impact of the programs
                          on improving human health and the environment. The office concluded
                          that one of EPA’s major challenges was demonstrating program
                          effectiveness in achieving public health and environmental results.

                          EPA often does not require grantees to submit work plans that explain
                          how a project would achieve measurable environmental results. The
                          grantee work plan describes the project, its objectives, and the method the
                          grantee will use to accomplish the objectives. An effective work plan
                          should, among other things, list the grant’s expected outcomes. The
                          project officer uses the work plan to evaluate performance under the
                          agreement. In 2002, EPA’s Inspector General reported that EPA approved
                          some grantees’ work plans without determining the projects’ long-term
                          human health and environmental outcomes.16 In fact, for almost half of the
                          42 grants reviewed, EPA did not even attempt to measure the projects’
                          outcomes. Instead, EPA funded grants on the basis of work plans that
                          focused on short-term procedural results, such as meetings or
                          conferences. In some cases, it was unclear what the grant funding had
                          accomplished.


EPA Has Not Effectively   Both EPA’s internal management reviews and its Inspector General
Managed Its Grant         reports have noted several problems in how effectively and efficiently EPA
Resources                 manages its grants staff and other resources. In terms of staff, the agency
                          has not always held accountable its staff responsible for grants
                          management, such as project officers and grant specialists. EPA’s internal
                          management reviews have found that, in some cases, job descriptions or
                          performance standards were inadequate. The Inspector General recently



                          15
                           The four EPA programs assessed were the Drinking Water State Revolving Fund, Leaking
                          Underground Storage Tanks, Nonpoint Source Grants, and Tribal General Assistance
                          programs. The Office of Management and Budget evaluated these programs using its
                          Program Assessment Rating Tool, a questionnaire that evaluated four critical areas of
                          performance: purpose and design, strategic planning, management, results and
                          accountability. These assessments were included in the President’s 2004 budget
                          submission.
                          16
                           EPA Office of Inspector General, Surveys, Studies, Investigations, and Special Purpose
                          Grants, Report No. 2002-P-00005 (Mar. 21, 2002).



                          Page 8                                          GAO-03-628T EPA's Grants Management
reported similar findings.17 According to the Inspector General, agency
leadership had not always emphasized the importance of project officer
duties, nor held project officers accountable for performing certain duties.
More specifically, project officer responsibilities were not clearly defined
in their performance agreements and position descriptions, and there were
no consequences when required duties were not performed.

EPA has also not provided all grant staff with the training necessary to
properly manage all aspects of grants. EPA’s internal management reviews
have noted that some staff who were managing grants had not completed
the basic project officer training. Other staff may have completed the basic
training but needed additional training to refresh their skills or to become
familiar with all of their grants management responsibilities and
requirements. For example, in some instances, project officers were not
familiar with the five key areas they were to review when monitoring
grantees, such as the financial aspects of a grantee’s performance.

Internal management reviews also identified other staff-related problems.
For example, some internal reviews stated that EPA did not have enough
staff to adequately manage the number of grants it awards. Furthermore,
other reviews noted that uneven distribution of workload among staff
resulted in poor grants management.

EPA has also not adequately managed its resources for supporting grant
staff. Some EPA internal management reviews noted a lack of resource
commitment—time and money—to conduct grant management activities
and develop staff. This lack of resources has hampered staff in performing
their duties, according to these reviews. For example, some of these
reviews noted that grantee oversight, particularly the on-site reviews, was
limited by the scarcity of such resources as travel funds.

Finally, staff did not always have the information they needed to
effectively manage grants. According to several EPA internal management
reviews, staff lacked accessible or useable reference material—such as
policy and guidance documents, and other information resources, such as
reports of grantee expenditures. Additionally, we and others have reported
that EPA does not use information from performance evaluations or
information systems to better manage its grants. For example, one EPA



17
 EPA Office of Inspector General, EPA Must Emphasize Importance of Pre-Award
Reviews for Assistance Agreements, Report No. 2003-P-00007 (Mar. 31, 2003).



Page 9                                       GAO-03-628T EPA's Grants Management
                               region did not analyze the results of its own internal surveys, which were
                               designed to assess the effectiveness of its internal grants management
                               operations.


                               In recent years, EPA has taken a series of actions to address two of its key
EPA’s Past Actions             problem areas: grantee oversight and resource management. It has issued
Have Targeted Some             several oversight policies, conducted training, and developed a new data
                               system for grants management. However, EPA’s corrective actions have
of the Key Problems            not been consistently successful because of weaknesses in their
but Have Not Been              implementation and insufficient management emphasis.
Consistently
Successful
EPA Has Taken Actions to       Between 1998 and 2002, EPA issued three policies to improve its oversight
Improve Oversight of           of its grant recipients. These policies have tried to improve oversight by
Grantees and Resource          establishing, expanding, and refining the activities of EPA staff involved in
                               managing grants. EPA took additional actions to reduce the backlog of
Management                     grants needing closeout.

                           •   EPA’s first policy, issued in May 1998, required grants management office
                               staff to monitor the financial progress and administrative compliance of
                               grant recipients’ activities. The policy also required the staff to conduct
                               site visits or desk reviews to review the adequacy of some grantees’
                               administrative and financial systems for managing their grants.
                               Furthermore, the grants management offices had to submit biennial
                               monitoring plans, which included their proposed monitoring activities.
                               Finally, the policy included suggested criteria for selecting grantees to be
                               reviewed and guidelines for how to conduct the oversight activities.

                           •   EPA’s second policy, issued in April 1999, added oversight responsibilities
                               for program staff in headquarters and the regions. The policy required
                               headquarters and regional program offices to submit annual plans
                               outlining their proposed monitoring activities. The policy also suggested
                               activities to be included in these plans, such as monitoring grantees’
                               progress of work, documenting their efforts, and closing out grants in a
                               timely manner.

                           •   EPA’s third policy, issued in February 2002, further refined its oversight
                               requirements by having grant management and program offices conduct




                               Page 10                                   GAO-03-628T EPA's Grants Management
in-depth monitoring on at least 5 to 10 percent of their grant recipients.18
The grant management offices had to assess grantees’ financial and
administrative capacity, while the program offices had to assess the
grantees’ activities in five key areas, such as progress of work and
financial expenditures. Furthermore, the grant management offices, as
well as regional and headquarters program offices, had to report quarterly
on their in-depth monitoring activities. Additionally, the policy committed
the Office of Grants and Debarment to the development of a database,
which, according to an EPA official, the grants management offices would
use to store the results of their in-depth monitoring activities. Finally, the
policy included suggested guidance for how to conduct program office
reviews.

One of the final steps in monitoring is “closing out” grants to ensure that
the project was completed and that any remaining funds are recovered. In
1996, EPA had a backlog of over 19,000 grants needing closeout. To reduce
such backlogs and prevent future backlogs, EPA, among other things,
developed specific procedures for closing out nonconstruction grants and
identified a strategy for closing construction grants that included assessing
impediments to closing out grants.

In terms of resource management, EPA provided grants management
training for its staff and some grant recipients. It developed and
periodically updated a training manual for project officers. EPA also
required project officers to attend a 3-day training course based on this
manual and periodically take a refresher course. EPA developed a
database to certify that project officers had completed this training.
According to an EPA official, grants specialists have also received some
training. Finally, EPA conducted a 1-day grants management training
course for nonprofit grantees and pilot-tested a standard training course
for grants specialists.

Finally, EPA has taken steps to improve another critical resource—its
primary data system for managing grants. In 1997, it began developing the
Integrated Grants Management System (IGMS), which, according to an
EPA official, will allow electronic management throughout the life of the
grant. EPA believes IGMS could help resolve some of the long-standing
problems in grants management by implementing controls to prevent
certain documents from being submitted without required elements and



18
 EPA calls this in-depth monitoring, “advanced monitoring.”



Page 11                                         GAO-03-628T EPA's Grants Management
                               providing electronic reminders of when certain activities or documents are
                               due. Additionally, EPA designed the system to reduce the potential for
                               data entry errors.

                               According to an EPA official, IGMS is being developed through modules.
                               In 2001, EPA began implementing the system to control the application
                               and award phases of a grant. Using IGMS, EPA will be able to review the
                               grantee’s application, prepare and review EPA’s documents, and approve
                               the award electronically. In April 2003, EPA will begin using the post-
                               award module of IGMS. This module will allow project officers to enter
                               project milestones into the system, communicate with other staff involved
                               in overseeing grants, receive electronic reports from grantees, and initiate
                               closeout activities electronically. EPA expects that all staff will be using
                               IGMS to electronically manage grants by September 2004.


EPA’s Past Actions Have        EPA continues to face grant management problems, despite the corrective
Had Mixed Results and          actions it has taken to date. In 2002, EPA’s Inspector General reported that
Have Not Been                  EPA’s corrective actions were not effectively implemented and
                               specifically, for monitoring, found, among other things,19
Consistently Successful in
Resolving Grants           •   inconsistent performance of monitoring responsibilities,
Management Problems
                           •   inadequate preparation of monitoring plans,

                           •   incomplete submission of quarterly compliance reports, and

                           •   considerable differences among the programs and the regions in the
                               number of on-site evaluations they conducted.

                               As part of our ongoing review, we are assessing EPA’s corrective actions
                               for monitoring and have found mixed results. On the one hand, we have
                               seen some problems. For example, we identified two weaknesses in the
                               database EPA created to store the results of its in-depth reviews. First,
                               only grant management offices—not program offices—had to enter the
                               results of their reviews into this database, and according to an EPA official
                               familiar with the database, not all of them did so. Second, according to the
                               same official, EPA did not design the database so that it could analyze the
                               results of the in-depth reviews to make management improvements.


                               19
                                EPA Office of Inspector General, Additional Efforts Needed to Improve EPA’s Oversight
                               of Assistance Agreements, Report No. 2002-P-00018 (Sept. 30, 2002).



                               Page 12                                        GAO-03-628T EPA's Grants Management
On the other hand, however, we found that EPA’s corrective actions
increased the oversight of its grant recipients. In 2002, EPA reported that it
had conducted 578 on-site reviews, and 629 desk reviews, which is an
increase in both the number of on-site reviews and the number of reviews
some offices conducted.20 In addition, EPA’s 2002 internal reviews
indicated some improvements in oversight compared with the prior year’s
performance.

On another positive note, EPA has made improvements in closing out
grants. In 1998, we reported that in some instances EPA’s corrective
actions to close out grants were not initially successful. 21 For example, we
had found that strategies to reduce the closeout backlog were not always
consistently implemented or failed to close out a considerable number of
grants, despite making some progress. However, EPA had successfully
resolved its backlog problem by 2002. As a result, EPA has been able to
eliminate this backlog as a material weakness and receive better assurance
that grant commitments have been met.

With respect to resource management, EPA implemented corrective
actions to improve training, but these actions have not been fully
successful. For training, the EPA Inspector General reported that the
agency did not have adequate internal controls in place to ensure that
project officers were in compliance with the training requirements.
Specifically, one region did not track the names and dates of project
officers who received training, the agencywide database on training for
project officers was inaccurate and had limited functionality, and the on-
line refresher course did not have the controls necessary to prevent staff
from obtaining false certifications.

In addition to the weaknesses in the corrective actions for specific
problem areas, the EPA Inspector General found two other problems.
First, the agency’s internal grant management reviews did not consistently
examine issues to identify and address systemic weaknesses, did not
adequately identify the causes of specific weaknesses or how the proposed
corrective actions would remedy the identified weakness, and were not
sufficiently comprehensive. Furthermore, the Grants Administration
Division did not assess the results of these reviews to make management


20
 EPA’s Inspector General reported that EPA conducted 466 on-site evaluations in 2001.
21
 U.S. General Accounting Office, Environmental Protection: EPA’s Progress in Closing
Completed Grants and Contracts, GAO/RCED-99-27 (Washington, D.C.: Nov. 20, 1998).



Page 13                                         GAO-03-628T EPA's Grants Management
                            improvements. Second, EPA’s senior resource officials did not ensure
                            compliance with EPA policies or sufficiently emphasize grantee
                            oversight.22 The Inspector General concluded that the lack of emphasis
                            contributed to the identified implementation weaknesses. In response to
                            this assertion, senior resource officials stated that monitoring is affected
                            by the limited availability of resources, and that they lack control over
                            how regional program offices set priorities. The Inspector General pointed
                            out that these officials are responsible for providing adequate resources;
                            however, none of the officials interviewed had conducted assessments to
                            determine whether they had adequate resources.


                            EPA has recently issued new policies to address two of the key problems
EPA Has Recently            we have identified—competition and oversight—and developed a 5-year
Issued New Policies         plan to address its long-standing grants management problems. In
                            September 2002, EPA issued a policy to promote competition in awarding
and Developed a Plan        grants by requiring that certain grants be competed. These grants may be
to Address Its Grants       awarded noncompetitively only if certain criteria are met, in which case, a
                            detailed justification must be provided. The new policy also created a
Management                  senior-level advocate for grants competition to oversee the
Problems                    implementation of the policy. In December 2002, EPA also issued a new
                            oversight policy that increases the amount of in-depth monitoring—desk
                            reviews and on-site reviews—that EPA conducts of grantees; mandating
                            that all EPA units enter compliance activities into a database; and
                            requiring transaction testing for unallowable expenditures, such as
                            lobbying, during on-site evaluations reviews.

                            In April 2003, EPA issued a 5-year Grants Management Plan. EPA’s
                            Assistant Administrator for Administration and Resources Management
                            has called implementation of this plan the most critical part of EPA’s
                            grants management oversight efforts. The grants management plan has
                            five goals and accompanying objectives:

                        •   Promote competition in the award of grants by identifying funding
                            priorities, encouraging a large and diverse group of applicants, promoting
                            the importance of competition within the agency, and providing adequate



                            22
                             Senior resource officials are typically deputy assistant administrators in headquarters
                            offices and assistant regional administrators, and are in charge of strengthening
                            agencywide fiscal resource management while also ensuring compliance with laws and
                            regulations.



                            Page 14                                           GAO-03-628T EPA's Grants Management
    support for the grant competition advocate.

•   Strengthen EPA’s oversight of grants by improving internal reviews of EPA
    offices, improving and expanding reviews of EPA grant recipients,
    developing approaches to prevent or limit grants management
    weaknesses, establishing clear lines of accountability for grants oversight,
    and providing high-level coordination, planning, and priority setting.

•   Support identifying and achieving environmental outcomes by including
    expected environmental outcomes and performance measures in grant
    workplans, and improving the reporting on progress made in achieving
    environmental outcomes.

•   Enhance the skills of EPA personnel involved in grants management by
    updating training materials and courses and improving delivery of training
    to project officers and grants specialists.

•   Leverage technology to improve program performance by, for example,
    enhancing and expanding information systems that support grants
    management and oversight.

    Although we have not fully assessed EPA’s new policies and grants
    management plan, I would like to make a few preliminary observations on
    these recent actions based on our ongoing work. Specifically, EPA’s plan:

•   Recognizes the need for greater involvement of senior officials in ensuring
    effective grants management throughout the agency. The plan calls for a
    senior-level grants management council to provide high-level coordination,
    planning, and priority-setting for grants management.

•   Appears to be comprehensive in that it addresses the four major
    management problems—competitive grantee selection, oversight,
    environmental results, and resources—that we identified in our ongoing
    work. Previous EPA efforts did not address all these problems, nor did
    they coordinate corrective actions, as this plan proposes. EPA’s plan ties
    together recent efforts, such as the new policies and ongoing efforts in
    staff and resource management, and proposes additional efforts to resolve
    its major grants management problems.

•   Identifies the objectives, milestones, and resources needed to help ensure
    that the plan’s goals are achieved. Furthermore, EPA is developing an
    annual companion plan that will outline specific tasks for each goal and
    objective, identify the person responsible for completing the task, and set



    Page 15                                  GAO-03-628T EPA's Grants Management
                      an expected completion date.

                  •   Begins to build accountability into grants management by establishing
                      performance measures for each of the plan’s five goals. Each performance
                      measure establishes a baseline from which to measure progress and target
                      dates for achieving results. For example, as of September 2002, 24 percent
                      of new grants to nonprofit recipients that are subject to the competition
                      policy were competed—EPA’s target is to increase the percentage of these
                      competed grants to 30 percent in 2003, 55 percent in 2004, and 75 percent
                      in 2005. The plan further builds accountability by identifying the need for
                      performance standards for project officers and grants specialists that
                      address grant management responsibilities.

                      Although these actions appear promising, EPA has a long history of
                      undertaking initiatives to improve grants management that have not solved
                      its problems. If the future is to be different from the past, EPA must work
                      aggressively to implement its new policies and its ambitious plan through
                      a sustained, coordinated effort. It will be particularly important for all
                      agency officials involved in managing grants to be committed to and held
                      accountable for achieving the plan’s goals and objectives.


                      Mr. Chairman, this concludes my testimony. I would be happy to answer
                      any questions that you or Members of the Subcommittee may have.


                      For further information, please contact John B. Stephenson at (202) 512-
Contacts and          3841. Individuals making key contributions to this testimony were Andrea
Acknowledgments       Wamstad Brown, Christopher Murray, Paul Schearf, Rebecca Shea, Carol
                      Herrnstadt Shulman, Bruce Skud, and Amy Webbink.




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                      Page 16                                 GAO-03-628T EPA's Grants Management
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