oversight

Grants Management: Action Needed to Improve the Timeliness of Grant Closeouts by Federal Agencies

Published by the Government Accountability Office on 2012-04-16.

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

             United States Government Accountability Office

GAO          Report to Congressional Requesters




April 2012
             GRANTS
             MANAGEMENT
             Action Needed to
             Improve the
             Timeliness of Grant
             Closeouts by Federal
             Agencies




GAO-12-360
                                              April 2012

                                              GRANTS MANAGEMENT
                                              Action Needed to Improve the Timeliness of Grant
                                              Closeouts by Federal Agencies
Highlights of GAO-12-360, a report to
congressional requesters




Why GAO Did This Study                        What GAO Found
In 2008, GAO reported that about              At the end of fiscal year 2011, GAO identified more than $794 million in funding
$1 billion in undisbursed funding             remaining in expired grant accounts—accounts that were more than 3 months
remained in expired grant accounts in         past the grant end date and had no activity for 9 months or more—in the
the largest civilian payment system for       Payment Management System (PMS). GAO found that undisbursed balances
grants, PMS, operated by the                  remained in some grant accounts several years past their expiration date: $110.9
Department of Health and Human                million in undisbursed funding remained unspent more than 5 years past the
Services’ Program Support Center.             grant end date, including $9.5 million that remained unspent for 10 years or more
GAO was asked to update its 2008              (see fig. below). GAO also found $126 million in grant accounts in the Automated
analysis evaluating: (1) the amount of        Standard Application for Payments (ASAP) for which there had been no activity
undisbursed funding remaining in              for 2 years or more, including $11 million that remained inactive for 5 years or
expired grant accounts, including the         more. However, data from these two systems are not comparable because,
amounts that have remained unspent            unlike PMS, ASAP accounts can include multiple grant agreements between a
for at least 5 years or more and for 10       federal agency and a grantee, only some of which may be eligible for closeout.
years or more; (2) issues raised by
GAO and federal inspectors general            Amount and Aging of Undisbursed Balances in Expired Grant Accounts in PMS as of
related to timely grant closeout by           September 30, 2011
federal agencies; and (3) actions OMB
and agencies have taken to track
undisbursed balances in grants eligible
for closeout. To do this, GAO analyzed
data from two federal payment
systems disbursing 79 percent of all
civilian federal grant awards—PMS
and the ASAP system, which is
operated jointly by the Department of
the Treasury and the Federal Reserve
Bank of Richmond. In addition, GAO
also reviewed audit reports that it and
federal inspectors general issued;
relevant OMB circulars and guidance;
and performance reports from federal
agencies.

What GAO Recommends
GAO recommends that OMB revise
future guidance to better target
undisbursed balances in grants eligible
for closeout and instruct agencies to         GAO and agency inspectors general have raised concerns in audit reports about
take action to close out grants that are      timely grant closeout. These reports found that some agencies lack adequate
several years past their end date or          systems or policies to properly monitor grant closeout or did not deobligate funds
have no undisbursed balances                  from grants eligible for close out in a timely manner.
remaining. OMB staff said that they
generally agreed with the                     OMB issued guidance to certain agencies at the direction of Congress for
recommendations and will consider             reporting undisbursed balances in expired grant accounts that instructed
them as they review and streamline            agencies to report on expired appropriations accounts rather than grant accounts
grant policy guidance.                        eligible for closeout. By focusing on grants eligible for closeout, OMB could better
                                              direct agency management toward grants in need of more immediate attention.
View GAO-12-360. For more information,
contact Stanley J. Czerwinski at (202) 512-   Grant closeout makes funds less susceptible to fraud, waste, and
6806 or czerwinskis@gao.gov or Beryl H.       mismanagement; reduces the potential costs in fees related to maintaining
Davis at (202) 512-2623 or davisbh@gao.gov.   grants; and may enable agencies to redirect resources to other projects.
                                                                                         United States Government Accountability Office
Contents


Letter                                                                                 1
               Background                                                              4
               More Than $794 Million in Undisbursed Balances Remained in
                 Expired Grant Accounts in PMS; More Than $126 Million Also
                 Remained in Dormant Accounts in ASAP                                 11
               Audits Continue to Raise Concerns about Timely Grant Closeout          22
               Absence of Clear Guidance Has Resulted in a Lack of Consistent
                 Governmentwide Reporting on Undisbursed Balances in
                 Expired Grant Accounts                                               26
               Conclusions                                                            31
               Recommendations for Executive Action                                   33
               Agency Comments                                                        33

Appendix I     Objectives, Scope, and Methodology                                     35



Appendix II    Federal Agencies Using the Payment Management System (PMS)
               for Grant Payments (as of June 2011)                                   45



Appendix III   Federal Agencies Using the Automated Standard Application for
               Payments (ASAP) System for Grant Payments (as of June 2011)            48



Appendix IV    Comments from the Department of Commerce                               49



Appendix V     Comments from the Department of Health and Human Services              51



Appendix VI    GAO Contact and Staff Acknowledgments                                  54



Figures
               Figure 1: Grant Life-Cycle of Federal Awarding Agency                   6
               Figure 2: Deobligating Undisbursed Balances in Expired Grant
                        Accounts                                                       9



               Page i                                        GAO-12-360 Grants Management
Figure 3: Amount and Aging of Undisbursed Balances in Expired
         Grant Accounts in PMS as of September 30, 2011                13
Figure 4: Distribution of Undisbursed Balance Remaining per
         Expired Grant Accounts in PMS as of September 30, 2011        14
Figure 5: Amount and Aging of Undisbursed Balances in Expired
         HHS Grant Accounts in PMS as of September 30, 2011            16
Figure 6: Amount of Undisbursed Grant Balances in Dormant
         Accounts in the ASAP System as of September 30, 2011          21




Page ii                                       GAO-12-360 Grants Management
Abbreviations


ACF               Administration for Children and Families
AFR               Agency Financial Reports
ASAP              Automated Standard Application for Payments
CDC               Centers for Disease Control and Prevention
CFDA              Catalog of Federal Domestic Assistance
CFO Act           Chief Financial Officer Act of 1990
CFO Council       Chief Financial Officers Council
DHS               Department of Homeland Security
DOC               Department of Commerce
DOE               Department of Energy
DOJ               Department of Justice
DPM               Division of Payment Management
EPA               Environmental Protection Agency
FMS               Financial Management Service
GPC               Grants Policy Committee
HHS               Department of Health and Human Services
IG                inspector general
NASA              National Aeronautics and Space Administration
NSF               National Science Foundation
OMB               Office of Management and Budget
PAR               Performance and Accountability Report
PMS               Payment Management System
PSC               Program Support Center
USDA              Department of Agriculture




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Page iii                                                   GAO-12-360 Grants Management
United States Government Accountability Office
Washington, DC 20548




                                   April 16, 2012

                                   The Honorable Tom Carper
                                   Chairman
                                   Subcommittee on Federal Financial Management, Government
                                    Information, Federal Services, and International Security
                                   Committee on Homeland Security and Governmental Affairs
                                   United States Senate

                                   The Honorable Tom Coburn, M.D.
                                   Ranking Member
                                   Permanent Subcommittee on Investigations
                                   Committee on Homeland Security and Governmental Affairs
                                   United States Senate

                                   In 2008, we reported that at the end of calendar year 2006 about
                                   $1 billion in undisbursed funding remained in grant accounts whose
                                   period of availability to the grantee had expired as identified in the largest
                                   civilian payment system for grants. 1 Undisbursed balances are funds that
                                   the federal awarding agency has obligated by entering into a grant
                                   agreement, but the grantee has not drawn down, or the federal awarding
                                   agency has not “disbursed.” Once the grant’s period of availability to the
                                   grantee has expired, the grant can be closed out and the funds
                                   deobligated by the awarding agency. Grant closeout is an important final
                                   point of accountability for grantees that helps to ensure they have met all
                                   financial requirements and have provided final reports, as required.
                                   Closing out of grants also allows agencies to identify and redirect unused
                                   funds to other projects and priorities as authorized or to return unspent
                                   balances to the Treasury. Conversely, failure to close out grants could
                                   allow grantees to draw down funds after the agreed-upon grant end date.
                                   Federal regulations generally require that financial records and other
                                   documents pertinent to a grant are to be retained for a period of 3 years
                                   from the date of submission of the final report. 2 If a grant account is not
                                   closed out within this time frame, there is the risk that agencies may not



                                   1
                                    GAO, Grants Management: Attention Needed to Address Undisbursed Balances in
                                   Expired Grant Accounts, GAO-08-432 (Washington, D.C.: Aug. 29, 2008).
                                   2
                                    This requirement is included in OMB Circular No. A-110 and has generally been
                                   incorporated into federal grant-making agencies’ regulations.




                                   Page 1                                                  GAO-12-360 Grants Management
be able to obtain the documents needed to make the necessary financial
adjustments and collect any unallowable costs or erroneous payments.

In 2008, we reported that our and inspectors general (IG) past audits of
federal agencies as well as agencies’ annual performance reports had
suggested that failure to close out grants in a timely manner was a long-
standing problem. We also found that when federal agencies made timely
grant closeout a high priority and took corrective actions, there were
improvements in grant closeouts and resolution of undisbursed funding.
In 2008, we recommended that the Office of Management and Budget
(OMB) instruct agencies to track undisbursed balances that remain in
grantees’ accounts after the grant funding period has ended and report on
the resolution of this funding in their annual performance reports—
Performance and Accountability Reports (PAR) and Agency Financial
Reports (AFR). We stated that tracking 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 the
timeliness of grant closeouts and a reduction in undisbursed balances.
OMB supported the intent of our recommendations, but it did not favor
having agencies track and report on these balances in their annual
performance reports and therefore did not take action.

You asked us to update our previous analysis by evaluating: (1) the
amount of undisbursed funding remaining in expired grant accounts,
including the amounts that have remained unspent for at least 5 years or
more and for 10 years or more; (2) issues raised by us and federal IG
related to timely grant closeout by federal agencies; and (3) what actions
OMB and agencies have taken to track undisbursed balances in grants
eligible for closeout.

To determine the amount of undisbursed balances in expired accounts,
we analyzed data from the quarterly closeout reports provided to users of
the largest civilian federal payment system—the Payment Management
System (PMS) administered by the Department of Health and Human
Services’ (HHS) Program Support Center (PSC)—at the end of fiscal year
2011. 3 Closeout reports list all grant accounts that remain open more than
3 months past the grant end date and for which there has been no



3
Fiscal year 2011 ended on September 30, 2011.




Page 2                                          GAO-12-360 Grants Management
disbursement in the preceding 9 months. These grant accounts are
referred to as “expired grant accounts.” Using PMS data, we determined
the amount of funds that remained in expired accounts for 5 years or
more past the grant end date and the amount that remained in these
accounts for 10 years or more. In addition, for this report we also
analyzed data from “dormant account reports” provided to users of a
second payment system, the Automated Standard Application for
Payments (ASAP), administered by the Department of the Treasury
(Treasury) and the Federal Reserve Bank of Richmond. Dormant account
reports list ASAP accounts for federal grants that had been inactive for
2 years or more. Unlike PMS accounts, ASAP accounts can include
multiple grant agreements between a federal agency and a grantee.
Therefore, these reports cannot be used to identify individual grants
eligible for closeout or the amount of funds that remain undisbursed for an
individual grant agreement. Instead, these reports provide a list of
accounts in need of attention that agencies can use to help identify
unspent funds available for deobligation.

These two payment systems were selected because they provide
payment services to other federal departments and entities and account
for a significant percentage of federal grant disbursements. These two
systems provided payment services to offices from 20 departments and
other federal entities in fiscal year 2011, disbursing about 79 percent of all
civilian federal grant awards. See appendixes II and III for a full list of
PMS and ASAP users. To assess the reliability of the payment system
data used in this report, we (1) reviewed existing documentation on the
systems, including system audits by independent auditors; (2) interviewed
officials responsible for administration of the systems and discussed
potential limitations of the data; and (3) performed electronic testing for
obvious errors in completeness and accuracy. On the basis of our
assessment, we believe that the data are sufficiently reliable for the
purposes of this review. See appendix I for additional details on our
analysis of payment system data, including limitations to our analysis.

To identify issues we and federal IGs have raised related to the timely
closeout of grants, we conducted a web-based search for audit reports
issued by GAO from September 2007 to May 2011 and federal IGs at the
24 Chief Financial Officer Act of 1990 (CFO Act) agencies from January
2008 to June 2011, and contacted officials from each of the IG to ensure
that our web search did not omit any relevant reports. To analyze actions
OMB has taken to track undisbursed balances, we interviewed agency
officials and reviewed related OMB circulars and other guidance related
to grant management and performance reporting. To analyze actions


Page 3                                            GAO-12-360 Grants Management
                           agencies have taken to track undisbursed balances in expired accounts,
                           we reviewed the fiscal years 2009, 2010, and 2011 performance reports
                           for the 24 agencies required to issue audited financial statements under
                           the CFO Act for information reported on undisbursed balances in grants
                           eligible for closeout since our 2008 report was issued.

                           We conducted this performance audit from May 2011 to April 2012 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.



Background
Federal Grant Awards and   The federal government uses grants to achieve national priorities through
Grant Life-Cycle           nonfederal parties, including state and local governments, educational
                           institutions, and nonprofit organizations. While there can be significant
                           variation among different grant programs, most federal grants share a
                           common life cycle for administering the grants: pre-award, award,
                           implementation, and closeout (see fig. 1). During the award stage, the
                           federal awarding agency enters into an agreement with grantees
                           stipulating the terms and conditions for the use of grant funds including
                           the period of time funds are available for the grantee’s use. Also in the
                           award stage, the awarding agency opens accounts in one of several
                           payment management systems through which grantees receive
                           payments. 4 During the post-award stage, the grantee carries out the
                           requirements of the agreement and requests payments, while the
                           awarding agency approves payments and oversees the grantee. Once


                           4
                            The Grants Policy Committee (GPC), a committee of the Chief Financial Officers Council
                           (CFO Council), was charged by the Director of OMB with coordinating governmentwide
                           streamlining and simplification activities for federal grants and cooperative agreements.
                           GPC recommended that federal agencies move to one of three systems: two systems for
                           civilian agencies—ASAP and PMS—and one for defense agencies. Federal grant-making
                           agencies were directed to select by January 1, 1999, one or more of the payment
                           systems, but the consolidation effort was never fully completed. OMB confirmed that there
                           were at least nine civilian federal payment systems, including the ASAP system and PMS,
                           still active at the time of our review.




                           Page 4                                                   GAO-12-360 Grants Management
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 unspent balances.




Page 5                                          GAO-12-360 Grants Management
Figure 1: Grant Life-Cycle of Federal Awarding Agency




Grant closeout procedures, like other stages of the grant cycle, are
subject to a wide range of requirements derived from a combination of
OMB guidance, agency regulations, agency policy, and program-specific
statutes. OMB Circular No. A-110, Uniform Administrative Requirements
for Grants and Agreements with Institutions of Higher Education,
Hospitals, and Other Non-Profit Organizations, and OMB Circular No.
A-102, Grants and Cooperative Agreements with State and Local
Governments, provide OMB guidance to federal agencies on grant
administration. These circulars apply only to federal awarding agencies;



Page 6                                              GAO-12-360 Grants Management
they do not apply directly to grantees. Each federal agency that awards
and administers grants and agreements that are subject to the guidance
in Circulars A-110 and A-102 is responsible for issuing regulations, with
which grantees must comply, that are consistent with the circulars, unless
different provisions are required by federal statute or are approved by
OMB.

Agency regulations issued under the circulars typically impose closeout
procedures upon both the awarding agency and the grantee. Generally,
within 90 days after the completion of the award, grantees must submit all
financial, performance, and other reports as required by the terms and
conditions of the award. 5 Also within this 90-day period, grantees
generally are to liquidate all obligations incurred under the award.
Grantees then are to promptly refund any remaining cash balances to the
awarding agency. Awarding agencies must make prompt payments, often
defined as within 90 days, to grantees for allowable reimbursable costs
under the award being closed out. 6 Also, if allowed by the terms and
conditions of the award, the awarding agency must make a settlement for
any upward or downward adjustment to the federal share of costs after
the closeout reports are received. Some federal agencies’ grant policies,
such as HHS’s, further specify that grants are to be closed out within 180
days of the end of the grant funding period.

While there can be substantial variation among grant programs, figure 2
illustrates how closing out grants could allow an agency to redirect
resources toward other projects and activities or return unspent funds to
Treasury. 7 Generally, if the undisbursed balances that are deobligated
from closed grant accounts are still available for incurring new obligations,




5
 Generally, agency regulations specify that the time period for closeout may be extended
under certain circumstances, including when the grantee requests an extension of the
period of performance or there are delays in completing the final financial reports.
6
 Allowability of cost is determined by the cost principle applicable to the grantee incurring
the costs. For example, the allowability of costs incurred by the State, local, or federally-
recognized Indian tribal government is based on OMB Circular A-87.
7
 The Department of Justice, for example, has the authority to transfer undisbursed
balances in expired appropriations accounts to a working capital fund prior to their
cancellation.




Page 7                                                       GAO-12-360 Grants Management
the agency may use the funds to enter into new grant agreements. 8 This
may allow the federal agencies to use existing resources to fund new
grant projects. If the undisbursed amounts are returned to expired
appropriation accounts, the agency may not use the deobligated funds to
make new grants. However, the agency may use the deobligated funds to
make adjustments to obligations that were incurred before the
appropriations account expired. Expired appropriations accounts remain
available for 5 years to make adjustments, after which, the undisbursed
balances are canceled and returned to the Treasury. In other words, the
funds are no longer available for use by the agency. This helps ensure
that federal agency resources are not improperly spent and helps
agencies maintain accurate accounting of their budgetary resources. It
may also reduce future federal outlays relative to the federal
government’s original estimated amount of spending for these programs.




8
 This period of availability for making new obligations lasts for a set number of years,
which are established in law. Annual budget authority lasts for up to 1 fiscal year. Multi-
year authority lasts for longer periods, and no-year authority lasts until the funds are
expended for their designated purpose. A notable exception to using undisbursed
balances for new obligations are balances deobligated from grants made under the
American Recovery and Reinvestment Act of 2009, which must be deposited in the
general fund of the Treasury. Pub. L. No. 111-203, § 1306.




Page 8                                                       GAO-12-360 Grants Management
                           Figure 2: Deobligating Undisbursed Balances in Expired Grant Accounts




Tracking Grant Awards in   One way agencies can track whether grants are being closed out and
Federal Payment Systems    undisbursed grant balances deobligated in a timely manner is through
                           federal payment systems. Some agencies make grant payments directly
                           to grantees using their own proprietary payment systems, while others
                           entered into arrangements with payment systems that serve multiple
                           agencies to make payments on their behalf. Payment systems represent
                           an important control point for managing federal grant funds. After a grant
                           agreement reaches its end date, an agency may need to close out a grant
                           in multiple systems, including the agency’s general ledger or in a
                           separate grant management system. However, failure to also close out a
                           grant in the payment system and deobligate any unspent balances could
                           allow grantees to continue to draw down federal funds even after the
                           grant’s period of availability to the grantee has ended. In addition, failure
                           to close out the grant in the payment system also prevents the timely
                           deobligation of unspent funds and limits agencies’ ability to recapture
                           funds that might be used for other purposes.




                           Page 9                                             GAO-12-360 Grants Management
The largest civilian federal payment system is the Payment Management
System (PMS) which is operated by PSC. PMS allows grantees to draw
federal funds from grant accounts preauthorized by federal agencies.
Grantees request payments from PMS, which transmits authorized
payments to either the Federal Reserve Bank or Treasury for deposit into
the grantee’s bank account. Each PMS account represents a different
grant agreement with a specified expiration date. To help federal grant-
making agencies identify and close out grant accounts in a timely
manner, each quarter PSC makes available a “closeout” report, listing
expired grant accounts—those that remain open more than 3 months past
the grant end date and for which there has been no disbursement in the
preceding 9 months. These grant accounts are referred to as “expired
grant accounts.”

Another large payment system, the Automated Standard Application for
Payments (ASAP) system, is implemented jointly by Treasury’s Financial
Management Service (FMS) and the Federal Reserve Bank of Richmond.
Like PMS, ASAP allows grantees to draw federal funds from accounts
preauthorized by federal agencies. 9 Since 2009, FMS has issued a
“dormant account report” to all ASAP users to help agencies identify and
address undisbursed balances that remain in accounts for which there
has been no activity for 2 years or more. Dormant account reports have
generally been provided twice each year. The first report lists all dormant
accounts as of a specific date, and the second report shows agencies’
progress toward addressing dormant accounts. Unlike PMS accounts,
ASAP accounts can include multiple grant agreements between a federal
agency and a grantee. Therefore, these reports cannot be used to identify
individual grants eligible for closeout or the amount of funds that remain
undisbursed for an individual grant agreement. Instead, these reports
provide a list of accounts in need of attention that agencies can use to
help identify unspent funds available for deobligation.




9
 The ASAP system provides payment services for a range of federal programs including
nongrant programs. For the purposes of this report, our focus is on accounts for grant
programs only.




Page 10                                                  GAO-12-360 Grants Management
                        We found that more than $794 million in undisbursed balances remained
More Than               in expired PMS accounts, including undisbursed balances that remained
$794 Million in         in accounts several years past their expiration date. Roughly three-fourths
                        of all undisbursed balances in expired grant accounts were from grants
Undisbursed Balances    issued by HHS, the largest grant-making agency in the federal
Remained in Expired     government. Although this represents only a small share (2.7 percent) of
Grant Accounts in       the total funding that was made available for these grants, department
                        officials told us they are taking action to improve timely closeout. We also
PMS; More Than          found that more than $126 million in undisbursed balances remained in
$126 Million Also       dormant grant accounts—accounts for which there had been no activity
                        for 2 years or more—in ASAP, another large federal payment system.
Remained in Dormant
Accounts in ASAP

Undisbursed Balances    As of September 30, 2011, we found that $794.4 million in undisbursed
Remained in Expired     balances remained in PMS, the largest federal civilian payment system in
Grant Accounts in PMS   10,548 expired grant accounts. These are accounts that were more than
                        3 months past the grant end date and had no activity for 9 months or
                        more. Undisbursed balances in expired grant accounts were spread
                        across numerous federal agencies and almost 400 different programs.
                        (See app. II for a list of PMS customers.) For comparison, the total
                        amount of undisbursed balances in expired grant accounts in PMS is
                        more than $200 million less than the amount we previously reported for
                        calendar year 2006, while the overall amount of grant disbursements
                        through PMS increased by about 23 percent during this time, from
                        $320 billion in fiscal year 2006 to $415 billion in fiscal year 2011. Overall,
                        total undisbursed balances as of September 30, 2011, represent roughly
                        3.3 percent of the total amount of funds made available for these grants,
                        down from 7.4 percent at the end of calendar year 2006. 10 However, at
                        the department or agency level, the total amount of undisbursed balances
                        in expired accounts as of September 30, 2011, varied from 2.7 percent to
                        34.8 percent of the total funding made available for these grant accounts
                        during this period.

                        OMB guidance and agency regulations generally require grantees to
                        submit all financial and performance reports and liquidate all obligations


                        10
                          Overall, more than $24 billion was originally made available for grants with undisbursed
                        balances identified as expired on the PMS closeout report for September 30, 2011, and
                        more than $14 billion for the PMS closeout for December 31, 2006.




                        Page 11                                                    GAO-12-360 Grants Management
incurred under the award within 3 months (or 90 days) after the
completion of the award; awarding agencies must then make prompt
payments to grantees for allowable reimbursable costs for the award
being closed out. Therefore, based on the information in PMS, these
expired grant accounts should be considered for grant closeout. Failure to
close out a grant in the payment system and deobligate any unspent
balances can allow grantees to continue to draw down federal funds in
the payment system even after the grant’s period of availability to the
grantee has ended, making these funds more susceptible to waste, fraud,
or mismanagement.

As figure 3 shows, we found that undisbursed balances remained in grant
accounts several years past their expiration date. We found that 991
expired grant accounts were more than 5 years past the grant end date;
they contained a total of $110.9 million in undisbursed funding. Of these,
115 expired grant accounts containing roughly $9.5 million remained
open more than 10 years past the grant end date. Federal regulations
generally require that grantees retain financial records and other
documents pertinent to a grant for a period of 3 years from the date of
submission of the final report. The risk increases after several years that
grantees will not have retained the financial documents and other
information for these grants that are needed by federal agencies to
properly reconcile financial information and make the necessary
adjustments to the grant award amount and the amount of federal funds
paid to the recipient, potentially resulting in the payment of unnecessary
and unallowable costs.




Page 12                                         GAO-12-360 Grants Management
Figure 3: Amount and Aging of Undisbursed Balances in Expired Grant Accounts in
PMS as of September 30, 2011




Note: Excludes expired grant accounts with no undisbursed balances remaining, which are discussed
later in this report. Data may not add to total due to rounding.


While the amount of funds remaining in individual expired grant accounts
ranged from less than $1 to more than $19 million, a small percentage (a
little more than 1 percent) of grant accounts with undisbursed balances of
$1 million or more accounted for more than a third of the total
undisbursed funds in expired grant accounts. Overall, 123 accounts from
eight different federal agencies had more than $1 million in undisbursed
balances at the end of fiscal year 2011. These expired grant accounts
had a combined total of roughly $316 million in undisbursed balances, or
40 percent of the total undisbursed funding in expired grant accounts as
of September 30, 2011 (see fig. 4). Accounts with undisbursed balances
remaining at the end of the agreed-upon grant end date can indicate a
potential grant management problem. Data showing grantees that have
not expended large amounts of funding such as $1 million or more by the



Page 13                                                       GAO-12-360 Grants Management
                            specified grant end date raise concern that grantees have not fully met
                            the program objectives for the intended beneficiaries within the agreed-
                            upon time frames.

                            Figure 4: Distribution of Undisbursed Balances Remaining per Expired Grant
                            Account in PMS as of September 30, 2011




                            Note: Excludes expired grant accounts with no undisbursed balances remaining, which are discussed
                            later in this report.



About $600 Million of       Roughly three-fourths of all undisbursed balances in expired grant
Undisbursed Balances in     accounts ($594.7 million) in PMS as of September 30, 2011, were from
Expired Grant Accounts      8,262 HHS-issued grants. HHS is the largest grant-making agency in the
                            federal government in terms of total dollars awarded and disbursed.
Were for Grants Issued by   Overall, the total undisbursed balances in expired HHS grant accounts
HHS                         represented 2.7 percent of the total amount authorized for these
                            accounts, which is the lowest percentage for any federal department with
                            undisbursed balances in expired grant accounts included on the



                            Page 14                                                       GAO-12-360 Grants Management
September 30, 2011 PMS closeout report. This indicates that the
grantees have typically spent the vast majority of the funds awarded.
However, the remaining funds add up to hundreds of millions of dollars
that the agency could potentially redirect toward other projects and
activities or return to Treasury. Furthermore, 85 of the 123 expired grant
accounts with $1 million or more remaining at the end of fiscal year 2011
discussed earlier in this report were HHS-issued grants. Of the 10 HHS
operating divisions with accounts in PMS, the Administration for Children
and Families (ACF) and the Centers for Disease Control and Prevention
(CDC) had the largest undisbursed balances at the end of fiscal year
2011 with roughly $321.7 million and $110.1 million, respectively. 11

While HHS policy generally requires that grants be closed out within 180
days after the grant’s end date, we found more than $265 million in
undisbursed balances in expired grant accounts that remained open 3 or
more years past the grant end date. This includes more than $86 million
in expired grant accounts that were 5 years or more past the grant end
date, of which more than $7 million remained unspent 10 years after the
grant end date (see fig. 5). 12 Of this total, ACF and CDC had a combined
$70.8 million in undisbursed balances in expired grant accounts that were
5 years or more past the grant end date, including $6.1 million that
remained unspent 10 years after the grant end date.




11
 A list of the 10 operating divisions with PMS accounts is provided in appendix II.
12
  HHS Grants Policy Directive 4.02 outlines the department’s grants management
requirements for closeout.




Page 15                                                    GAO-12-360 Grants Management
                         Figure 5: Amount and Aging of Undisbursed Balances in Expired HHS Grant
                         Accounts in PMS as of September 30, 2011




                         Note: Excludes expired grant accounts with no undisbursed balances remaining, which are discussed
                         later in this report.




HHS Reports Taking       In response to past audit reports, officials from HHS’s Division of Grants
Actions to Address       said that they have increased monitoring of grant closeout. 13 In February
Backlog in Response to   2011, HHS established an interagency workgroup—the Accelerated
                         Closeout Team—led by the Office of Grants and Acquisition Policy and
Previous Audits          Accountability to coordinate a departmentwide response in strengthening
                         financial controls and accelerating the number of grant and contract


                         13
                           The Division of Grants in the Office of Grants and Acquisition Policy and Accountability
                         provides departmentwide leadership and management directions in grant policy and
                         oversight, grants systems management and coordination, and other related areas.




                         Page 16                                                       GAO-12-360 Grants Management
closeouts. The Accelerated Closeout Team for grants reviewed and
analyzed PMS data from previous years and used the data to develop a
list of eligible grant awards—focusing specifically on those from fiscal
year 2008. They have a near-term goal of closing out all eligible grants
with a grant end date of 2008. According to HHS, they have identified
tens of millions of dollars in undisbursed balances in PMS available for
deobligation through this initiative. The initiative will conclude later this
year at which point HHS will re-evaluate any additional areas requiring
specific attention. HHS officials said that they are drafting a
departmentwide grants closeout policy to improve the grant closeout
process going forward.

HHS officials said that attention on timely grant closeout in PMS
increased in response to previous audits. Both the HHS Office of
Inspector General and the HHS independent auditor 14 have reported a
backlog of expired HHS grant accounts with undisbursed balances in
PMS. The HHS Inspector General issued four reports from 2008 to 2009
on grant closeout in PMS at four selected operating divisions. 15 Using
PMS data from March 30, 2006, to March 31, 2007, the HHS Inspector
General found between $174 million and $1.3 billion in undisbursed
balances at the four operating divisions in grant accounts that had not
been closed within 180 days of the grant end date as specified in agency
policy. The HHS Inspector General attributed the backlog in grant
closeout in part to lack of staff and resources, inconsistent guidance, and
a lack of supporting documentation and recommended that the agency
use the information in the audit reports to ensure that grants are closed
out in a timely manner and to eliminate the backlog of grants eligible for
closeout. The operating divisions generally concurred with the Inspector




14
   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 organizations’ systems to detect and prevent fraud
(internal controls) are effective.
15
  These four divisions included the two operating divisions (ACF and CDC) mentioned
above. See HHS, Office of the Inspector General, Review of the Centers for Medicare and
Medicaid Services Grant Close out Procedures, A-02-06-02001 (Washington, D.C.: 2008);
Review of Administration for Children and Families Grant Closeout Procedures, A-02-07-
02000 (Washington, D.C.: 2009); Review of Centers for Disease Control and Prevention
Grant Closeout Procedures, A-02-07-02014 (Washington, D.C.: 2009); and Review of
Health Resource and Services Administration Grant Closeout Procedures, A-02-07-02008
(Washington, D.C.: 2009).




Page 17                                                  GAO-12-360 Grants Management
                        General’s recommendations and described actions that they planned to
                        take to improve timely closeouts in response.

                        Findings from HHS’s independent auditor as reported in the agency’s
                        PARs over several years indicate that timely closeout of grants has been
                        a long-standing issue at HHS but that the agency has been making
                        progress. From fiscal year 2006 to fiscal year 2011, the HHS independent
                        auditor routinely reported on concerns with management controls over
                        grant closeout, including a backlog of HHS grant accounts in PMS that
                        were already beyond what the auditor considered a reasonable time
                        frame for closeout. For example, during its review of fiscal year 2009
                        grant activity provided from PMS as of March 31, 2009, the independent
                        auditor identified approximately 644 grant obligations totaling
                        $40.3 million that were dated prior to fiscal year 2002 that had not been
                        closed out. 16 The independent auditor concluded at that time that HHS
                        management needed to increase its emphasis on closeout in order to
                        reduce the backlog and ensure consistency between PMS and HHS
                        operating divisions’ separate grant tracking systems, and, as part of the
                        department’s fiscal year 2011 PAR, the independent auditor noted
                        significant improvements in this and other financial management
                        processes.

Agencies Were Charged   Promptly closing out grants in the payment management system after the
Fees to Maintain        grant end date would help agencies minimize the amount that they are
Thousands of Expired    charged in monthly service fees. PSC, which operates PMS, does not
                        close out a grant account in PMS until instructed to by the awarding
Accounts, Including     agency and continues to charge service fees to the awarding agencies.
Accounts with No        PMS fees are calculated to allow PSC to fully recover the cost of its PMS
Undisbursed Balances    operations. In addition to payment services, PMS also provides a number
Remaining               of other services to assist users, such as standardized electronic forms
                        for meeting federal grant reporting requirements, audit support, and
                        collection services on overdrawn grants and disallowed costs. PSC
                        provides these additional services for all open accounts, regardless of the
                        grant account balance. PSC charges federal grant-making agencies
                        based on two billing rates: a hybrid rate referred to as the “Type I” rate,
                        which is generally applied to grants awarded to state, local, and tribal
                        governments, and a flat rate referred to as the “Type II” rate, which is



                        16
                          HHS, Department of Health and Human Services FY 2009 Agency Financial Report,
                        (Washington, D.C.: November 2009).




                        Page 18                                              GAO-12-360 Grants Management
generally applied to grants awarded to nonprofit agencies, hospitals, and
universities.

We identified more than 28,000 expired grant accounts in PMS with no
undisbursed balances remaining as of the end of fiscal year 2011 for
which the grant-making agency was charged a fee. More than 21,000 of
these expired grant accounts with no undisbursed funds remaining—
approximately 79 percent of all such accounts—were for HHS grants with
the remaining amount spread across 11 other federal agencies. The
closeout report made available to PMS users identifies these accounts
using a special status symbol, which indicates that the awarding agency
only needs to submit the closeout code to finalize grant closeout. Until the
code is submitted, these grant accounts continue to cost the awarding
agency through accumulated monthly service fees. According to data
provided by PSC, PMS users were charged a total of roughly $173,000
per month to maintain the more than 28,000 expired grant accounts with
zero dollar balances listed on the yearend closeout report. Roughly
$137,000 of this was charged to HHS operating divisions. Overall, the
total charges for all expired grants with a zero dollar balance would
represent roughly $2 million in fees if agencies were billed for these
accounts for the entire year. 17 While the fees are small relative to the size
of the original grant awards, they can accumulate over time. We found
roughly 9,770—about 34 percent—of the expired grant accounts with no
undisbursed balances remained open 3 or more years past the grant
expiration date. If the grant has otherwise been administratively and
financially closed out, then agencies paying fees for expired accounts
with zero dollar balance are paying for services that are not needed
instead of providing services to grant recipients. The presence of expired
grant accounts with no undisbursed funds remaining also raises concerns
that administrative and financial closeout—the final point of accountability
for these grants, which includes such important tasks as the submission
of financial and performance reports—may not have been completed.




17
  The total presented above is an illustration of potential costs assuming that all accounts
with no undisbursed balances remaining as of September 30, 2011, had a zero dollar
balance for the entire fiscal year. Based on the information in the closeout report, we could
not determine the number of months in fiscal year 2011 that these accounts had a zero
dollar balance.




Page 19                                                     GAO-12-360 Grants Management
More Than $126 Million    As of the end of fiscal year 2011, we found that $126.2 million in
Remained in Dormant       undisbursed balances remained in dormant grant accounts in ASAP,
Accounts for 2 Years or   another large federal payment system. These balances remained in 1,094
                          dormant grant accounts—accounts for which there had been no activity
More in ASAP              for 2 years or more. According to the dormant account report, this
                          represents roughly 15 percent of the cumulative authorized funding made
                          available for these accounts. Grant accounts for eight federal
                          departments and other federal entities that use the ASAP system for
                          payment services appeared on the report, with undisbursed balances
                          ranging from roughly $41,000 to more than $40 million, per entity. (See
                          app. III for a list of ASAP customers.)

                          Individual accounts in the ASAP system can include multiple grant
                          agreements between a federal agency and a grantee; therefore, these
                          reports cannot be used to identify individual grants eligible for closeout or
                          the amount of funds that remain undisbursed for an individual grant
                          agreement. However, the existence of undisbursed balances in inactive
                          accounts can indicate the need for increased attention. This is particularly
                          true of accounts where there has been no activity for a prolonged period
                          of time. While nearly three-quarters of the undisbursed balances in
                          dormant accounts were inactive for 3 years or less, we found roughly
                          $33 million in 430 accounts that had been inactive for 3 years or more. Of
                          that $33 million, $11 million in 179 accounts had been inactive for 5 years
                          or more (see fig. 6).




                          Page 20                                           GAO-12-360 Grants Management
Figure 6: Amount of Undisbursed Grant Balances in Dormant Accounts in the ASAP
System as of September 30, 2011




FMS officials first began issuing “dormant account reports” to all ASAP
users in 2009 in response to the findings in our 2008 report that using
federal payment systems to track undisbursed balances in grant accounts
could help reduce unused funding. ASAP dormant account reports have
evolved over time to improve their usability. Currently, accounts with
undisbursed balances are included in dormant account reports if (1) the
grantee has not drawn down funds for 2 years or more and (2) the
awarding agency has made no changes to the authorized amount of
funding available to the grantee in 2 years or more. Dormant account
reports are generally provided twice a year—once in the fall or winter
followed by a second report in the spring or summer. The first report lists
all of the dormant accounts as of a specific date, and the second report
shows the status of these same accounts several months later, allowing
agencies to track progress toward addressing the dormant accounts that




Page 21                                           GAO-12-360 Grants Management
                       appeared on the first report. The amounts reported for the end of fiscal
                       year 2011 represent the first phase of this two-phase cycle.

                       Unlike PMS, the ASAP system does not provide grant management
                       operations for users; therefore, it is the agencies’ responsibility to
                       maintain grant management information such as the grant end date.
                       However, as with PMS, the separation of grant management and
                       payment functions makes it is possible for agencies to closeout a grant in
                       a separate grant management system but fail to close out the grant in the
                       ASAP system. According to FMS officials, if an ASAP account remains
                       open, grantees may be able to continue to draw funds so long as there
                       are funds available in the account. ASAP accounts that have no balances
                       remaining but remain open are not included in dormant account reports
                       regardless of their period of inactivity. FMS has encouraged agencies to
                       close these accounts, but it does not charge users for these accounts or
                       for other payment system services provided by the ASAP system.
                       Instead, Congress appropriates funds to FMS to cover the cost of its
                       operations.


                       In addition to the HHS audits described earlier, we and agency IGs have
Audits Continue to     continued to raise concerns about timely grant closeout in federal
Raise Concerns about   agencies and grant programs. As part of our previous report on
                       undisbursed balances in expired grant accounts issued in 2008, we
Timely Grant           reviewed 7 years of past audits and found that both we and federal IGs
Closeout               issued numerous reports indentifying specific grant programs or awarding
                       agencies that had undisbursed funding in grants eligible for closeout. 18
                       Since that time, we have issued additional reports identifying challenges
                       related to timely closeout of grants, and the Inspectors General at the
                       Departments of Agriculture (USDA), Education, Energy (DOE), HHS,
                       Homeland Security (DHS), and Labor (Labor) have all issued reports
                       identifying similar challenges in offices or programs within their respective
                       agencies. These reports identified a lack of adequate systems or policies
                       in place to properly monitor grant closeout and inadequacies in awarding
                       agencies’ grant management processes, in part because closeouts are a
                       low management priority. While they focused on expired grants in specific



                       18
                         For our 2008 report, we conducted a web-based literature search for related audit
                       reports and reviewed over 150 reports issued by GAO, various federal IGs, and federal
                       agencies from 2000 to 2006 to identify some common grants management problems
                       related to closing expired grants. The results of this work are summarized in GAO-08-432.




                       Page 22                                                  GAO-12-360 Grants Management
offices or grant programs, when taken together, these report findings
indicate that the timely closeout of grants continues to be an issue for
multiple programs and grant-making agencies across the federal
government.

We found that agencies did not have adequate systems and policies in
place to properly monitor grant closeout. For example, in 2011, we
reported that USDA’s draft grant closeout policies for the McGovern-Dole
Food for Education Program did not include time frames for when grant
agreements should be closed. 19 As a result, this put USDA at risk that
grant agreements will not be closed out in a timely fashion, preventing
USDA from ensuring that grantees of the McGovern-Dole Food for
Education Program have met all financial requirements and that unused
or misused funds are promptly reimbursed to USDA. We recommended
that the Secretary of Agriculture formalize policies and procedures for
closing out grant agreements and establishing guidance to determine
when agreements should be closed. USDA agreed with our
recommendations and said it will take steps to address them. Similarly, in
2011 we found that roughly $24 million in Farm Labor Housing program
loan and grant obligations remained undisbursed more than 5 years after
the funds were obligated and that the Rural Housing Service had no
guidelines for deobligation in force. 20 The Rural Housing Service has
since issued guidance, as we had recommended.

We also found that agencies did not deobligate funds from grants eligible
for closeout in a timely manner. For example, in 2012, we reported that
Department of Justice’s (DOJ) Bulletproof Vest Partnership program had
not deobligated about $27 million in balances from grants awarded from
fiscal years 2002 through 2009 whose terms have ended and whose
grantees are no longer eligible for reimbursement. 21 DOJ agreed with our
recommendation that the department deobligate undisbursed funds from


19
  See GAO, International School Feeding: USDA’s Oversight of the McGovern-Dole Food
for Education Program Needs Improvement, GAO-11-544 (Washington, D.C.: May 19,
2011).
20
  See GAO, Rural Housing Service: Opportunities Exist to Strengthen Farm Labor
Housing Program Management and Oversight, GAO-11-329 (Washington, D.C.: Mar 30,
2011).
21
  GAO, Law Enforcement Body Armor: DOJ Could Enhance Grant Management Controls
and Better Ensure Consistency in Grant Program Requirements, GAO-12-353
(Washington, D.C.: Feb. 15, 2012).




Page 23                                               GAO-12-360 Grants Management
Bulletproof Vest Partnership program grants that have closed and said
that in the absence of statutory restrictions stating otherwise, it intends to
use the deobligated, undisbursed funds to supplement appropriations in
fiscal years 2012 and 2013. In another example, we reported in 2010 that
recipients of 58 percent of Department of the Interior’s Office of Insular
Affairs project grants failed to submit final closeout reports on time, which
can delay the deobligation of any unspent grant funds from the project
account. 22 The Department of Interior agreed with our recommendations
to improve the Office of Insular Affairs’ ability to manage grants.

Federal IGs identified similar issues at their agencies. For example, in
September 2009 the Inspector General at Labor reported that funds were
not deobligated when a grant expired because of delays in grant
closeouts. Also, grants from the Employment and Training Administration
and the Veteran’s Employment and Training Service were not closed
within 12 months of their expiration because of a large backlog of grants
in need of close out. 23 In another example, USDA’s Agricultural Research
Service reported in April 2009 that it deobligated the $2.75 million in
response to a finding from the department’s inspector general, making the
funds available for other research projects and preventing the potential
misuse of funds. 24 IGs also reported that system updates and a lack of
timely information led to problems at DHS 25 and the Department of
Education, respectively. 26



22
   See U.S. Insular Areas: Opportunities Exist to Improve Interior's Grant Oversight and
Reduce the Potential for Mismanagement, GAO-10-347 (Washington, D.C.: Mar. 16,
2010). Results are based on a review of a random probability sample of 173 grant project
files. We were able to project our sample results to the 1,771 Office of Insular Areas grant
projects in the grant management database as of April 27, 2009. The confidence interval
for this estimate is within +/- 11 percent.
23
  Department of Labor, Office of the Inspector General, Management Advisory Comments
Identified in an Audit of the Consolidated Financial Statements for the Year Ended
September 30, 2009, 22-10-006-13-001 (Washington, D.C.: 2010).
24
 USDA, Office of Inspector General, Agricultural Research Service Management Controls
Over Research Agreements, 02601-1-SF (Washington, D.C.: July 2009).
25
  DHS, Office of the Inspector General, Opportunities to Improve FEMA’s Disaster
Closeout Process, OIG-10-49, (Washington, D.C.: 2010) and DHS, Office of the Inspector
General, Management Letter for the FY 2010 DHS Financial Statements and Internal
Control over Financial Reporting Audit, OIG-11-45 (Washington, D.C.: 2011).
26
 Department of Education, Office of the Inspector General, Audit of the Department’s
Process to Resolve Lapsed Funds; ED-OIG/A19H0010 (Washington, D.C.: 2009).




Page 24                                                     GAO-12-360 Grants Management
Federal IGs reported that grant closeout procedures have been viewed as
a low priority for federal agencies and that agencies have devoted limited
staff resources to other grant management functions, including the
issuance of new grant awards. Lack of attention and staffing contribute to
delays in grant closeout and the timely deobligation of funds. For
example, DOE’s Inspector General found that one of DOE’s regional
offices was not closing out Small Business Innovation and Research
Phase II grants in a timely manner in part because staff focused their
attention instead on active awards. 27 The Inspector General found expired
grants had been completed for more than 3 years but had not been
closed out. In addition, the Inspector General found questionable or
unallowable costs during their review of grant closeout. Because grantees
are only required to maintain annual audit and expense reports to support
progress on projects and costs incurred and other information for 3 years,
the supporting cost data may not be available for review, resulting in the
payment of unnecessary and unallowable costs.

These findings are consistent with the results of a survey of IGs and other
investigative agencies by the National Procurement Fraud Task Force’s
Grant Fraud Committee, a committee chaired by the Inspector General
for DOJ, which aims to detect and prevent grant fraud. Many respondents
to the survey suggested that grant awarding agencies are often focused
on awarding grant money and do not devote sufficient resources to the
oversight of how those funds are spent. Survey respondents noted that
awarding agencies often inadequately monitor grantee activities by,
among other things, not properly closing out grants in a timely manner. 28




27
  Department of Energy, Office of Inspector General, Management Controls over
Monitoring and Closeout of Small Business Innovation Research Phase II Grants, OAS-M-
08-09 (Washington, D.C.: July 2008).
28
 National Procurement Fraud Task Force, Grant Fraud Committee, A Guide to Grant
Oversight and Best Practices for Combating Grant Fraud (February 2009).




Page 25                                                GAO-12-360 Grants Management
                              OMB has not issued governmentwide guidance on tracking or reporting
Absence of Clear              undisbursed balances for grants eligible for closeout, as we
Guidance Has                  recommended in 2008. OMB did issue instructions for tracking and
                              reporting on undisbursed grant balances to a small number of affected
Resulted in a Lack of         federal agencies in 2010 and 2011 as required by law. However, this
Consistent                    guidance included grant accounts that were still available for
Governmentwide                disbursement and was not limited only to those grant accounts eligible for
                              closeout. We found that agencywide information on undisbursed balances
Reporting on                  in grant accounts eligible for closeout is largely lacking.
Undisbursed Balances
in Expired Grant
Accounts

OMB Has Not Issued            In 2008, we recommended that OMB instruct all executive departments
Governmentwide                and independent agencies to annually track the amount of undisbursed
Guidance on Tracking or       balances in expired grant accounts and report on the status and
                              resolution of the undisbursed funding in their annual performance reports.
Reporting Undisbursed         In our report, expired grant accounts were defined as the grants that
Balances in Grants Eligible   remained open after the end of the grant period and were eligible for
for Closeout                  closeout. Our previous work found that reporting on the status of grant
                              closeouts in annual performance reports, such as agency PARs, can
                              raise the visibility of the problem within federal agencies, lead to
                              improvements in grant closeouts, and reduce undisbursed balances.
                              These reports enable the president, Congress, and the American people
                              to assess agencies’ accomplishments for each fiscal year by comparing
                              agencies’ actual performance against their annual performance goals,
                              summarizing the findings of program evaluations completed during the
                              year, and describing the actions needed to address any unmet goals,
                              among other things.

                              OMB responded at the time that 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 believed
                              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 the grant management guidance in Circulars No. A-102
                              and No. A-110 to include such instructions. As of December 2011, these
                              Circulars, as well as No. A-11, Preparation, Submission and Execution of


                              Page 26                                         GAO-12-360 Grants Management
                              the Budget, and No. A-136, Financial Reporting Requirements, do not
                              include any guidance or instructions to agencies on tracking or reporting
                              on undisbursed balances in grants eligible for closeout in agencies’
                              performance reports. 29


In Response to Legislation,   Section 537 of the Commerce, Justice, Science, and Related Agencies
OMB Instructed Select         Appropriations Act of 2010 required that the Director of OMB instruct
Agencies to Report on         departments, agencies, and other entities receiving funds under the act to
                              track undisbursed balances in expired grant accounts. The legislation
Undisbursed Balances but      specifically required that OMB instruct affected agencies to report on the
Not on the Amount in          following information:
Grant Accounts Eligible
for Closeout                  1. details on future action the department, agency, or instrumentality will
                                 take to resolve undisbursed balances in expired grant accounts,
                              2. the method that the department, agency, or instrumentality uses to
                                 track undisbursed balances in expired grant accounts,
                              3. identification of undisbursed balances in expired grant accounts that
                                 may be returned to the Treasury of the United States, and
                              4. in the preceding 3 fiscal years, details on the total number of expired
                                 grant accounts with undisbursed balances (on the first day of each
                                 fiscal year) for the department, agency, or instrumentality and the total
                                 finances that have not been obligated to a specific project remaining
                                 in the accounts.

                              These legislative reporting requirements were similar to what we
                              recommended in 2008. Subsequently, the same reporting requirements
                              were carried forward for fiscal year 2011 by the Full-Year Continuing
                              Appropriations Act, 2011 and for fiscal year 2012 by Section 536 of the
                              Commerce, Justice, Science, and Related Agencies Appropriations Act,
                              2012, affecting select agencies 2012 PAR and AFR submissions due in
                              November 2012. 30

                              In 2010 and 2011, as required by these laws OMB issued implementing
                              instructions to affected federal agencies’ financial officers and budget
                              officers. Four agencies—the Department of Commerce (DOC), DOJ,


                              29
                                OMB Circular No. A-11, Preparation, Submission and Execution of the Budget and A-
                              136, Financial Reporting Requirements, provide guidance to agencies on preparing and
                              submitting their performance reports.
                              30
                               Pub. L. No. 111-117, div. B, 123 Stat. 3034, 3113, 3158 (Dec. 16, 2009).




                              Page 27                                                  GAO-12-360 Grants Management
National Aeronautics and Space Administration (NASA), and National
Science Foundation (NSF)—provided responses in their annual
performance reports. 31 However, in its instructions, OMB equated
“expired grant accounts” with expired appropriation accounts. Specifically,
OMB’s guidance referenced the definition of expired appropriations found
in Circular No. A-11 in defining expired grant accounts as “including
budget authority that is no longer available for new obligations but is still
available for disbursement.”

The performance period for active grant agreements can last multiple
years during which time authorized disbursements may be made from
expired appropriation accounts. Under OMB’s definition, agencies were
instructed to report all undisbursed funding in expired appropriation
accounts which could include active grant accounts as well as grant
accounts eligible for closeout. In contrast, in this and other reports, we
defined expired grant accounts as accounts that remain open after the
specified grant end date, or expiration date, and are eligible for close
out. 32 Undisbursed balances in these accounts are funds that the federal
government has obligated by entering into a grant agreement but that
should no longer be disbursed to grantees because the period of
availability to the grantee has ended.

Following OMB’s guidance, three agencies—DOJ, NSF, and NASA—
reported on amounts in expired appropriation accounts in their 2010
performance reports. 33 For example, NSF reported in its fiscal year 2010
AFR over $1.7 billion in undisbursed balances as of September 30, 2010,
which agency officials confirmed to us as the total amount of expired


31
 The Marine Mammal Commission, an entity receiving funding under the Commerce,
Justice, Science, and Related Agencies Appropriations Act, reported in its fiscal year 2011
PAR that it did not have any undisbursed balances in expired grant accounts.
32
  See GAO-08-432 and GAO, Federal Grants: Improvements Needed in Oversight and
Accountability Processes, GAO-11-773T (Washington, D.C.: June 23, 2011).
33
  DOJ, Department of Justice FY 2010 Performance and Accountability Report,
(Washington, D.C.: November 2010); NASA, National Aeronautics and Space
Administration FY 2010 Performance and Accountability Report (Washington, D.C.:
November 2010); and NSF, National Science Foundation FY 2010 Agency Financial
Report (Washington, D.C.: November 2010). DOC reported on the number of expired
grant accounts in the print edition of its fiscal year 2010 PAR but not the amount of
undisbursed balances in these accounts. See DOC, Department of Commerce FY 2010
Performance and Accountability Report [print edition] (Washington, D.C.:
November 2010).




Page 28                                                   GAO-12-360 Grants Management
appropriations in the agency’s two research-related appropriations
accounts. The amount reported included funds available for disbursement
on only active grant agreements. Similarly, officials from DOJ and NASA
also confirmed to us that the number they reported in their 2010
performance reports represented balances in expired appropriations
accounts and not the amount of funding that remained in grant accounts
eligible for close out. Furthermore, according to DOJ officials, most DOJ
grants, with the exception of grants funded through the American
Recovery and Reinvestment Act (Recovery Act), are funded with no-year
appropriations that do not enter into an expired phase and therefore fall
outside the scope of OMB’s guidance.

Agency officials told us that the purpose of gathering information on
grants funded with expired appropriations was unclear. Federal agencies
are generally required to include detailed information on the overall
budgetary resources made available to the agency, including amounts in
expired appropriation accounts, as well as the status of those resources
at the end of the fiscal year. Agency officials said that the information on
undisbursed balances reported in their PAR or AFR was derived at least
in part from these publicly available budgetary reports and is generally
readily available; however, information on undisbursed balances in grant
accounts that have reached their end date and are eligible for closeout is
generally not publicly available or otherwise provided to OMB and
Congress.

OMB issued largely identical instructions to select agencies for reporting
on undisbursed balances in expired grant accounts in their 2011
performance reports. While NASA and NSF took different approaches in
reporting compared to the prior year, DOJ reported on the amount of
undisbursed funding in expired appropriations. DOC reported
undisbursed balances, but could not confirm whether all of its grant-
making bureaus reported expired appropriations or grant accounts. NASA
officials said that the number reported in their 2011 PAR represented the
amount of undisbursed balances in grant accounts that have reached
their end date and are eligible for closeout. Based on this understanding
of the guidance, NASA reported in its 2011 PAR that in 2009 there were
about 1,650 expired grants with $18 million in undisbursed balances. 34 In



34
 NASA, National Aeronautics and Space Administration FY 2011 Performance and
Accountability Report (Washington, D.C.: November 2011).




Page 29                                              GAO-12-360 Grants Management
                          comparison, when reporting on amounts in expired appropriations in their
                          previous year’s PAR, NASA reported over 2,100 expired grants with $58
                          million in undisbursed balances for 2009. 35 In its 2011 PAR, NSF reported
                          on neither the amount of grants funded with expired appropriations nor on
                          the amount of undisbursed balances in grant accounts that have reached
                          their end date and are eligible for closeout. Instead, NSF reported the
                          amount of funding that was deobligated as a result of successfully closing
                          out grants. For example, NSF reported that in fiscal year 2011, the
                          agency closed out a total of 18,648 grants. As a result, $35,204,328 in
                          undisbursed balances were deobligated and retained for adjustments to
                          existing obligations and an additional $5,610,546 was deobligated and
                          returned to Treasury. 36 The information provided by NSF in its 2011 PAR
                          illustrates how closing out grants allows an agency to redirect unspent
                          funds or return the funds to Treasury as appropriate. It does not,
                          however, provide information on the number of grants past their grant end
                          date or the balances remaining in these grant accounts.


Consistent Reporting on   In our review of CFO Act agencies’ annual performance reports for fiscal
Grant Closeout in         years 2009 to 2011, we found that systematic, agencywide information on
Performance Reports       undisbursed balances in grant accounts eligible for closeout is largely
                          lacking in part because OMB guidance does not provide explicit
Lacking                   instructions to agencies to track undisbursed balances for grants that are
                          eligible for close out. Other than the four agencies receiving explicit
                          instructions from OMB and the information reported by independent
                          auditors, we found only one federal agency—the Environmental
                          Protection Agency (EPA)—reported agencywide information on the
                          timeliness of grant closeout. EPA developed an agencywide performance
                          metric—the percentage of eligible grants closed out—in part as a
                          response to our prior findings that the agency had a large backlog of
                          grants in need of closeout. 37 In its 2011 AFR, EPA reported that it closed
                          out 99.5 percent of eligible grants from 2009 and earlier and 93.4 percent



                          35
                           NASA, National Aeronautics and Space Administration FY 2010 Performance and
                          Accountability Report (Washington, D.C.: November 2010).
                          36
                           NSF, National Science Foundation FY 2011 Agency Financial Report (Washington,
                          D.C.: November 2011).
                          37
                            See GAO, Grants Management: EPA Has Made Progress in Grant Reforms but Needs
                          to Address Weaknesses in Implementation and Accountability, GAO-06-625 (Washington,
                          D.C.: May 12, 2006).




                          Page 30                                               GAO-12-360 Grants Management
              of grants that expired in the prior fiscal year. 38 As part of our prior work 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. 39 EPA does not provide information in its AFR on the amount of
              undisbursed funds that remain in expired grants. While we have noted
              progress in EPA’s recovery of funds from expired grants in our prior work,
              we have also observed that EPA’s budget justification documents do not
              describe the amount of deobligated funding available for new obligations;
              such information could be useful to Congress because the availability of
              these funds could partially offset the need for new funding. 40 We found
              that information on timely grant close out in other agencies’ performance
              reports was limited to sections of the performance reports prepared by
              independent auditors, where two agencies’ auditors raised concerns
              related to timely grant closeout. 41


              Our analysis shows that there has been an improvement in closing out
Conclusions   expired grant accounts with undisbursed balances in PMS since our 2008
              report. Undisbursed balances in these accounts declined from roughly
              $1 billion at the end December 2006 to a little more than $794 million at
              the end of September 2011, despite a significant increase in annual grant
              disbursements through PMS during this time. However, more work needs



              38
                EPA, U.S. Environmental Protection Agency Fiscal Year 2011 Agency Financial Report
              (Washington D.C: November 2011).
              39
                   GAO-06-625.
              40
               See GAO, Environmental Protection Agency: Management Challenges and Budget
              Observations, GAO-12-149T (Washington, D.C.: Oct. 12, 2011).
              41
                Audits of financial statements of the 24 CFO Act agencies are required to be performed
              by the agency’s IG or by an independent auditor as selected by the IG. Auditors are
              responsible for preparing an audit report, or separate audit reports, on the principal
              statements, internal control, and compliance with applicable laws, regulations, and
              governmentwide policy requirements. These reports are published as part of the agency’s
              PAR or AFR. For issues related to timely grant closeout identified by independent auditors
              in agencies’ performance reports in fiscal years 2009, 2010, and 2011, see HHS,
              Department of Health and Human Services FY 2009 Agency Financial Report
              (Washington, D.C.: November 2009), Department of Health and Human Services FY 2010
              Agency Financial Report (Washington, D.C.: November 2010), Department of Health and
              Human Services FY 2011 Agency Financial Report (Washington, D.C.: November 2011),
              and DHS, U.S. Department of Homeland Security Annual Financial Report Fiscal Year
              2011 (Washington, D.C.: November 2011).




              Page 31                                                   GAO-12-360 Grants Management
to be done to further improve the timeliness of grant closeout and reduce
undisbursed balances. In our 2008 report, we found that agencies can
improve their grant closeout process when they direct their attention to
the issue and make timely grant closeout a high priority. Since this time,
HHS has increased attention on grant closeout, and both the agency and
its independent auditor have reported that progress has been made
toward addressing the agency’s existing backlog of grant accounts in
PMS eligible for closeout. The dormant account report developed by
Treasury offers further encouragement by raising agencies’ awareness of
undisbursed balances in inactive grant accounts in the ASAP system.

We have found that agencies can raise the internal and external visibility
of the issue of undisbursed balances and improve performance by
reporting on undisbursed balances in grants that are eligible for closeout
in agencies annual performance reports. However, the number of
agencies that have voluntarily provided this information in their
performance reports is limited. We therefore reiterate our previous
recommendation, not yet implemented, that OMB should instruct all
executive departments and independent agencies to report on the status
and resolution of the undisbursed funding in grants that have reached the
grant end date in their annual performance reports, the actions taken to
resolve the undisbursed funding, and the outcomes associated with these
actions.

OMB’s implementation of Section 537 of the Commerce, Justice,
Science, and Related Agencies Appropriations Act of 2010 and
subsequent legislation creates a framework for such reporting. However,
interviews with agency officials and variations in agencies’ responses to
OMB’s instructions indicate that additional clarification is needed,
particularly to the definition of “expired grant accounts,” if this information
is to be effectively used by agency management, OMB, and Congress to
address the backlog of grants in need of closeout. The definition included
in guidance issued by OMB equates “expired grant accounts” with grants
funded with expired appropriations and therefore includes active grant
agreements still in the implementation phase for which the agency would
have valid reasons to make future disbursements. By instead focusing on
undisbursed balances obligated to grant agreements that have reached
the end of their period of performance and are eligible for closeout, OMB
could better direct agency management focus toward a subset of grants
in need of more immediate attention. OMB could also better direct agency
management’s focus by putting an emphasis on grants that have not
been closed out several years past their expiration date. As time passes,



Page 32                                            GAO-12-360 Grants Management
                      these funds become more susceptible to improper spending or
                      accounting as monitoring diminishes over time.

                      OMB’s guidance currently does not address grants with no undisbursed
                      balances remaining. The presence of tens of thousands of expired grant
                      accounts in PMS with no undisbursed funds remaining raises concerns
                      that these accounts are not receiving sufficient attention. Reducing the
                      number of accounts with zero balances remaining would help ensure that
                      administrative and financial closeout—the final point of accountability for
                      these grants—is being completed. It would also minimize the amount
                      agencies pay in potential fees for maintaining these accounts, which can
                      accumulate over time.


                      In addition to the previous recommendation reiterated above, we
Recommendations for   recommend that the Director, OMB, take the following three actions:
Executive Action
                      •   Revise the definition of “undisbursed balances in expired grant
                          accounts” in future guidance issued to agencies, including those
                          required to report under Section 536 of the Commerce, Justice,
                          Science, and Related Agencies Consolidated Appropriations Act,
                          2012, to focus on undisbursed balances obligated to grant
                          agreements that have reached the grant end date and are eligible for
                          closeout, as described in this report.
                      •   Instruct agencies with undisbursed balances still obligated to grants
                          several years past their grant end date to develop and implement
                          strategies to quickly and efficiently take action to close out these
                          grants and return unspent funds to the Treasury when appropriate.
                      •   Instruct agencies with expired grant accounts in federal payment
                          systems with no undisbursed balances remaining to develop and
                          implement procedures to annually identify and close out these
                          accounts to ensure that all closeout requirements have been met and
                          to minimize any potential fees for accounts with no balances.

                      We provided a draft of this report to the Administrator of the National
Agency Comments       Aeronautics and Space Administration; the Attorney General; the Director
                      of the National Science Foundation; the Acting Director of the Office of
                      Management and Budget; and the Secretaries of Commerce, Health and
                      Human Services, and Treasury. OMB staff provided the following
                      comments via e-mail: “OMB is in general agreement with GAO’s
                      recommendation in regards to providing better guidance for agencies in
                      the management and closeout of expired grants with undisbursed
                      balances. We are in the process of reviewing and streamlining our grant


                      Page 33                                          GAO-12-360 Grants Management
policy guidance to the agencies and will consider these
recommendations.” The Chief Financial Officer and Assistant Secretary
for Administration at DOC and the Assistant Secretary for Legislation at
HHS responded with written comments, which we have reprinted in
appendixes IV and V. Staff at the other agencies provided technical or
clarifying comments, which we incorporated as appropriate, or had no
comments.


As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to the Administrator of the
National Aeronautics and Space Administration; the Attorney General; the
Director of the National Science Foundation; the Acting Director of the
Office of Management and Budget; and the Secretaries of Commerce,
Health and Human Services, and Treasury. We will also make copies
available to others upon request. In addition, the report will be available at
no charge on the GAO website at http://www.gao.gov.

If you have any questions about this report, please contact Stanley J.
Czerwinski at (202) 512-6806 or czerwinskis@gao.gov or Beryl H. Davis
at (202) 512-2623 or davisbh@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 VI.




Stanley J. Czerwinski
Director, Strategic Issues




Beryl H. Davis
Director, Financial Management and Assurance




Page 34                                           GAO-12-360 Grants Management
Appendix I: Objectives, Scope, and
              Appendix I: Objectives, Scope, and
              Methodology



Methodology

              Our objectives for this report were to evaluate: (1) the amount of
              undisbursed funding remaining in expired grant accounts including the
              amounts that have remained unspent for 5 years or more and for 10
              years or more, (2) issues raised by GAO and federal inspectors general
              (IG) related to timely grant closeout by federal agencies, and (3) what
              actions the Office of Management and Budget (OMB) and agencies have
              taken to track undisbursed balances in grants eligible for closeout.

              To address the first objective, we analyzed data from two federal payment
              systems: the Payment Management System (PMS) administered by
              Department of Health and Human Services’ (HHS) Program Support
              Center (PSC) and the Automated Standard Application for Payments
              (ASAP) system administered jointly by the Department of the Treasury
              (Treasury) and the Federal Reserve Bank of Richmond. Federal payment
              systems facilitate the transfer of cash payments from federal awarding
              agencies to grantees. Some agencies make grant payments directly to
              grantees using their own proprietary payment systems, while others enter
              into arrangements with payment systems that serve multiple agencies to
              make payments on their behalf. The PMS and ASAP systems were
              selected for review based on the following criteria:

              1. These payment systems provide payment services to other federal
                 departments and entities. In 2011, offices from 13 federal
                 departments and other federal entities used PMS for making grant
                 disbursements, and offices from 9 federal departments and other
                 federal entities used ASAP for grant disbursements. See appendixes
                 II and III for a full list of federal entities that use PMS and ASAP for
                 payment services.
              2. These payment systems account for a significant percentage of
                 civilian federal grant disbursements. Based on fiscal year 2010 data,
                 the most recently available at the time of our selection, PMS made
                 about $411 billion in grant disbursements, or 68 percent of all civilian
                 federal grants disbursements in fiscal year 2010, and ASAP made
                 payments of an additional $45 billion in grant disbursements, or 7
                 percent of all civilian federal grant disbursements in that year. In 2011,
                 PMS and ASAP disbursed $415 billion and $62 billion in federal grant
                 funding, respectively, or 79 percent of all civilian federal grant
                 disbursements in fiscal year 2011.




              Page 35                                          GAO-12-360 Grants Management
                            Appendix I: Objectives, Scope, and
                            Methodology




Analysis of Expired Grant
Account Data from PMS

Description of PMS          PMS is a centralized grant 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. PSC personnel operate
                            PMS, making payments to grant recipients, maintaining user/recipient
                            liaison, and reporting disbursement data to awarding agencies. Awarding
                            agencies’ responsibilities include entry of authorization data into PMS,
                            program and grant monitoring, grant closeout, and reconciliation of their
                            accounting records to PMS information. Awarding agencies pay PSC 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.

PMS Closeout Reports        To update our previous analysis of undisbursed balances in expired grant
                            accounts and provide a degree of comparability, we replicated the
                            methodology used in our 2008 report. 1 Namely, to determine the amount
                            of undisbursed balances in expired grant accounts, we analyzed PMS
                            data from closeout reports PSC makes available to PMS customers each
                            quarter. These closeout reports list all expired grant accounts that,
                            according to the data system, have not completed all of their closeout
                            procedures. An account is considered expired in PMS if (1) the grant end
                            date is more than 3 months old and (2) the latest date of disbursement
                            was at least 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 disbursed, and the
                            beginning and end dates for the grant. The grant end date is a mandatory
                            field completed by the awarding agency.




                            1
                             GAO, Grants Management: Attention Needed to Address Undisbursed Balances in
                            Expired Grant Accounts, GAO-08-432 (Washington, D.C.: Aug. 29, 2008).




                            Page 36                                              GAO-12-360 Grants Management
Appendix I: Objectives, Scope, and
Methodology




PSC provided us with the PMS quarterly closeout report for the end of
fiscal year 2011 (September 30, 2011). PSC appended to the closeout
data an additional field showing the applicable number from the Catalog
of Federal Domestic Assistance (CFDA) for each grant account. We used
the CFDA number provided by PSC to help determine which accounts to
exclude from our analysis. The purpose of these exclusions was to avoid
including accounts that would distort the calculation of undisbursed funds
in expired PMS grant accounts and to provide comparability with our
previous findings. Our criteria for excluding accounts were consistent with
the methodology we used in our 2008 report. 2 We excluded a total of 115
grant programs—both HHS and non-HHS—based on the following:

•   We excluded accounts from our analysis that did not have a defined
    end date. 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, 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. 3
•   We excluded expired accounts associated with the following HHS
    block grant programs: 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. An independent audit of PMS stated that (1) the
    funds for these block grants continued to be available to the grantees




2
GAO-08-432.
3
 We did not exclude grant accounts for similar programs or HHS block grants that were
identified in the CFDA as Recovery Act related, because, to achieve the purposes of the
Act, Congress explicitly directed Federal departments and agencies to expend the funds
made available in this Act as quickly as possible consistent with prudent management. On
September 15, 2011, the Director of OMB further directed agencies to “accelerate the
spending of remaining Recovery Act funds in discretionary grant programs (including
formula grant programs that received discretionary funding in the Recovery Act),
consistent with existing laws and regulations and programmatic objectives.” If those funds
have not been spent by September 30, 2013, agencies have been instructed to reclaim
them to the extent permitted by law.




Page 37                                                   GAO-12-360 Grants Management
Appendix I: Objectives, Scope, and
Methodology




    until the obligation/expenditure period expired, and (2) traditional
    financial reporting requirements do not apply to these programs. 4
•   We excluded grant accounts with a negative undisbursed balance,
    meaning that total payments to the grantee exceed the authorized
    amount. According to PSC officials, an overadvancement on a PMS
    account can occur if the awarding agency reduces a grant’s
    authorization limit below the amount already paid to the grantee
    because the awarding agency determines that the grant recipient is
    entitled to a lesser amount than the agency originally authorized.
    Agencies use their accounting systems to send authorization
    transactions to PMS. If an agency’s authorization transaction will
    create an overadvanced account in PMS, the transaction is sent to an
    exception file for review. The agency must override the exception to
    transmit an authorization transaction that causes an overadvanced
    account. According to officials from PSC, agencies will do so (1) if
    they want PSC to initiate a collection action to recover the
    overadvanced amount or (2) for grantees with multiple grant accounts
    in PMS that are “pooled,” to redistribute charges to open grant
    accounts to correct the overadvanced grant.
•   We excluded accounts that were excluded in our 2008 analysis
    because the CFDA number and program description had been
    deleted from the Catalog before 2000 (the last Catalog entry would
    have been in 1999) or we could not find any information on the CFDA
    number either in CFDA or in the CFDA Historical Index, which
    provides the history of all CFDA numbers.
•   We excluded accounts if we could not associate them with a grant
    program. For instance, we found some PMS accounts that, based on
    the most recent CFDA, were for nongrants.

We included expired accounts that were associated with grants or
cooperative agreements that had a time limit for spending the funds. 5 We
also included accounts for letters of credit. According to PSC officials,
almost all accounts in PMS are grants or cooperative agreements with the


4
 HHS, 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).
5
 According to HHS officials, some no-cost extensions that extend the grant period without
changing the authorized amount of funding may not be reflected in PMS data. As a result,
data may include some grants that have received an extension and are therefore not
eligible for closeout.




Page 38                                                   GAO-12-360 Grants Management
                             Appendix I: Objectives, Scope, and
                             Methodology




                             exception of a few letters of credit. The recipient of a letter of credit may
                             not be required to meet the same performance reporting requirements as
                             the recipient of a grant, but, as with grants, they are required to meet
                             certain reporting requirements, such as submitting a Federal Financial
                             Report (SF-425). Letters of credit, according to PSC officials, also have
                             end dates in PMS comparable to grants and follow the same the same
                             closeout procedures in PMS. PSC informed us that it would not be able to
                             exclude letters of credit from the data they provide us.

                             For reporting purposes, we separated data into two sets of expired grant
                             accounts: (1) one set consisted of expired accounts for which all of the
                             funds made available had been disbursed and (2) a second set of
                             accounts that included expired accounts with a positive undisbursed
                             balance. To obtain an estimate of the total amount of fees paid for
                             maintaining accounts with no undisbursed balances remaining, we
                             requested data from PSC for all accounts that appear on the year-end
                             fiscal 2011 closeout report (i.e., as of September 30, 2011) with a unique
                             accounting status symbol indicating that no undisbursed balances
                             remained and that the awarding agency only needed to submit the final
                             closeout code to PSC to finalize grant closeout. According to data
                             provided by PSC, PMS users were charged a total of roughly $173,000
                             per month to maintain more than 28,000 expired grant accounts with no
                             undisbursed balances remaining listed on the year-end closeout report.
                             Roughly $137,000 of this was charged to HHS operating divisions. The
                             closeout report provided by PSC does not provide information on when
                             the authorized funds in these accounts were fully disbursed. However,
                             more than 9,000 of these grants were more than 3 years past their end
                             date. For illustrative purposes, we multiplied the monthly fees for these
                             accounts by 12 to obtain a rough approximation of what the total annual
                             fees charged for these accounts would be assuming that all accounts with
                             no undisbursed balances remaining balance as of September 30, 2011,
                             had a zero dollar balance for the entire fiscal year.

Reliability Testing of PMS   To test the reliability of PMS closeout data, we (1) reviewed existing
Closeout Data                documentation related to PMS, including the most recent audit of the
                             design and operating effectiveness of the system’s controls, (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. An independent auditor assessed internal controls for PMS




                             Page 39                                           GAO-12-360 Grants Management
                             Appendix I: Objectives, Scope, and
                             Methodology




                             in 2011 and reported that, with one exception, the controls were suitably
                             designed to provide reasonable assurance the control objectives would
                             be achieved if the controls operated effectively. 6 We discussed with HHS
                             officials data entry and editing procedures, the production of closeout
                             reports, and any known limitations associated with the data. According to
                             HHS officials, no-cost extensions that extend the grant period without
                             changing the authorized amount of funding may not be reflected in PMS
                             data. As a result, PMS closeout reports may include grants that have
                             received an extension and are therefore not eligible for closeout. No
                             obvious errors in completeness and accuracy were identified during
                             electronic testing. After conducting these assessment steps, we found
                             that the PMS closeout data were sufficiently reliable for the purposes of
                             this report.


Analysis of Dormant Grant
Account Data from ASAP

Description of ASAP System   ASAP is an electronic payment system implemented jointly by the
                             Department of the Treasury’s (Treasury) Financial Management Service
                             (FMS) and the Federal Reserve Bank of Richmond. ASAP allows grantee
                             organizations receiving federal funds to draw from accounts
                             preauthorized by federal agencies. In addition to grants, ASAP is also
                             used to make payments to financial agents that are performing financial
                             services for FMS and other federal agencies. For example, ASAP can be
                             used for reimbursing financial institutions for payments made by federal
                             agencies through debit cards. Agencies establish and maintain accounts
                             in ASAP to facilitate the flow of funds to organizations. Unlike PMS grant
                             accounts, which represent an individual grant agreement between a
                             federal agency and grantee, accounts in ASAP can represent multiple
                             grant agreements between an awarding agency and a grantee. Individual
                             grant agreements within these accounts may have reached their grant


                             6
                              HHS, Description of the U.S. Department of Health & Human Services, Program Support
                             Center Financial Management Service Division of Payment Management Grants
                             Management System For the Period October 1, 2010 through June 30, 2011 (Washington
                             D.C.: August 2011). This was a Statement on Standards for Attestation Engagements No.
                             16 (SSAE 16) audit conducted in accordance with attestation standards established by the
                             American Institute of Certified Public Accountants. The exception noted by the
                             independent auditor related to access by a program developer to install certain changes in
                             the PMS program.




                             Page 40                                                   GAO-12-360 Grants Management
                       Appendix I: Objectives, Scope, and
                       Methodology




                       end date, while others may not have. Therefore, the ASAP system cannot
                       be used to determine which individual grants are eligible for closeout.

ASAP Dormant Account   FMS officials began issuing “dormant account reports” to all ASAP users
Reports                in 2009 as a response, Treasury officials told us, to the findings in our
                       2008 report that using federal payment systems to track undisbursed
                       balances in grant accounts can help reduce unused funding. 7 Dormant
                       account reports provide information on all inactive ASAP accounts,
                       including accounts for nongrant programs. For the purposes of this report,
                       our focus was on accounts for grant programs only. The first dormant
                       account report focused only on undisbursed balances in accounts where
                       the grantee had not drawn down funds for a prolonged period of time.
                       However, the criteria used by FMS for generating dormant account
                       reports have evolved over time to improve the usability of the reports. For
                       the dormant account report provided to us for the end of fiscal year 2011,
                       accounts with undisbursed balances were included if: (1) the grantee had
                       not drawn down funds for at least 2 years, and (2) the awarding agency
                       had made no changes to the authorized amount of funding available for at
                       least 2 years. For each grant account, the report includes information
                       such as the identification number, the account balance, the cumulative
                       amount of funding authorized to the grantee, and the date of the last
                       payment request. The grant account end date is an optional field
                       completed by the awarding agency. FMS did not include accounts with no
                       balance remaining on this report, but has encouraged agencies to close
                       these accounts if they are no longer active. FMS does not charge users
                       for these accounts or for other payment system services provided by the
                       ASAP system and instead receives appropriations to cover the cost of its
                       operations. 8

                       According to FMS officials, dormant account reports are generally
                       provided twice a year, allowing agencies to track progress on addressing
                       inactive accounts. The first report lists all of the dormant accounts as of a
                       specific date, and the second report shows agencies’ progress toward
                       addressing dormant accounts included on the first report. For this report,


                       7
                       GAO-08-432.
                       8
                        For fiscal year 2011, Congress appropriated $233,253,000 to FMS for salaries and
                       expenses. Since fiscal year 1998, Congress has also provided Treasury with permanent
                       indefinite appropriations for sums needed to reimburse the Federal Reserve Banks for
                       services performed as fiscal agents of the United States, including expenses incurred
                       related to the ASAP system.




                       Page 41                                                 GAO-12-360 Grants Management
                              Appendix I: Objectives, Scope, and
                              Methodology




                              we reviewed the most recently available dormant account report for the
                              end of fiscal year 2011. 9 This report listed all ASAP accounts that have
                              not had any activity (i.e., no payment requests and no funding added or
                              removed) since September 30, 2009.

Reliability Testing of ASAP   To test the reliability of ASAP dormant account report data, we:
Dormant Account Data          (1) reviewed existing documentation related to the ASAP system,
                              (2) interviewed officials responsible for administration of the database on
                              data entry and editing procedures and the production of dormant account
                              reports, and (3) conducted electronic testing for obvious errors in
                              completeness and accuracy. We discussed with FMS officials internal
                              control testing and other quality review procedures for the ASAP system
                              as well as dormant account reports. We also discussed missing data in
                              certain fields on the dormant account report identified during electronic
                              testing to ensure that omissions did not indicate potential errors. After
                              conducting these assessment steps, we found that the data from dormant
                              account reports were sufficiently reliable for the purposes of this report.

Review of Audits by GAO       To address our second objective, we collected and reviewed audit reports
and Federal IGs and of        issued by GAO from September 2007 to May 2011 and by the offices of
Agencies’ Performance         inspectors general at the 24 Chief Financial Officers Act (CFO Act)
                              agencies from January 2008 to June 2011, which since the issuance of
and Accountability            our 2008 report, had focused on undisbursed funds in expired accounts.
Reports Issued Since 2008     We reviewed IG reports from the 24 CFO Act agencies in order to provide
                              coverage of the major grant-making agencies and because this approach
                              updated the review we performed as part of the work on our 2008 report,
                              which included IG reports issued between 2000 and 2006. Based on our
                              review for this report, we identified IG reports on HHS, Departments of
                              Energy and Homeland Security, and the Environmental Protection
                              Agency with findings of weaknesses related to undisbursed grant
                              balance, or grant closeout. We then interviewed IG officials at these four
                              agencies to discuss their findings and any plans to conduct future audits
                              on undisbursed grant funds. We also interviewed IG officials from four
                              additional agencies—the Department of Commerce (DOC), Department


                              9
                               This report was run on October 31, 2011. To familiarize ourselves with the evolving
                              process FMS was developing to generate the dormant account reports, we also reviewed
                              the first dormant account report provided to ASAP system users dated January 2009, a
                              follow-up to this initial report dated April 2009, and a dormant account report dated July
                              2011. Because the criteria for determining which accounts are dormant have changed
                              over time, it is not possible to compare information on dormant account reports from
                              different reporting cycles.




                              Page 42                                                    GAO-12-360 Grants Management
                         Appendix I: Objectives, Scope, and
                         Methodology




                         of Justice (DOJ), National Aeronautics and Space Administration (NASA),
                         and National Science Foundation (NSF)—where agency management
                         had reported on undisbursed balances in expired grant accounts in the
                         agencies’ 2010 and 2011 annual performance reports, as described
                         below. Finally, we followed up with each of the IG Offices at the remaining
                         16 CFO Act agencies via e-mail to ensure we had obtained any relevant
                         reports and to determine if they had any plans to conduct future audits
                         related to undisbursed grant funds, or grant closeouts. As a result of this
                         follow up, we identified two additional IG reports related to timely grant
                         closeout at the Departments of Agriculture and Labor.

                         To analyze actions agencies have taken to track undisbursed balances in
                         expired accounts, we reviewed annual performance reports for all 24
                         agencies required to issue audited financial statements under the CFO
                         Act from fiscal years 2009 to 2011. 10 The 24 CFO Act agencies were
                         responsible for the vast majority—more than the 95 percent—of grant
                         programs identified in the CFDA database as of June 2, 2011. We
                         performed a keyword search to determine if the agency, its office of
                         inspector general, or the independent auditor had reported on
                         undisbursed balances in expired grant accounts or the timely closeout of
                         grant accounts. We also reviewed the Performance and Accountability
                         (PAR) and Agency Financial Reports (AFR) of four entities receiving
                         funds under the Commerce, Justice, Science, and Related Agencies Act
                         provision of P.L.111-117 for compliance with relevant reporting
                         requirements in Section 537.


Review of Relevant OMB   To address our third objective, we reviewed relevant OMB guidance and
Circulars and Federal    regulations from federal grant-making agencies. Specifically, we reviewed
Regulations              the 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. Each
                         federal agency that awards and administers grants and cooperative
                         agreements that are subject to the guidance in Circulars A-102 and A-110
                         is responsible for issuing regulations that are consistent with the circulars,


                         10
                           The Government Management Reform Act of 1994 amended the requirements of the
                         Chief Financial Officers (CFO) Act of 1990 by requiring, among other things, the annual
                         preparation and audit of organizationwide financial statements of 24 executive
                         departments and agencies.




                         Page 43                                                   GAO-12-360 Grants Management
Appendix I: Objectives, Scope, and
Methodology




unless different provisions are required by federal statute or are approved
by OMB. We reviewed regulations from federal grant-making agencies
that have codified governmentwide grants requirements, as identified on
OMB’s website, to determine (1) the length of time prescribed for closing
out federal grants and (2) the length of time federal grantees are required
to retain records related to grant awards. 11

To identify federal governmentwide guidance related 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. We also reviewed two memoranda
related to tracking undisbursed balances in expired grant accounts issued
by OMB in October 2010 and August 2011 to select agencies receiving
funding under the Commerce, Justice, Science, and Related Agencies
appropriations act, as required by law. 12 We interviewed officials from
OMB to discuss the purpose and scope of their guidance and officials at
the four agencies that reported undisbursed balances in expired grant
accounts in 2010 and 2011 annual performance reports—DOC, DOJ,
NASA, and NSF—to discuss their implementation of OMB’s instructions.




11
  See http://www.whitehouse.gov/omb/grants_chart/. This list includes regulations from 28
federal departments and independent agencies.
12
 Pub. L. No. 111-117 and Pub. L. No. 112-10.




Page 44                                                  GAO-12-360 Grants Management
Appendix II: Federal Agencies Using the
              Appendix II: Federal Agencies Using the
              Payment Management System (PMS) for Grant
              Payments (as of June 2011)


Payment Management System (PMS) for
Grant Payments (as of June 2011)
              Department of Health and Human Services

              Health Resources and Services Administration
              Food and Drug Administration
              National Institutes of Health
              Centers for Disease Control and Prevention
              Substance Abuse and Mental Health Services Administration
              Agency for Healthcare Research and Quality
              Indian Health Service
              Centers for Medicare & Medicaid Services
              Administration for Children and Families
              Administration on Aging

              Department of Agriculture

              Food Safety and Inspection Service
              National Institute of Food and Agriculture
              Agriculture Research Service
              Forest Service
              Office of Advocacy Outreach

              Department of Homeland Security

              Federal Emergency Management Administration
              Bureau of Customs and Border Protection
              Immigration and Customs Enforcement
              Office of the Chief Procurement Officer

              Department of the Interior

              U. S. Fish and Wildlife Service
              National Park Service

              Department of Labor

              Mine Safety and Health Administration
              Bureau of Labor Statistics
              Occupational Safety and Health Administration
              Veterans Employment and Training
              Employment and Training Administration




              Page 45                                         GAO-12-360 Grants Management
Appendix II: Federal Agencies Using the
Payment Management System (PMS) for Grant
Payments (as of June 2011)




Department of State

Bureau of Educational and Cultural 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 East Asian and Pacific Affairs
Bureau of Oceans and International Environmental Scientific Affairs
Bureau of Democracy, Human Rights and Labor
Bureau of International Narcotics and Law Enforcement Affairs
Bureau of Administration, Office of Overseas Schools
Bureau of Political-Military Affairs, Office of Humanitarian Demining
Programs
Bureau of Population, Refugees and Migration
Bureau of Diplomatic Security
Bureau of European and Eurasian Affairs
Bureau of Human Resources
Bureau of Intelligence and Research
Bureau of Near Eastern Affairs
Bureau of Nonproliferation
Bureau of Nonproliferation, Office of Export Control Cooperation
Bureau of International Security and Nonproliferation and Disarmament
Fund
Bureau of South Asian Affairs
Bureau of African Affairs
Office of International Information Programs
Bureau of Economic and Business Affairs
Bureau of Western Hemisphere Affairs
Bureau of Public Affairs

Department of the Treasury

Internal Revenue Service
Office of the Fiscal Assistant Secretary

Department of Veterans Affairs

National Cemetery Administration
Veterans Health Administration



Page 46                                       GAO-12-360 Grants Management
Appendix II: Federal Agencies Using the
Payment Management System (PMS) for Grant
Payments (as of June 2011)




Health care for Homeless Veterans
Supported Services for Veteran Families

Corporation for National Service

Executive Office of the President

Office of National Drug Control Policy

National Aeronautics and Space Administration

Ames Research Center
Dryden Flight Research Center
Glenn Research Center
Goddard Space Flight Center
Headquarters
Johnson Space Center
Kennedy Space Center
Langley Research Center
Marshall Space Flight Center
Stennis Space Center

Small Business Administration

Office of Women’s Business Ownership

United States Agency for International Development

Agency for International Development




Page 47                                     GAO-12-360 Grants Management
Appendix III: Federal Agencies Using the
               Appendix III: Federal Agencies Using the
               Automated Standard Application for Payments
               (ASAP) System for Grant Payments (as of

Automated Standard Application for Payments
               June 2011)



(ASAP) System for Grant Payments (as of
June 2011)
               Department of Agriculture

               Food and Nutrition Service
               National Institute of Food and Agriculture

               Department of Commerce

               Economic Development Administration
               International Trade Agency
               Minority Business Development Agency
               National Institute of Standards
               National Oceanic and Atmospheric Administration
               National Telecommunications and Information Agency

               Department of Energy

               Environmental Protection Agency

               General Services Administration

               Department of the Interior

               Bureau of Reclamation
               Bureau of Land Management
               Office of Surface Mining
               Minerals Management Service
               U.S. Geological Survey

               Library of Congress

               Nuclear Regulatory Commission

               Social Security Administration




               Page 48                                       GAO-12-360 Grants Management
Appendix IV: Comments from the
             Appendix IV: Comments from the Department
             of Commerce



Department of Commerce




             Page 49                                     GAO-12-360 Grants Management
Appendix IV: Comments from the Department
of Commerce




Page 50                                     GAO-12-360 Grants Management
Appendix V: Comments from the Department
             Appendix V: Comments from the Department
             of Health and Human Services



of Health and Human Services




             Page 51                                    GAO-12-360 Grants Management
Appendix V: Comments from the Department
of Health and Human Services




Page 52                                    GAO-12-360 Grants Management
Appendix V: Comments from the Department
of Health and Human Services




Page 53                                    GAO-12-360 Grants Management
Appendix VI: GAO Contact and Staff
                  Appendix VI: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov
GAO Contacts      Beryl H. Davis, (202) 512-2623 or davisbh@gao.gov


                  In addition to the individuals named above, Phyllis L. Anderson, Assistant
Staff             Director, Thomas M. James, Assistant Director, Thomas J. McCabe,
Acknowledgments   Analyst-in-Charge, and Andrew Y. Ching, Travis P. Hill, Jennifer Leone,
                  Omari A. Norman, Susan Ragland, Cynthia M. Saunders, and Michael
                  Springer made major contributions to this report.




(450907)
                  Page 54                                         GAO-12-360 Grants Management
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