Fish and Wildlife Service: Management and Oversight of the Federal Aid Program Needs Attention

Published by the Government Accountability Office on 1999-07-20.

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

                    United States General Accounting Office

GAO                 Testimony
                    Before the Committee on Resources, House of

For Release
on Delivery
Expected at
                    FISH AND WILDLIFE
11 a.m. EST
Tuesday             SERVICE
July 20, 1999

                    Management and Oversight
                    of the Federal Aid Program
                    Needs Attention
                    Statement of Barry T. Hill, Associate Director,
                    Energy, Resources, and Science Issues,
                    Resources, Community, and Economic
                    Development Division

Mr. Chairman and Members of the Committee:

We are here today to discuss our ongoing work on the management and
oversight of the Wildlife Restoration Program within the Fish and Wildlife
Service. This program was begun in 1938 following passage of the Federal
Aid in Wildlife Restoration Act, often called the Pittman-Robertson Act.
The purpose of the act is to restore, conserve, manage, and enhance the
nation’s wildlife resources and to provide for public use and benefits from
these resources. The U.S. Fish and Wildlife Service (the Service), an
agency of the Department of the Interior, administers the program. The
Service’s Office of Federal Aid provides overall program support and
direction for implementing the Federal Aid in Wildlife Restoration
Program as well as a sister program, namely the Sport Fish Restoration
Program.1 This sister program provides funds to restore and manage the
nation’s sport fishery resources and to provide public use and benefits
from these resources. The programs received a total of about $552 million
in fiscal year 1998—$180 million for Wildlife and $372 million for Sport

Funds provided for these programs are derived from excise taxes. For the
Wildlife Restoration Program, these taxes apply to firearms, ammunition,
and archery equipment. For the Sport Fish Restoration Program, the taxes
are on fishing equipment and other sources. The core mission of these
programs is to distribute funds to states and other qualified recipients for
wildlife and sport fish restoration purposes. While most of the funds go to
the states and other qualified recipients, a portion of the funds can be used
for program administration and implementation—up to 8 percent for
Wildlife and up to 6 percent for Sport Fish. Of the $552 million these
programs received in fiscal year 1998, about $31 million was used for
administration and implementation—$13.5 million for wildlife and
$17.4 million for sport fish.

Bills have been introduced in the Congress that, among other things,
would provide additional funding for restoration purposes. Depending on
the bill, the amount of additional funding will eventually range from
$350 million to $459 million per year. In anticipation of an increase in
funding, the Committee asked us to determine (1) how administrative
funds are used and monitored and (2) whether there is adequate oversight
of the funds provided to the states. You asked us to focus our work on the
Wildlife Restoration Program. However, as you requested, where

In 1993, we issued a report on the administration of this program entitled Fisheries Management:
Administration of the Sport Fish Restoration Program (GAO/RCED-94-4, Nov. 8, 1993).

Page 1                                                                        GAO/T-RCED-99-259
                           appropriate, we also included the Sport Fish Restoration Program’s
                           activities in our analysis. In summary, our work to date shows the

                       •   Administrative funds are used for many purposes, such as for employee
                           travel and for special types of grants. In each area where administrative
                           funds are used, there are problems. These included ineffective
                           management oversight, inadequate internal controls, and inadequate
                           policies and procedures for reviewing and approving administrative
                           expenditures. Collectively, these conditions have spawned a culture of
                           permissive spending. As a result, it appears that some of the administrative
                           funds have been spent unnecessarily and ineffectively. This situation
                           raises questions about whether the Office of Federal Aid is meeting its
                           management responsibilities.

                       •   Since fiscal year 1996, the Office has spent about $4.4 million on audits to
                           ensure that the states and other qualified recipients use fish and wildlife
                           restoration funds consistent with the purposes of the programs. Audits
                           completed to date, involving 21 states, yielded returns of about
                           $5.4 million, with another $9.6 million pending resolution. While we
                           commend the Office for undertaking this important oversight effort, our
                           work to date has identified some concerns about the process used to
                           resolve problems uncovered by the audits of two states. According to the
                           audits, these two states misused funds. However, according to program
                           officials, the repayment actions being planned may not hold the states
                           accountable for their actions. For example, grants generally are funded
                           25 percent by the state and 75 percent by the Federal Aid Program.
                           Program officials informed us that, in these two instances, the regional
                           office is planning to allow the states to offset their repayment obligations
                           by crediting the states for payments in excess of the states’ share on
                           closed grants. It is not clear whether this approach complies with program
                           requirements. The actions could be precedent-setting, and if incorrect,
                           could diminish the deterrent effect of the audits.

                           Administrative funds are used for several purposes within the Service.
Problems in the Way        Examples include the uses made by the Director’s Conservation Fund, the
Administrative Funds       Office of Federal Aid, and regional offices for such purposes as salaries,
Are Used                   travel, grants, and contracts. We found problems in each area where
                           administrative funds are used:

                       •   Controls over expenditures and revenues are inadequate.

                           Page 2                                                     GAO/T-RCED-99-259
                          •   Controls over grant funds used by the Director of the Service are
                          •   Controls over the management and oversight of administrative grants are
                          •   How regional offices use administrative funds is inconsistent.
                          •   Whether charges for Service-wide overhead are accurate is uncertain.
                          •   No routine audit program exists for reviewing the use of administrative

                              In 1993, we reported problems with the use of administrative funds in the
                              Sport Fish Restoration Program. These problems included having
                              inadequate justification for the increases in funds used for administering
                              the program and approving administrative grants that were outside the
                              established review and approval process. At that time, the Service
                              promised corrective action. Nonetheless, 6 years later, we have found the
                              actions taken by the agency in response to our earlier recommendations
                              were not entirely responsive. As a result, many of the same problems still
                              exist for both the sport fish and wildlife restoration programs. Our current
                              effort involved tracking the flow of administrative funds to those activities
                              that received them, including the Service, Office headquarters, and
                              regional offices (of which we visited three).

Controls Over                 We found that the Office of Federal Aid is not adequately managing
Expenditures and              program funds—for either grants or administration. As a result, it has been
Revenues Are Inadequate       unable to track millions of dollars in program funds. It has also missed the
                              opportunity to earn over $400,000 in interest income and has accumulated
                              over $100,000 in contract-generated fees, the disposition of which is
                              unclear. In addition, the Office is not monitoring income generated by
                              grants and is not following basic management principles or procedures for
                              controlling the use of travel funds.

                              Regarding the millions of dollars in program funds, about 3 years ago, the
                              Office began an effort to reconcile the financial and reporting systems that
                              track, among other things, sport fish and wildlife obligations and
                              expenditures. Because the Office is implementing a new grant financial
                              management and information system, it is attempting to reconcile the data
                              that were in the information systems maintained in each of its regional
                              offices with the system used in headquarters. While this effort is laudable,
                              so far it has disclosed a discrepancy of about $105 million among these
                              systems. Upon further checking, the Office determined that about
                              $85 million of the discrepancy was due to administrative errors, such as

                              Page 3                                                      GAO/T-RCED-99-259
clerical mistakes. As of July 1999, Office officials, however, still could not
explain the remaining $20 million difference in the reporting systems.
Moreover, there is a discrepancy between the Office’s estimates of the
funds that are unaccounted for and the estimates provided by the Service’s
Division of Finance, which indicate that the difference is $7.4 million.
Thus, both the amount of the discrepancy and the status of the funds in
question are unclear. Federal Aid officials told us that they are planning to
find out the disposition of these funds, but, so far, they have not done so.

In terms of the unearned interest issue, the Office of Federal Aid conducts
a national survey of hunting and fishing activities every 5 years. This
survey is one of the most expensive projects funded by administrative
dollars and is funded by both the sport fish and wildlife restoration
programs. To fund one portion of this project, Federal Aid transferred
funds to the Department of Commerce’s Bureau of the Census. However,
Federal Aid transferred more money than was necessary to complete the
project. As of January 1997, Federal Aid had transferred a total of almost
$9.7 million from its interest-earning account to Census. However, because
the Office had provided the majority of these funds in advance of when
they were needed, it lost the interest that these funds would have earned.
Had the funds been transferred when needed, Federal Aid would have
earned over $400,000 in interest,2 making more money available for the use
of the sport fish or wildlife restoration programs. In fiscal years 1997 and
1998, Census ended up returning a total of about $1.9 million in unused
funds to the Office. Federal Aid officials informed us that, for their next
survey, the Office will transfer to Census only the funds to cover the actual
costs in any one fiscal year.

We also questioned the disposition of income from contract-generated
fees. In this case, the Office contracted in 1993 for a Reference Service to
process requests for information on fish and wildlife publications. The
Reference Service is permitted to charge a fee for distributing copies of
fish and wildlife documents to certain requesters. Over the 5-year period
that this contract was in existence, more than $100,000 in fees was
collected. But, the contract does not make clear who should receive these
fees. At this time, it is not clear whether some, all, or none of this amount
will be returned to the Office or retained by the contractor. Although the
Office claimed to be unaware of the relatively high dollar amount that had
been collected, the contractor told us that he provided monthly reports to
the Office that showed the amounts collected. Thus, the disposition issue

 To calculate the interest we used the average amount of unexpended funds available from May 1995
through January 1999 at the prevailing interest rate.

Page 4                                                                       GAO/T-RCED-99-259
                              could have been resolved earlier. The Office recently renewed the contract
                              for another 5 years with exactly the same fee provisions. Similarly, in
                              reviewing grant files, we found other instances in which revenue is being
                              generated. However, when we queried agency officials about this, they
                              told us that they do not know how many other grants are generating
                              revenue or how much they are generating. Thus, the Office has no idea of
                              how much revenue is being generated or what is being done with these
                              funds. In our opinion, the lack of concern exhibited by the agency officials
                              about these kinds of issues is indicative of the weak oversight of the
                              program. In commenting on these matters, agency officials told us that
                              they agreed with these points and said that they will take action such as
                              discussing possible amendments to the Reference Service contract with
                              the contractor. They also said that they will ensure that future contracts
                              and grants contain provisions regarding income disposal.

                              Our work also disclosed several instances in which the Office was not
                              following basic principles and procedures for managing its travel funds.
                              For example, it is the Service’s policy that staff working for the Office of
                              Federal Aid—like all Service employees—must receive specific approval by
                              the Director before attending certain national conferences. However, we
                              found nine instances in which this policy was violated by Federal Aid staff
                              who attended conferences in 1998 and 1999. In addition, we found that the
                              head of Federal Aid had subordinates routinely approve his travel
                              vouchers—a practice that is not consistent with agency policy. These
                              vouchers amounted to almost $36,500 in travel expenses over a period of
                              about 1 1/2 years. Agency officials acknowledged problems in this area
                              and said that they will send out a notice to all of the staff reminding them
                              of the need to follow established guidelines.

Controls Over Grant Funds     The Director’s Conservation Fund was established in 1994. The Fund was
Used by the Director of the   set up for use by the Director of the Service to make discretionary grants.
Service Are Inadequate        For example, the Director has provided grants to federal, state, and
                              independent fish and wildlife organizations for such purposes as
                              workshops, symposiums, promoting fish and wildlife resource uses, and
                              research. Since its inception, the Director’s Conservation Fund has been
                              used to award 35 grants involving about $3.8 million in administrative
                              funds. However, unlike the procedures used for approving other grants
                              made with administrative funds, the procedures for obtaining approval of
                              grants under the Director’s Conservation Fund are much less rigorous and
                              are open to subjective judgment.

                              Page 5                                                     GAO/T-RCED-99-259
We found that the Office has not followed the Office of Management and
Budget’s (OMB) guidance that requires agencies awarding grants to notify
the public of intended funding priorities for discretionary grant programs.
Moreover, there are no specific criteria that a grantee must meet to obtain
approval. The potential grantee essentially only has to identify the title,
purpose, and estimated cost of the project. In contrast, to obtain approval
of administrative grants, an assessment must be made of the benefits to be
derived, the importance of providing the grant, the problem that needs to
be addressed, the number of states that are affected, and the approach that
will be taken to accomplish the objectives of the grant. As a result,
compared with the administrative grant evaluation process, the Director
has very broad latitude in awarding grants.

We are reviewing grants awarded under the Director’s Conservation Fund
during fiscal years 1994 through 1998. While our review is limited to date,
we found that the Office has not exercised adequate controls over these
grants. Specifically, the Office has not followed internal control
documentation standards and OMB guidance.3 The grant files maintained
were incomplete, out of date, and disorganized and did not contain
required financial forms and supporting documentation. As a result,
tracking and verifying the status of a grant, the amounts that have been
authorized for payment, or the timeframes in which the expenditures are
made is very difficult.

Furthermore, we found three grants, totaling $280,000, that were rejected
under the administrative grant program and subsequently funded by the
Director’s Conservation Fund. One grant for $125,000 was for more than 3
years’ duration and thereby ineligible for funding as an administrative
grant. The remaining two grants, for $155,000 in total, were ineligible
because they did not benefit more than 50 percent of the states. One of
these two grants was to help restore the ecology of band-tailed pigeons in
western Oregon, and the other was to study the causes for the decline of
mourning doves in California’s Central Valley. Both of these grants were
made to the National Biological Service, a unit within the Department of
the Interior. In addition, we found a fourth grant that met the eligibility
requirements for an administrative grant but fell below the cutoff point for
funding. This grant, for $75,000, was also funded under the Director’s
Conservation Fund subsequent to the Office determining that it did not
have enough funds to do so as an administrative grant.

  Standards for Internal Controls in the Federal Government, U.S. General Accounting Office, 1983;
“Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher
Education, Hospitals, and Other Non-Profit Organizations,” Circular A-110 (revised Nov. 19, 1993, as
further amended Aug. 29, 1997), Office of Management and Budget.

Page 6                                                                          GAO/T-RCED-99-259
                               According to agency officials, the Director decided in a March 1999
                               meeting to terminate this program.

Controls Over the              The Office of Federal Aid made about $4 million in administrative funds
Management and Oversight       available for administrative grants in fiscal year 1998 to fund national fish
of Administrative Grants       and wildlife projects—$2 million each from the sport fish and wildlife
                               restoration programs. In reviewing administrative grant files, we found
Are Inadequate                 that the agency was not following standard management practices that
                               should be used to ensure that grant funds were properly applied and
                               accounted for. Specifically, we found that basic internal controls and
                               documentation standards were not being used and that the agency was not
                               following OMB’s requirements for grant management. These requirements
                               call for such fundamental internal controls as accurate and timely record
                               keeping. We reviewed grant files for fiscal years 1993 through 1998 and
                               found them to be incomplete, out of date, and disorganized. To illustrate,
                               the files did not contain required key financial documents, status reports,
                               or other supporting documentation. In some cases, documents have not
                               been placed in the appropriate files for more than a year. As a result, in
                               many instances, we could not track and verify the status of a grant, the
                               amounts authorized for payment, or the timeframes in which these
                               expenditures were made.

                               We also found instances in which agency officials authorized questionable
                               payments to grantees without thoroughly reviewing the submitted
                               documentation. While the individual amounts involved are not large, the
                               situation is indicative of a lack of attention to detail that is crucial to
                               effective money management. For example, federal travel regulations
                               preclude claiming alcoholic beverages as a travel expense. However,
                               Federal Aid paid grantees for alcoholic beverages and other items that
                               reasonably should have been questioned. Other examples include
                               payments of

                           •   $170 for work that was not related to the grant nor ever performed and
                           •   excessive meal charges ($152 in meal charges were paid for one person’s
                               overnight trip, even though the maximum amount allowable for this trip
                               was $76).

                               While we only did a limited review, we are concerned that this problem
                               may be widespread because the officials responsible for grants said that
                               they do not review the details supporting these types of claims. Internal
                               controls for this aspect of the Office’s operation appear to be nonexistent.

                               Page 7                                                     GAO/T-RCED-99-259
                           Agency officials told us that they plan to eliminate the administrative grant
                           program. In the interim, they plan to better manage this aspect of their

How Regional Offices Use   We found that the Service has no consistent practices for making regional
Administrative Funds Is    office assessments. These assessments are charges that the regions make
Inconsistent               against the administrative funds for salaries, travel expenses, support
                           costs, and other administrative-type activities. As a result, each of the
                           regions use a different approach for making the assessments.

                           Each of the Service’s seven regional offices has employees dedicated to
                           the Office of Federal Aid in support of the sport fish and wildlife
                           restoration programs. The regions use administrative funds for these
                           employees’ salaries. At the three regions we visited, administrative funds
                           are also used for other regional office activities such as a portion of the
                           salaries of nondedicated employees, common support services such as
                           equipment maintenance and repair, and employee relocation costs. The
                           additional assessments made against administrative funds by these three
                           regions ranged from about $25,000 to $100,000 for fiscal year 1998.

                           One region’s assessment included paying almost $50,000 of the Regional
                           Director’s salary for one year. In a different year, the assessment included
                           paying almost $25,000 of each of the Regional and Deputy Directors’
                           salaries. Given that the Regional and Deputy Directors oversee a variety of
                           programs, such as endangered species, refuges, law enforcement, and
                           realty, and not just on fish and wildlife restoration programs, it does not
                           seem appropriate for the administrative funds to be assessed such large
                           amounts for their salaries. It would seem more appropriate for the
                           assessment to have some relationship to the time and effort that was
                           actually spent working on the sport fish and wildlife restoration programs.
                           In this region, assessments were also made for common support functions
                           such as motor pool, equipment repair and maintenance, and office
                           equipment rental.

                           In another region, the assessment was done differently. In fiscal year 1998,
                           this region assessed the administrative funds for about $98,000 to pay for a
                           portion of the salaries of employees in the Office of Personnel. In fiscal
                           year 1997, the administrative funds were assessed about $95,000, including
                           about $60,000 to pay for a portion of the salaries of employees in the
                           offices of the Regional Director, Human Resources, and Personnel as well

                           Page 8                                                      GAO/T-RCED-99-259
                            as $35,000 to pay for the permanent change of station move for the new
                            Deputy Regional Director.

                            The assessment by the third regional office was for a portion of the
                            salaries of employees in the offices of the Regional Director and External
                            Affairs, amounting to about $26,000 from the wildlife restoration account.
                            According to the acting Regional Director, prior to fiscal year 1999, the
                            region had no set formula for assessing program funds to support
                            administrative costs or salaries.

                            Because, in many cases, the regional offices’ assessment charges are not
                            based on actual program costs and because of the inconsistent approaches
                            that the regions take, there is no way of determining whether the amounts
                            charged to the administrative funds are justified.

Whether Charges for         Like many of the Service’s components, the Office of Federal Aid is
Service-Wide Overhead Are   responsible for paying a portion of the service-wide administrative support
Accurate Is Uncertain       services provided to it. Essentially, these are overhead charges for such
                            things as telephone usage, equipment servicing, and space rental. In fiscal
                            year 1998, the Service received about $55.5 million for service-wide
                            administrative support. About $47.8 million came from appropriated funds
                            and collections on reimbursements. Of the remaining $7.7 million, Federal
                            Aid paid $4.7 million. However, whether Federal Aid should be paying this
                            much is unclear since the charges do not have a relationship to actual
                            usage of these services.

No Routine Audit Program    There are no routine program audits of the use of the administrative funds
Exists for Reviewing the    provided under the sport fish and wildlife restoration programs. In our
Use of Administrative       view, if routine program audits had been performed, many of the
                            shortcomings discussed above could have been identified and corrected.
Funds                       While these programs have been in existence for more than 40 years, we
                            determined that during the last 20 years there have been three external
                            audits that addressed the use of administrative funds. The Department of
                            the Interior’s Office of Inspector General performed two audits, one in
                            1981 and the other in 1994,4 and we reported on the Sport Fish Restoration
                            Program in 1993.

                            Review of Fish and Wildlife Service Administration of the Federal Aid in Fish and Wildlife
                            Restoration, Office of Inspector General, July 1981, and Federal Aid in the Sport Fish and Wildlife
                            Restoration Programs, U.S. Fish and Wildlife Service, Office of Inspector General, Feb. 1994.

                            Page 9                                                                           GAO/T-RCED-99-259
                        In our report, we recommended that the Director, Fish and Wildlife
                        Service, follow established policies and procedures when selecting special
                        investigations (now known as administrative grants), consider the priority
                        needs of the states in selecting these investigations, and monitor the
                        investigations to ensure that their objectives are achieved and their results
                        are disseminated. In response, the agency said that it was taking a number
                        of actions to address our concerns. For example, the Office agreed to
                        develop a system for monitoring and tracking the progress of
                        administrative grants to ensure that the intended results were achieved
                        and properly disseminated. However, it has not done so.

                        While the Office of Federal Aid does not routinely audit how
Process for Resolving   administrative funds are used, it initiated a national audit program in fiscal
Audit Findings on       year 1996 to routinely audit how states and other qualified recipients are
States Use of Funds     using the grant funds provided under the sport fish and wildlife restoration
May Need to Be
Improved                This audit program began because the agency believed that the grants had
                        not received adequate audits or financial reviews. States’ grant funding can
                        be quite substantial. In fiscal year 1998 for instance, the sport fish and
                        wildlife restoration programs provided the states and other qualified
                        recipients with about $552 million. Under the program, each state and
                        other qualified recipient will be audited every 5 years under a contract
                        with the Defense Contract Audit Agency. As of June 30, 1999, audit reports
                        on 21 states have been completed.5 Audits of 19 states and 3 other
                        qualified recipients are under way. The Office has spent about $4.4 million
                        to date to perform the audits. The completed and ongoing audits have
                        resulted in about $5.4 million in program savings and the disposition of
                        another $9.6 million that is waiting to be resolved.6 These savings result
                        from recovering, for example, (1) license fee revenues not used in support
                        of the program, (2) salaries charged inappropriately, and (3) excess fund
                        withdrawals by a state. To illustrate, one state used about $725,000 in
                        license fee revenues for activities other than for fish and wildlife
                        restoration purposes. Resolution of the audit findings is the responsibility
                        of the Federal Aid regional office covering the state being audited.

                        While this audit program is laudable, we have concerns about how the
                        regional office is planning to resolve some of the audit findings. For

                         The Department of the Interior’s Office of Inspector General performed one of the state audits.
                         This figure includes $4.2 million identified by an audit of one state performed by the Department of
                        the Interior’s Office of Inspector General.

                        Page 10                                                                          GAO/T-RCED-99-259
example, $3.5 million, or 36 percent, of the $9.6 million in savings to be
resolved is associated with audits of two states. The actions the regional
office plans for resolving the $3.5 million is precedent-setting and could
compromise the audit resolution process. Specifically, according to
program officials, the two states involved have misused grant funds but
may not be held accountable for their actions.

In one instance, the audit disclosed that about $2.2 million in revenues
generated with the use of grant funds should be returned to the program in
accordance with federal regulations. According to the audit, the state sold
timber rights generated on lands purchased with Federal Aid funds but did
not compensate the Service for those revenues. Grants generally are
funded 25 percent by the state and 75 percent by Federal Aid. Program
officials said that regional officials are planning to allow the state to offset
its repayment obligation by crediting the state for payments in excess of
the state’s share on closed grants. The same audit also found that the state
received about $1.3 million from the Service to acquire land. The state paid
$500,000 for the land. As a result, the state received excess payments from
the Office of Federal Aid of $800,000. According to the program and audit
agency officials, however, the Service’s regional officials proposed to
allow the state to offset the overpayment with the amounts it had already
paid for other lands. Office headquarters officials noted that the $800,000
difference should be made up with purchases of newly acquired land. An
Office of Federal Aid headquarters official said that the Office is in the
process of determining whether this action violates the Service’s

In another instance, a state was unable to justify $500,000 in costs
associated with grants provided under both the sport fish and wildlife
restoration programs. Similar to the first example, the regional officials
responsible for resolving the audit finding plan to allow the state to offset
its repayment obligation by crediting the state for payments in excess of
the state’s share on closed grants. Program officials stated that the Office
is in the process of determining whether this action is allowed under
current program regulations.

We, too, are concerned about these proposed actions for resolving audit
findings. It is not clear whether the approach complies with program
requirements. These actions could be precedent-setting and, if incorrect,
could diminish the deterrent effect of the audits.

Page 11                                                       GAO/T-RCED-99-259
                  We provided copies of a draft of this testimony to the U.S. Fish and
Agency Comments   Wildlife Service and the Department of the Interior for review and
                  comment. The Service generally agreed with our findings and said that
                  some of the issues we raised would be addressed by terminating some of
                  the programs, specifically the Director’s Conservation Fund and the
                  administrative grants program. In most of the other cases we raised, the
                  Service indicated that it would take corrective actions on the problems
                  identified. The Service also provided clarifying comments that have been
                  incorporated into this testimony as appropriate.

                  In closing, Mr. Chairman, the administrative funds associated with the
                  sport fish and wildlife restoration programs are used for various purposes,
                  some of which may not be necessary, justified, or effective. While
                  individually the problems we identified in each of the areas where
                  administrative funds are spent may not appear too significant, collectively,
                  the problems suggests a lack of attention to detail that erodes the Office of
                  Federal Aid’s ability to effectively manage and oversee the administrative
                  aspects of the programs. In our view, these conditions have spawned a
                  culture of permissive spending that raises significant questions about
                  whether the Office is meeting its management responsibilities.
                  Furthermore, the audits of these funds provided to the states and other
                  qualified recipients are an important tool for ensuring that these funds are
                  spent appropriately. The Office of Federal Aid should be commended for
                  its efforts in this area. However, some of the actions now planned to
                  resolve open audit findings may diminish the effectiveness of the audit
                  process and could prevent the Office from realizing the full benefits of the
                  audit program.

                  Mr. Chairman, I want to point out that what you heard from us today is
                  based on our work to date. When our work on this project is completed,
                  we will provide recommendations on what we believe needs to be done to
                  correct the problems that we identified here today.

                  This concludes my prepared statement. I would be happy to respond to
                  any questions that you and Members of the Committee may have.

                  Contact and Acknowledgments

                  For further information, please contact Barry T. Hill at 202-512-3841.
                  Individuals making key contributions to this testimony include Cliff
                  Fowler, Roy Judy, Lew Adams, and Diana Cheng.

(141290)          Page 12                                                     GAO/T-RCED-99-259
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