A Guide to Grant Oversight and Best
 

Practices for Combating Grant Fraud
 

NATIONAL PROCUREMENT FRAUD TASK FORCE 

Grant Fraud Committee
 

February 2009
 
I. Introduction 

The National Procurement Fraud Task Force (NPFrF) was created 

on October 10, 2006, to promote the prevention, early detection, and 

prosecution of procurement fraud. The NPFrF recognizes that a large 

part of government dollars lost to fraud, waste, and abuse includes 

dollars lost to grant fraud. As a result, the NPFrF includes preventing, 

detecting and prosecuting grant fraud as part of its focus. The NPFrF 

includes 58 prosecutorial and investigative agencies, including 35 Offices 

of Inspectors General (OIG). Chaired by the Department ofJustice's 

(DOJ) Assistant Attorney General of the Criminal Division, the NPFrF's 

goal is to detect, investigate, and prosecute procurement fraud, grant 

fraud, and associated corruption. 

The NPFrF has established the following objectives: 

•	 Increase coordination and strengthen partnerships among 

Inspectors General, law enforcement agencies, and DOJ to more 

effectively address procurement fraud; 

•	 Assess existing government-wide efforts to combat procurement 

fraud and work with audit and contracting staff both inside and 

outside of government to detect and report fraud; 

•	 Increase civil and criminal prosecutions and administrative actions 

to recover ill-gotten gains resulting from procurement fraud; 

•	 Educate and inform the public about procurement fraud; 

•	 Identify and remove barriers to preventing, detecting, and 

prosecuting procurement fraud; 

•	 Encourage greater private-sector participation in the prevention 

and detection of procurement fraud; and 

•	 Evaluate and measure the performance of the NPFrF to ensure 

accountability. 

The Grant Fraud Committee 

The NPFrF has established several committees to pursue these 

objectives. Because one of the areas of special concern identified by the 

NPFrF is the significant amount of federal dollars lost each year to grant 
fraud, one of the committees the NPFTF has established is the Grant 

Fraud Committee. l 

The Grant Fraud Committee focuses on the following three areas to 

help improve the federal government's ability to prevent, detect, 

investigate, and prosecute grant fraud: 

I}	 Examining ways to enhance information sharing related to grant
 

fraud;
 

2}	 Coordinating efforts among agencies to provide training to 

auditors, agents, and prosecutors on detecting, investigating, and 

prosecuting grant fraud; and 

3}	 Conducting outreach to agency program managers who oversee 

federal grant programs and grantees to coordinate prevention, 

detection, and investigation of grant fraud and to communicate 

best practices in these areas. 

This White Paper is written in support of the Grant Fraud 

Committee's outreach efforts. 2 Its goal is to provide recommendations for 

enhancing the grant oversight process and identifying best practices for 

combating grant fraud. 

To develop this White Paper, the Grant Fraud Committee 

conducted a survey of NPITF members to identify effective methods for 

detecting and preventing grant fraud. 

II. Background 

According to the website www.usaspending.gov, a grant is an 

authorized expenditure to a non-federal entity for a dermed public or 

private purpose in which services are not rendered to the federal 

government. 3 Grants are categorized as either formula or project grants. 

1 Other committees established by the NPFTF include the Steering Committee. 

the Training Committee. the Legislation Committee. Information Sharing Committee. 

the Intelligence Committee. the Private Sector Outreach Committee. the Suspension 

and Debarment Committee. and the International Committee. 

2 The Grant Fraud Committee is chaired by Glenn A. Fine. Inspector General for 

the Department ofJustice. The Grant Fraud Committee has active members from 16 

agencies. 

3 The website www.usaspending.govwas established by the Office of 

Management and Budget as a result of the Federal Funding Accountability and 

Transparency Act of 2006. which provides the public with a single searchable website 

that contains federal contract. grant. and other award data. 

2 
Fonnula grants are awarded to state or local governments, in accordance 

with distribution fonnulas prescribed by law or administrative regulation 

for activities of a continuing nature not confined to a specific project. 

Project grants are funded for specific projects to be completed within a 

fixed or known period oftime. Projects can include fellowships, 

scholarships, research, training, experiments, evaluations, planning, 

technical assistance, surveys, and construction. 

As shown in the following table, the amount of federal dollars 

awarded through grants increased from $294.5 billion in fiscal year (FY) 

2000 to $383 billion in FY 2007. During FYs 2000 through 2007, grant 

spending averaged 18 percent of total federal spending while contract 

spending averaged 14 percent dUring the same time period. Moreover, as 

a result of the recently enacted American Recovery and Reinvestment Act 

of 2009, grant spending will increase significantly. 

3
 
Total U.S. Government Spending in Relation to Grants and Contracts* 

(RcprcsC'nleci in Billions 01" Dollars) 

1'1'2000 1'1'2001 1'1'2002 1'1'2008 1'1'2004 1'1'2005 1'1'2008 1'1'2007 Averages 

(FY 2000-2007) 

rrotall'ederal .pe .... ... 

Contracts5 

$1,789.216 

$208.298 

$1,863.190 

$219.217 

$2,011.153 

$258.966 

$2,160.117 

$297.807 

$2,293.006 

$343.145 

$2,472.205 

$385.060 

$2,655.435 

$423.348 

$2,730.241 

$456.896 

$2,246.820 

$324.092 

Grants5 $294.511 $330.738 $406.157 $493.287 $449.619 $441.028 $489.046 $383.545 $410.991 

Othe~ $1,286.407 $1,313.235 $1,346.030 $1,369.023 $1,500.242 $1,646.117 $1,743.041 $1,889.800 $1,511.737 

Grants as a 

Percentage ofTotal 16% 18% 20% 23% 20% 18% 18% 14% 18% 

~ontracts as a ~ercentage ofTotal 12% 12% 13% 14% 15% 16% 16% 17% 14% 

• The sources for the data in this table are noted in the footnotes below. Averages were calculated based on data from the referenced sources. 

4 Executive Office of the President of the United States. Office of Management and Budget, The Budget of the United States 

Government for Fiscal Year 2009, Historical Tables, (February 2008), page 22. 

5 The data for contracts and grants reflects what was posted on the website www.usaspending.gov as of February 13, 2009. 

The website contains a disclaimer indicating that the figures reported for all FYs presented may change after each data submission 

from government agencies. 

6 The data for the "other" category was attained by subtracting the sum of contracts and grants from the total. This row 

represents government spending excluding contract and grant spending. 

4
 
For discretionary grants, the awarding agency is pennitted, 

according to specific authorizing legislation, to exercise judgment in 

selecting the recipient organization typically through a competitive grant 

application process. Non-discretionary grants, otherwise known as 

mandatory grants, include block grants, formula grants and earmarks. 

For non-discretionary grants, the awarding agency is reqUired by statute 

to award the grant ifthe recipient submits an acceptable plan or 

application and meets the eligibility and compliance requirements of the 

grant program. 

State, local, and tribal governments combined received 87 percent, 

or $427.182 billion, of federal FY 2006 grant dollars. 7 The remaining 

grant funds totaling $61.864 billion were distributed to other recipients, 

including institutions of higher education, for-profit organizations, 

individuals, and non-profit organizations. 

Grant funds are awarded to carry out the goals and objectives 

identified in the grant solicitation. The awarded funds are subject to 

certain regulations, oversight, and audit. Grant recipients must also 

ensure that the funds are used for their intended purpose and must 

account for expenditures made with grant dollars. 

Using federal grants for unjust enrichment, personal use, or other 

than their intended purpose is a form of theft that is subject to potential 

criminal and civil prosecution under federal law. Several federal criminal 

code provisions cover grant fraud, including statutes involving 

embezzlement, theft, bribery, false statements, false claims, mail fraud, 

and wire fraud. 

fil. Recommendations 

Based on input from members of the Grant Fraud Committee, this 

White Paper discusses recommendations for agencies to consider in 

preventing and detecting fraud, waste, and abuse in grants they 

administer. These recommendations include enhanced certifications, 

increased training, improved communications with grant recipients, 

increased information sharing concerning potential fraud, and rigorous 

oversight of how grant dollars are spent after they are awarded. While 

the details of each recommendation may not be applicable to all federal 

7 This infonnation was based on data from www.usaspending.gov. The 

Department of Health and Human and Services (HHS) awards the largest dollar amount 

of grants. HHS awarded $285.1 billion. or 66.7 percent. of FY 2006 grant funds. Over 

75 percent of that amount was awarded for mandatory grant programs such as 

Medicaid. State Children's Health Insurance Program. and Temporary Assistance for 

Needy Families. 

5
 
agencies, the areas of concern are relevant for many federal agencies that 

award grants. 

A. Certifications for Federal Grant Recipients 

As a condition of receiving a grant, an awarding agency may 

require the grantee to certify that the statements it makes in the grant 

application are true and correct and that it understands that any false 

statements made as part of these certifications can be prosecuted. While 

regulations require the use of this type of certification in some situations, 

agencies that do not already use this type of certification for all awards 

should consider adding it as a requirement. 

A significant number of Grant Committee members stated that 

they regard the signing of certifications by grantees as among the most 

effective tool for educating the grantee on the terms and conditions ofthe 

grants, for preventing grant fraud from occurring, and for prosecuting 

grant fraud when it occurs. 

In addition, they suggested that it is important that individual 

certifications address the specific needs of particular agencies or 

program areas. Some survey respondents stated that agencies too often 

rely solely on generic certifications, which are of limited usefulness in 

either educating the grantee of its obligations to comply with grant 

requirements or when relying on the certification as evidence ofintent 

when a grantee engages in fraudulent activity. Several survey 

respondents recommended that grantees should be required to certify to 

specific activities or requirements so that the agency would have 

evidence that the grantee had knowledge ofthe grant requirement and 

indicated its intent to comply with those requirements. For example, the 

grant awarding agency can fashion a certification statement for the 

grantee to sign in which the grantee acknowledges its awareness of a 

governing provision in the Code of Federal Regulation or in an Office of 

Management and Budget Circular and promises under penalty of peIjury 

to comply with the provision. In addition, when grantees are required to 

submit data related to grant activities, the certification should also 

require the grantee to certify that the information submitted is complete 

and accurate. 

As examples, the Department of Health and Human Services (HHS) 

and the National Science Foundation (NSF) OIG stated that they included 

specific criteria in certification statements when awarding grants. HHS 

and NSF both require grantees to certify that: (1) none of their principal 

investigators are currently debarred or suspended, (2) no federal funds 

will be used to pay for lobbying activities, and (3) a conflict of interest 

policy has been established and is in effect. These certifications alert the 

6
 
grantee to certain rules governing grants and establish tenns ofthe grant 

award the violation of which can be the basis for an enforcement action. 

Some respondents to our survey also suggested there is a benefit 

in requiring continuing certifications throughout the award period, 

particularly when supplemental funds are awarded. Iffraudulent 

conduct or misuse of funds occurs later in the award period, there may 

be no concurrent certification that the grantee was aware of applicable 

laws, rules, tenns, and conditions and that it intended to comply with 

the tenns ofthe grant. 

B. Training 

Survey respondents emphasized the importance of training in 

preventing and detecting grant fraud. As discussed below, it is 

important for training to be provided to three target audiences: grant 

recipients, awarding agencies, and oversight agencies. 

1. Training Grant Recipients 

The majority of survey respondents stated that workshops and 

training programs for grantees that specifically focus on grant fraud are 

useful for preventing fraud and for encouraging grantees to report fraud 

when they become aware of it. Many ofthe Task Force agencies who 

responded to our survey conduct fraud awareness briefings for grant 

recipients. They believe that both awarding agencies and oversight 

entities can perfonn a valuable service by increasing the training they 

provide to grant recipients. 

Examples of effective grant fraud training for grant recipients were 

provided by Task Force members. The National Endowment for the 

Humanities (NEH) convenes a meeting ofthe executive directors of state 

humanities councils (the largest program in NEH) several times per year, 

and the NEH OIG makes a presentation focusing on accounting and 

auditing problems typically encountered by grantees. The OIG also has a 

session at the state humanities councils' annual meeting. Effective 

January 2009, the NEH OIG will make a presentation at the NEH 

Program Directors' meetings with new grantees. 

The Department ofTransportation (DOT) OIG regularly provides 

infonnation to state transportation departments and industry 

associations on the types of fraud found dUring DOT OIG audits of grant 

programs, how to prevent such fraud from occurring, and how to report 

fraud ifit does occur. As part ofthis effort, the DOT OIG also cosponsors a biennial National Transportation Fraud Prevention 

7
 
Conference, which is attended by more than 300 government and 

private-sector officials from across the country. 

The National Science Foundation OIG conducts outreach to 

grantees through Regional Grants Seminars, individual presentations to 

grantee institutions, and presentations to organizations such as the 

Society of Research Administrators and the National Council of 

University Research Administrators. A consistent theme of such 

presentations is risk identification and avoidance, as well as the value of 

institutional compliance programs. . 

The Department of Housing and Urban Development (HUD) OIG 

regularly conducts outreach to grantees, subgrantees, and industry 

groups on grant fraud. One of the primary outreach goals ofthe HUD 

OIG is to identify fraud indicators and provide information on who to 

contact iffraud is suspected. In addition, the HUD OIG participates in 

Department-sponsored training programs for many grant fund 

reCipients. 

The Department ofJustice OIG Fraud Detection Office has 

presented grant fraud awareness training to many grantees that receive 

DOJ funds through the Office ofJustice Programs and Office ofViolence 

Against Women. This training alerts the grantees to fraud indicators, 

possible conflicts of interest, and weak internal controls. For example, 

the training stresses to grantees that possible risk factors for fraud 

within their own organizations can include a compressed timeline for 

performance, known fmancial strain, a lack of qualified employees to 

perform the work called for in the grant, or a failure to separate financial 

duties among staff. 

Department of Health and Human Services (HHS) provides to all 

grantees of discretionary awards a Grants Policy Statement that serves 

as a single source of information about the grants process and HHS 

requirements for grantees. This Statement provides examples of fraud, 

waste, and abuse; OIG Hotline contact information; and a description of 

remedies that the government may pursue relating to fraud and false 

statements or claims. 

2. Training Grant Administrators 

Training for grant administrators in the agencies awarding grants 

and for their oversight entities is also important. This training can 

address the benefits of specific certification requirements, the necessity 

of providing adequate oversight after the grant money is awarded, and 

the types of grant fraud indicators that administrators should be alert to 

finding. 

8
 
In one example of such training, HHS offers training courses in 

grants management to its grant staff via classroom training, online selfstudy, development programs, and career counseling. 

The U.S. Nuclear Regulatory Commission regularly conducts a 

fraud awareness presentation to all project managers responsible for 

contracts and financial assistance awards. This training provides 

information about the types of grant fraud the agency has experienced 

and actions that project managers should take ifthey become aware of 

indications of grant fraud. 

The National Science Foundation OIG briefs all incoming agency 

personnel about grant fraud as part of the agency New Employee 

Orientation program. Further, they present regularly at NSF Program 

Manager Seminars. 

The Department ofJustice OIG regularly provides training to DOJ 

grant monitors to alert them to look for specific grant fraud indicators. 

Examples of these indicators include an unusually large number of 

awards to one grantee, employees of the grantee who appear to be living 

beyond their means, costs charged to multiple grants, or an unusual 

pattern in the draw-down of grant funds. 

3. Training Investigators and Auditors 

Effective training for investigators and auditors is also important to 

effective prevention and prosecution of fraudulent grant activity. 

Although most OIGs currently hold general training sessions for 

investigators and staff members on detecting, preventing, and 

prosecuting contract fraud, few address the specific issue of grant fraud 

in these programs. 

However, some OIGs do provide specific grant fraud training. This 

training includes: 

• fraud awareness briefmgs; 

• audit troubleshooting workshops; 

• grant program-specific meetings and conferences; 

• traditional classroom training; 

• online self-study; 

9 
• viewings of anti-fraud educational videos; and 

• interagency working groups. 

Grant fraud investigations require particularized training because 

grants can be governed by a complex set of terms and conditions, and 

investigators should be familiar with the regulations that apply to all 

grant reCipients. Some survey respondents commented that too often 

fraud training for investigators and auditors focuses on procurement 

fraud and does not highlight issues specific to investigating grant fraud 

cases. 

The Grant Fraud Committee and the Training Committee ofthe 

NPFTF, in conjunction with the Federal Law Enforcement Training 

Center (FLETCJ, has developed a week-long course that focuses 

specifically on detecting grant fraud and investigating grant fraud cases. 

The course is designed for both investigators and auditors. FLETC 

offered the course on two separate occasions in FY 2008 and will 

continue to offer this course at regular intervals in the future. FLETC 

also offered a special grant fraud course specifically designed for the 

Department of Homeland Security GIG. 

In addition, the National Science Foundation regularly conducts an 

interagency grant fraud training program that addresses both 

investigation and prosecution of grant fraud cases. 

C.	 Regular Communication Between the Agency, the Grant 

Recipient, and the Public 

In addition to periodic training sessions that inform grantees ofthe 

grant requirements, agencies should regularly provide award recipients 

gUidance at each stage ofthe grant agreement. Questions may arise 

after the funds have been awarded, and grantees are more likely to 

comply with grant requirements ifthey are in regular communication 

with the grant awarding agency. 

Several survey respondents recommended that agencies create 

their own websites with information about the various grant programs 

offered by the agencies. Materials on these websites can enhance 

grantee knowledge of grant requirements. The websites can also provide 

a link to an GIG hotline to inform individuals where to report grant 

fraud, waste, or abuse. The website for the HUD GIG has a "fraud 

awareness" link that directs the reader to several brochures about how to 

prevent fraud in HUD-funded programs and where to report it. 

10
 
Some agencies have created handbooks or brochures for grantees 

that offer tips, based on past OIG experience, on how to prevent and 

detect grant fraud. For example, the HHS OIG, in coordination with the 

National Institutes of Health and other Public Health Service agencies, 

issued a draft compliance program gUide for recipients of research 

awards. The gUide is designed to assist Public Health Service grantees 

(such as colleges, universities, and others who conduct biomedical 

research) in reducing fraud and abuse by encouraging internal controls 

to monitor adherence to applicable statutes, regulations, and program 

requirements. 

OIGs at the Department ofJustice and the National Science 

Foundation have created fraud cards for distribution to grant recipients. 

These cards outline fraud indicators such as false or altered supplier 

invoices, lies about performance or completion, and payments to 

influence grant awards. The fraud cards provide the phone number of 

the OIG so that grantees can report fraud and discuss their concerns 

with an agent. 

Several OIGs have created videos for grant administrators. For 

example, the Department ofTransportation (DOT) OIG funded 

development of a professionally produced 27-minute bribery awareness 

video. The video is divided into three modules: module 1 identifies three 

unethical behaviors (conflicts of interest. gratuities, and bribes); module 

2 reports on three case studies and includes actual testimony by 

confidential informants and fraudsters; and module 3 advises what 

individuals can do after witnessing suspicious activity. This video is 

shown at numerous transportation conferences attended by government 

offiCials and industry representatives and has been widely distributed to 

Federal Highway Administration employees and state departments of 

transportation. The DOT OIG currently is developing a second anti-fraud 

video on false claims and false statements. 

In addition, it can be benefiCial for a federal agency issuing a grant 

to create more transparency on grants in general. Basic information on 

many federal grant awards, whether a direct award from the federal 

government to a grantee or a sub-grant administered by a State 

Administering Agency, often can be made available for pubic inspection 

and review. Websites such as www.usaspending.org and 

www.fedspending.org already make general data available on dollar 

amounts and dates of federal awards. By going a step further and 

publicly disclosing more information about awards, the risk of misuse of 

these awards can be reduced or identified earlier. For example, 

documents that describe the proposed grant program, general budget, 

and the grantee's narrative progress reports can increase the public's 

awareness about how these funds are intended to be used. This 

11
 
increased awareness can lead to both increased deterrence and increased 

reporting of fraud, waste, and abuse in grant awards. 

D. Information Sharing within and Among Agencies 

Several survey respondents noted that information sharing is 

important to preventing and detecting fraud. They stated that 

information about potentially fraudulent grant recipients or common 

fraud schemes should be shared among grant awarding agencies, 

between each grant awarding agency and its oversight entity, and among 

the oversight entities. 

The grant awarding agencies can promote increased coordination 

and communication among themselves and personnel involved in 

funding operations regarding crosscutting grant management issues, 

such as problem grantees that accept awards from more than one 

agency, common fraud schemes, and coordination and cooperation in the 

areas of outreach and training. Grant awarding agencies and their 

respective OIGs also can develop regular information sharing processes 

about grant programs that are vulnerable to fraud and steps that can be 

taken to prevent such fraud. For example, Department of Education OIG 

representatives meet weekly with an intra-agency group known as the 

Risk Management Team, which monitors potentially high-risk grantees 

for compliance with program laws and regulations. This group also 

works with other federal agencies to increase'the focus on oversight of 

grants and the resolution of issues identified at specific high-risk 

grantees. 

Participation in task forces, such as the National Procurement 

Fraud Task Force and the Hurricane Katrina Task Force, which was 

formed by the President's Council on Integrity and Efficiency (PCIE) 

Homeland Security Roundtable after the Gulf Coast Hurricanes of 2005, 

can also help provide oversight of grants. In addition, OIGs can 

participate in Task Forces that are specifically aimed at certain projects. 

For example, the Lower Manhattan Construction Integrity Team in New 

York City was established in 2004 to prevent fraud as various federal, 

state, and local entities attempted to rebuild damage caused to Lower 

Manhattan by the September 11 attacks. The group includes a range of 

oversight agencies, including the OIGs of the u.S. Departments of Labor, 

HUD, and DOT; the OIG for the State of New York; the New York City 

Department of Investigation; and the OIGs for the Port Authority of New 

York & New Jersey and the New York Metropolitan Transportation 

Authority. 

Several survey respondents noted the need for OIGs to ensure that 

information about potential grant fraud is effectively shared internally 

12
 
within each OIG, particularly between the audit and investigation 

divisions. For example, the Department ofJustice (DOJ) OIG 

implemented a grant fraud initiative to increase coordination on potential 

grant fraud matters between the OIG's Audit and Investigations 

Divisions. As part of this initiative, the OIG assigned a grant fraud 

coordinator at each OIG investigations field office and OIG regional audit 

office. The coordinators exchange information on ongoing grant-related 

audits and investigations and participate in regional-procurement fraud 

working groups where relevant grant fraud issues are discussed. The 

DOJ OIG Investigations and Audit Divisions also appointed a grant fraud 

liaison at the headquarters level. The two liaisons meet regularly to 

coordinate grant fraud efforts among the Audit and Investigations 

Divisions, and discuss referrals and other fraud-related issues. The 

liaisons also regularly meet with DOJ grant-making authorities to 

discuss ongoing grant fraud issues. 

The DOJ OIG Audit and Investigations Divisions also 

collaboratively developed a list of grant fraud indicators by reviewing past 

grant investigations and audits involving fraud to identify common 

relevant factors. 

To further the goals of this initiative, the OIG Investigations 

Division also conducted a series of training sessions with OIG auditors 

on key indicators of fraud. As a result of these efforts, the Audit Division 

refers notices of irregularities on a more regular basis to the 

Investigations Division for additional follow-up and the number of OIG 

grant fraud cases has increased. 

E. Oversight and Monitoring of the Grantee 

A critical step in ensuring the integrity of the grant process is 

active oversight of the grantee. This oversight should primarily be 

provided by grant administration officials within the grant-making 

agency. In addition, the OIG for each agency can play an important role 

in ensuring the integrity of the grant process and in encouraging agency 

administrators to aggressively monitor grantees. 

1. Oversight by Grant Administrators 

Many survey respondents suggested that grant awarding agencies 

are often focused on awarding the grant money and do not devote 

sufficient resources to the oversight of how those funds are spent. In 

many cases, grant awarding agencies either do not ensure that grantees 

submit required fmancial and progress reports or do not ensure that they 

are submitted in a timely manner. In addition, survey respondents noted 

that awarding agencies often inadequately monitor grantee activities by 

13
 
not sufficiently reviewing supporting documentation for grant 

expenditures, not establishing performance goals for programs, not 

ensuring that grantees submit performance data to demonstrate that 

grant monies are being used effectively and as intended, and not properly 

closing grants in a timely manner. 

It is important for the awarding agencies to award the billions of 

dollars in grant funds appropriated annually by Congress in a timely' 

manner. However, it is equally important that the awarding agencies 

maintain proper oversight over the grantees' use of these funds and 

ensure that these funds are used appropriately and as intended. 

In this regard, survey respondents made various suggestions for 

grant agencies to take proactive steps before awarding the grant to limit 

the amount of potential fraud. For example, prior to making a grant 

award, the Social Security Administration conducts a cost analysis of 

grantee budgets to determine whether fund allocations are appropriate. 

This practice helps to ensure that grant funds will be expended on costs 

that are reasonable and allowable. It also helps to ensure that the 

grantee will spend federal funds in a manner most likely to promote the 

grant's objectives. 

In another example, HUD currently uses the online Enterprise 

Income Verification system to examine an individual grantee's source of 

income before providing assistance awards. The system contains 

monthly employer new hires, quarterly wages (including employer 

information), federal wages, quarterly unemployment compensation, and 

monthly social security and supplement security income benefits. Using 

this tool, HUD attempts to identify fraudulent applications for assistance 

before the award is granted. 

In addition, federal agencies administering grants can encourage 

oversight by the state governments that receive and administer the 

federal money to sub-grant recipients. Many federal formula grant 

program dollars are distributed to State Administering Agencies, which 

are entities of state government charged with receiving and accounting 

for federal funds and making sub-grants to local government, non-profit 

organizations, and others in support of the federal purpose of the grant 

program. Many formula grant programs allow the states to retain a 

portion of these formula dollars to provide oversight of these sub-grants 

to ensure they comply with the applicable laws and the grant 

agreements. Federal agencies should ensure that State Administering 

Agencies are providing adequate oversight of their sub-grants and that 

the state agencies report known issues to the federal awarding agencies 

and the appropriate GIG. 

14
 
2. Auditing Oversight by the OIG 

Several survey respondents stated that OIGs cannot rely solely on 

allegations of wrongdoing in detennining what to audit. Rather, OIG 

auditing divisions should routinely audit a variety of grant programs in 

their agencies to detect abuse and waste of funds. 8 

For example, the Department ofJustice OIG attempts to identify 

high-risk grantees through an analysis ofindicators of possible fraud. 

Once a high-risk grantee is identified, the OIG's Audit Division conducts 

a limited scope audit to analyze the grantee's grant management more 

closely and identify specific risks associated with its management and 

administration of grants. In these limited scope audits, auditors use the 

grant fraud indicators list developed collaboratively by the Audit and 

Investigations Divisions to assess if auditees are at risk for fraud. 

The DOJ OIG also reports its findings from these limited scope 

audits to the DOJ agencies that awarded the grant, as well as the 

grantee. However, if during the course ofthese reviews the auditors find 

indicators that the grantee may not be able to properly safeguard DOJ 

funds, the auditors follow up with more in-depth audit testing of the 

grantee. Ifthe auditors find significant indicators of fraud, the OIG Audit 

Division reports its fmding to the OIG Investigations Division to 

determine if an investigation is appropriate. In all cases requiring more 

in-depth audit work or investigation, the results are reported to the DOJ 

office that awarded the grant so that it can respond appropriately, 

sometimes by increasing its monitoring of the entity or more carefully 

scrutinizing any future grant requests from the entity. 

IV. Conclusion 

Grant fraud is a significant issue affecting every grant-making 

federal agency. Elements of an effective strategy to combat grant fraud 

include deterrence, training, and education and oversight. The Grant 

Fraud Conunittee has developed this White Paper to identify effective 

practices and to help assist agencies and OIGs in their efforts to combat 

grant fraud. 

8 While some limited audit coverage is provided by the "single audit" conducted 

under OMB Circular A-I33 by grantees and reviewed by OIGs, these audits cannot be 

relied upon to replace routine OIG audits. 

15