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IMPROVING OVERSIGHT AND ACCOUNTABILITY IN

FEDERAL GRANT PROGRAMS

HEARING

BEFORE THE

SUBCOMMITTEE ON TECHNOLOGY, INFORMATION

POLICY, INTERGOVERNMENTAL RELATIONS AND

PROCUREMENT REFORM

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

JUNE 23, 2011

Serial No. 112–70

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON TECHNOLOGY, INFORMATION POLICY, INTERGOVERNMENTAL

RELATIONS AND PROCUREMENT REFORM

JAMES LANKFORD, Oklahoma, Chairman

MIKE KELLY, Pennsylvania, Vice Chairman

JASON CHAFFETZ, Utah

TIM WALBERG, Michigan

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

BLAKE FARENTHOLD, Texas

GERALD E. CONNOLLY, Virginia, Ranking

Minority Member

CHRISTOPHER S. MURPHY, Connecticut

STEPHEN F. LYNCH, Massachusetts

JACKIE SPEIER, California

(III)

C O N T E N T S

Page

Hearing held on June 23, 2011 ............................................................................... 1

Statement of:

Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma ................. 65

Franzel, Jeanette, Managing Director, Financial Management Assurance

Team, Government Accountability Office; Natalie Keegan, Analyst,

American Federalism and Emergency Management Policy, Congressional Research Service; Cynthia Schnedar, Acting Inspector General,

Department of Justice; and Danny Werfel, Controller, Office of Federal

Financial Management, Office of Management and Budget ..................... 6

Franzel, Jeanette ....................................................................................... 6

Keegan, Natalie ......................................................................................... 29

Schnedar, Cynthia ..................................................................................... 37

Werfel, Danny ............................................................................................ 46

Letters, statements, etc., submitted for the record by:

Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma, prepared

statement of ................................................................................................... 69

Connolly, Hon. Gerald E., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 5

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 79

Franzel, Jeanette, Managing Director, Financial Management Assurance

Team, Government Accountability Office, prepared statement of ............ 9

Keegan, Natalie, Analyst, American Federalism and Emergency Management Policy, Congressional Research Service, prepared statement of ..... 31

Schnedar, Cynthia, Acting Inspector General, Department of Justice, prepared statement of ........................................................................................ 39

Werfel, Danny, Controller, Office of Federal Financial Management, Office of Management and Budget, prepared statement of ........................... 48

(1)

IMPROVING OVERSIGHT AND ACCOUNTABILITY IN FEDERAL GRANT PROGRAMS

THURSDAY, JUNE 23, 2011

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TECHNOLOGY, INFORMATION POLICY,

INTERGOVERNMENTAL RELATIONS AND PROCUREMENT

REFORM,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:32 a.m., in room

2154, Rayburn House Office Building, Hon. James Lankford (chairman of the subcommittee) presiding.

Present: Representatives Lankford, Kelly, Meehan, Connolly,

Murphy, and Lynch.

Also present: Representative Cummings.

Staff present: Richard A. Beutel, senior counsel; Molly Boyl, parliamentarian; John Cuaderes, deputy staff director; Gwen

D’Luzansky, assistant clerk; Linda Good, chief clerk; Hudson T.

Hollister, counsel; Mark D. Marin, senior professional staff member; Peter Warren, legislative policy director; Michael Whatley and

Sang H. Yi, professional staff members; Ronald Allen, minority

staff assistant; Jaron Bourke, minority director of administration;

Adam Miles, minority professional staff member; Mark Stephenson,

minority senior policy advisor/legislative director.

Mr. LANKFORD. The committee will come to order. This is a hearing on Improving Oversight and Accountability in Federal Grant

Programs from the Oversight and Government Reform subcommittee.

We exist to secure two fundamental principles: First, Americans

have the right to know that the money Washington takes from

them is well spent. Second, Americans deserve an efficient, effective government that works for them. Our duty on the Oversight

and Government Reform Committee is to protect these rights. Our

solemn responsibility is to hold Government accountable to taxpayers because taxpayers have a right to know what they get from

their Government. We will work tirelessly in partnership with citizen watchdogs to deliver the facts to the American people and

bring genuine reform to the Federal bureaucracy. This the mission

of the Oversight and Government Reform Committee.

In a time of growing Federal debt, it is essential that every area

of Government spending is fully transparent and beneficial to the

Nation. Executive branch agencies are estimated to spend more

than $50 billion annually on discretionary grants.

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As overall grant spending has continued to increase, Federal

agencies have worked to find ways to minimize opportunities for

waste, fraud, and abuse in the discretionary grant programs. They

are commended for that.

This hearing will initiate a series of hearings related to transparency and the effectiveness of the grant process.

The subcommittee recognizes that grants are distributed based

upon authorizing legislation to advance a public purpose, not to directly benefit the agency that is awarding the grant. Thus an open

contract model may not be appropriate. But the grantee selection

process must be transparent and consistent in the pre-award and

post-award phases.

According to OMB, from fiscal years 1990 to 2010, Federal out- lays for grants to state and local governments increased from $135

billion to $608 billion, almost one fifth of the Federal budget and

a 350 percent increase since fiscal year 1990.

In fiscal year 2010, OMB identified 23 Federal grantmaking departments in agencies that offered over 1,670 Federal grant programs. The top three agencies in terms of grant dollars outlaid during fiscal year 2010 were the Departments of Health and Human

Services, Transportation, and Education. But it appears that there

is a void of consistent grant guidelines across all agencies beyond

OMB circulars.

Currently agencies do not typically disclose to grant applicants

the criteria or factors they will use in deciding how to distribute

grant funding. When agencies do disclose the criteria, they may not

disclose the weighting of the various criteria.

Because of the discretionary grant process, it is impenetrably

opaque. It is difficult, if not impossible, for the public or oversight

bodies to determine whether a Federal grant award was based on

merit, the discretion of the department or agency, past or future

employment, or political or financial interest. Any of those areas we

can’t determine.

GAO and IG audits have examined discretionary grant awards

decisions. Typically they reveal that in financial selection the decision was not documented and one cannot ascertain why some grant

applications were funded while others were not.

During this hearing we plan to ask many questions. After the

funds have been distributed to grantees, do agencies have effective

oversight and monitoring tools? Are there vulnerabilities in the system and ways to ensure that the Government’s limited discretionary grant resources are used effectively? If public funds are

used to pay for research, is the research deliverable publically

available?

Should grants release the funds as the work is completed in multiple stages, pay at the start, or pay at the end of a project? Are

there ways to protect against fraud, waste, and abuse like inappropriate pay scales, ghost employees, work that was never complete,

etc.? How do we ensure that grant funding is released to entities

with the greatest need and ability rather than simply the best

grant writing skills?

Is there a way to see the successful and not successful grant requests so future grant writers can see what was contained in a successful grant application? Can we improve communication throughVerDate 17-JUN-2003 13:12 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71296.TXT KATIE PsN: KATIE
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out the grant process between the agencies and the grant requesters?

Are grants being written in instances when it would be more appropriate to use a contract? Is there a need to increase recipient

reporting requirements to allow more transparency?

This hearing will focus on asking the questions to determine if

there are new ideas that exist to help all entities involved in the

grant process accomplish their goals. I look forward to discovering

with all parties the ideas that will help us in the future manage

our Federal tax dollars the best way possible. With that, I now recognize the distinguished ranking member, Mr. Connolly, for his

opening statement.

Mr. CONNOLLY. Thank you, Mr. Chairman. Thank you for holding this hearing which might at first glance appear relatively mundane but actually raises some important questions about the disbursement of Federal funding.

First, what is the relationship between transparency of grant disbursement, auditing of grant recipients, and the efficient allocation

of resources to grantees who can make the most of the funding?

There may be a point at which additional and especially duplicative

reporting requirements constrain grantees’ ability to fulfil their

own mission. There may be a point at which additional reporting

requirements frankly discourage participation by smaller entities.

Finally, if we are disbursing discretionary grants to many very

small entities which require labor-intensive audits then perhaps it

is more efficient to spend the money directly through the Federal

agency itself. We should not leave unexamined the assumption that

grants necessarily represent the best way to fund a particular program.

Second, what is the Federal Government doing to ensure equitable distribution of grant moneys? I represent two counties in Virginia, for example, of which one has a very sophisticated grant application staff and one that is less so. Both of these counties deserve fair, merit-based consideration of their grant applications but

one starts out with a distinct advantage. Lest grant moneys flow

disproportionately to wealthy urban counties, agencies must go out

of their way to ensure that less sophisticated but equally deserving

jurisdictions receive fair consideration of their applications.

This kind of equitable process requires proactive outreach just as

selective colleges proactively reach out to underrepresented communities which certainly contain talent but do not always possess

the familiarity or expertise with college application processes.

I am interested in hearing more about the administration’s efforts to strengthen www.grants.gov and whether these efforts include reforms that will make the platform more accessible to all

grant seekers.

Third, what is the Federal Government doing to avoid the imposition of unfunded mandates and to reduce the reporting burden on

states, localities, and universities? I indicated yesterday that I do

have some queasiness about the legislation this committee marked

up with respect to that subject.

According to the American Association of Universities, for example, fulfilling ARRA reporting requirements alone costs $7,900 per

grant award. That would translate to hundreds of millions of dolVerDate 17-JUN-2003 13:12 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71296.TXT KATIE PsN: KATIE
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lars, potentially, in cost if ARRA-type reporting requirements were

established across the board for all Federal spending.

At a time when states, localities, and universities are facing dire

fiscal challenges, we need to be cognizant to ensure that any additional reporting requirements—for good reasons, for transparency—avoid the imposition, however, of an unfunded mandate

and protect those entities’ abilities to deliver the services that our

constituents need.

The efficiency and transparency of grant delivery is a complex

topic. I hope that as we develop legislation on this topic we have

additional hearings to consider the questions I have raised. In a

cost constrained environment, it is imperative that we consider the

efficient delivery of services, which must be balanced against the

need for transparency, and include consideration of all of the tools

beyond grants to accomplish a given objective.

We say we are concerned about the burden of unfunded mandates. We have had a number of hearings in this subcommittee

about them. We must make sure we do not even unwittingly add

to them.

I look forward to hearing the testimony this morning, Mr. Chairman. Again, thank you for holding this hearing.

[The prepared statement of Hon. Gerald E. Connolly follows:]

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Mr. LANKFORD. I agree with what you were saying on the additional unfunded mandates. I completely agree on that.

Members have 7 days to submit opening statements and extraneous material for the record. I will now welcome our first panel.

Ms. Jeanette Franzel is the Managing Director of the Financial

Management and Assurance Team at GAO. Ms. Natalie Keegan an

Analyst at the Congressional Research Service specializing in

American Federalism and Emergency Management Policy. Ms.

Cynthia Schnedar is the Acting Inspector General at the Department of Justice. The Honorable Danny Werfel is the Controller at

OMB’s Office of Federal Financial Management.

I thank you all for being here. Pursuant to committee rules, all

witnesses are sworn in for the Oversight and Government Reform

Committee so I would ask you all to stand and raise your right

hands.

[Witnesses sworn.]

Mr. LANKFORD. Let the record reflect all witnesses answered in

the affirmative.

Thank you. You may be seated.

In order to allow time for discussion, I would ask that each of

you limit your testimony to 5 minutes. Your entire written statement will of course be made part of the record. We would like to

recognize you for 5 minutes.

I know all of you have been around the hearings before at different times and that you are familiar with your red, yellow, and

green lights there in front of you.

We would be very honored to receive your testimony.

Ms. Franzel.

STATEMENTS OF JEANETTE FRANZEL, MANAGING DIRECTOR,

FINANCIAL MANAGEMENT ASSURANCE TEAM, GOVERNMENT

ACCOUNTABILITY OFFICE; NATALIE KEEGAN, ANALYST,

AMERICAN FEDERALISM AND EMERGENCY MANAGEMENT

POLICY, CONGRESSIONAL RESEARCH SERVICE; CYNTHIA

SCHNEDAR, ACTING INSPECTOR GENERAL, DEPARTMENT

OF JUSTICE; AND DANNY WERFEL, CONTROLLER, OFFICE

OF FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

STATEMENT OF JEANETTE FRANZEL

Ms. FRANZEL. Thank you. Good morning, Chairman Lankford,

Ranking Member Connolly, and members of the subcommittee.

Thank you for the opportunity to be here to discuss issues related

to improving Federal grants processes.

Today I will highlight the results from a range of reports that we

have issued regarding weaknesses in Federal grants management

and accountability, including the single audit process. The administration also recognizes concerns with these processes and has included improving grants management as part of its initiative to

eliminate waste. It has various related efforts underway.

Today I will discuss the significance of Federal grant funding,

the related risks and vulnerabilities, and improvements needed to

make the single audit process an effective accountability mechanism.

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The Federal Government’s use of grants to achieve national objectives and to respond to emerging trends in demographics and

threats to homeland security has grown significantly in the last

two decades. In fiscal year 2010, Federal grant awards to states

and local governments totaled over $600 billion according to historical data from the President’s budget. Also in fiscal year 2010, over

1,670 grant programs were offered by at least 23 Federal

grantmaking departments and agencies. As you mentioned, Mr.

Chairman, the top three agencies in terms of grant dollars are the

Departments of Health and Human Services, Transportation, and

Education.

Our work over a number of years has pointed out risks and

vulnerabilities that exist in the Federal grants process. We found

weaknesses in the control systems of Federal awarding agencies at

all points in the grant life cycle.

Specifically, in the pre-award and award processes, our audits

found that agencies awarded grants without adequately documenting the selection process. In some instances, we found agencies did not perform pre-award reviews until after the grants had

been awarded. In other cases, the documentation was not sufficient

to show key decisions that were made in the competitive award

process, including decisions about evaluation criteria and selection.

In the implementation phase, we found weaknesses in agency

monitoring of recipients’ use of funds, including identifying and

managing grantee risks and properly overseeing grantee financial

practices and program management. We have also reported the

need for agencies to assist recipients in improving sub-recipient

monitoring when Federal funds are passed through one entity to

another.

Grant closeout procedures have also been a longstanding problem. These procedures are used for detecting problems that have

occurred in recipient financial management and program operations. Closeout procedures are intended to ensure that recipients

have met all financial requirements, provided financial reports, and

returned any unused funds to the Federal Government.

We have also reported on Government-wide issues related to

grants, including undisbursed Federal funding in expired grant accounts and improper payments in Federal grant programs.

Finally, I will discuss the audit mechanism for grants, which is

the single audit. Over the past several years we have reported significant concerns with the single audit process and have called for

improvements to make single audits a more effective accountability

mechanism over Federal grant funding while possibly simplifying

and streamlining the process.

Single audit reports are on the financial statements and internal

controls over compliance with laws and grant provisions for grantees that spend more than $500,000 of Federal funding in a given

year. The largest grantees subject to these requirements are state

and local governments.

Through our work we found that the Federal oversight structure

is not adequate to monitor the single audit process and results and

that the timeframes do not facilitate timely correction of audit findings by grantees. In addition, single audit stakeholders, including

the states, have raised concerns about the complexity and relative

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costs and benefits of the single audit requirements as currently designed.

We also found that Federal agencies do not systematically use

audit findings to identify risks related to grant programs and individual grantees.

We also identified concerns regarding the need for OMB to issue

its single audit guidance in a more timely manner in order to help

facilitate audit planning for the many states and local governments

that have fiscal year ends of June 30th.

It is important to note that complexities and weaknesses in the

Federal grant management and single audit processes have a serious impact on state and local governments in addition to presenting risks over the effective and efficient use of Federal funding.

Enhancing accountability and oversight at all levels is important.

Improvement and modernization efforts should also be mindful of

the scarce resources at all levels of government and the shared

intergovernmental responsibilities that we have.

Mr. Chairman, this concludes my statement. I will be happy to

answer any questions that you or the subcommittee members may

have.

[The prepared statement of Ms. Franzel follows:]

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Mr. LANKFORD. Thank you very much.

Ms. Keegan.

STATEMENT OF NATALIE KEEGAN

Ms. KEEGAN. Good morning, Chairman Lankford, Ranking Member Connolly, and members of the committee.

My name is Natalie Keegan and I am an analyst in American

Federalism and Emergency Management Policy at the Congressional Research Service. Thank you for the opportunity to testify

this morning on improving oversight and accountability in Federal

grant programs. I have submitted my full statement for the record.

I have three observations about how agency discretion influences

transparency at the pre-award phase of Federal grants. Federal

grantor agencies have the discretion to disclose information about

the grants administration process yet for most Federal agencies

and most grants there isn’t a clear picture of how grants are selected, the specific details of grants applications are not disclosed,

and it is unclear exactly what is contained in grant formulas used

to distribute funds.

For grant applications and grant applicants, lack of transparency

may result in the inability to direct resources in the most efficient

manner when seeking Federal grants. For Congress, lack of transparency makes it difficult to measure grant program efficiency, effectiveness, and economy.

Let me expand on these observations. Pre-award oversight activities include congressional grant program authorizations and appropriations, determinations of eligibility and eligible activities, review

of announcements of funding availability, and reviewing of panel

scorings of eligible applications. While recent congressional debate

has involved post-award activities, particularly recipient and agency reporting requirements, consideration of agency discretion for

the pre-award activities may provide insight into improving oversight and accountability in Federal grants.

My first observation is that there isn’t a clear picture of how

grants are selected. Federal agencies generally have the authority

to establish the criteria for evaluating discretionary grant applications. There appears to be no consistency in the criteria within and

across agencies. Agencies are required to provide criteria when

they publish the notice of funds availability in the Federal Register, however the information provided generally does not include

a concise list of evaluation factors and specifically how those factors

will be weighted during the scoring of the application.

In some cases, grant applications are reviewed by a panel and

scored on a scale of zero to 100. The scores are then used to

prioritize applications for funding. The agencies, however, are not

bound by the review panel’s scores and the scores generally are not

disclosed to either the grant applicants or the public.

My second observation is that the specific details of grant applications are not disclosed. Almost always, grantor agencies consider

some of the information in the grant applications to be proprietary

information. As a result, generally agencies will not disclose details

in the grant applications without the permission of the applicant.

This applies to both funded and unfunded applications.

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My final observation is that it is unclear exactly what is included

in the grant formulas used to distribute funds. There is currently

no single source providing information on grant formulas used to

distribute funds, including information about the formula factors

and how they are weighted. This was not always the case.

The General Services Administration is responsible for maintaining and providing access to information on Federal grants through

a computerized information system. This access is through

www.cfda.gov.

At one time, the GSA Administrator was also required to provide

to Congress specific information on each grant distribution formula

in a report titled Formula Report to the Congress. This report is

no longer available. The report was discontinued under the Federal

Reports Elimination and Sunset Act of 1995. There is no other

comparable Federal report that provides this level of detail on Federal grant formulas.

In conclusion, a closer examination of agency pre-award grant activities and the amount of agency discretion in these activities may

assist in the determination of whether increased agency discretion

warrants increased transparency.

I thank you for the opportunity to testify and would be happy to

answer any questions the committee may have.

[The prepared statement of Ms. Keegan follows:]

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Mr. LANKFORD. Thank you.

Ms. Schnedar.

STATEMENT OF CYNTHIA SCHNEDAR

Ms. SCHNEDAR. Mr. Chairman, Congressman Connolly, and

members of the subcommittee, thank you for inviting me to testify

today about improving oversight and accountability in Federal

grant programs. I will focus my remarks on the Department of Justice but the findings we have made concerning the Department of

Justice are typical of those that are described by the other panel

members that are found across the Government.

Grants management has long been a challenge for the Department of Justice and the Department has faced heightened challenges since 2009 because of the increase in grant funding that it

received under the Recovery Act. Given the large volume of grant

funding traditionally awarded by the Department, the Department

of Justice Office of the Inspector General has long focused on providing oversight of the Department’s activities in this area.

Our audits have found that the Department has made a concerted effort in the past 3 years to improve its regular grant management practices. The Department has responded positively to

recommendations we have made in our audits and in a best practices guide that we provided them called Improving the Grants

Management Process.

In particular, the Department made significant improvements in

its monitoring and oversight of grants particularly due to its staffing of its Office of Audit, Assessment, and Management. While

OAAM was created by statute in 2005 to improve the Department’s

oversight of its grants programs, we reported in 2008 that the Department had not devoted sufficient effort to staffing this Office so

that it could perform its mission. However, we found in an audit

issued in March of this year that they have made significant

progress since 2008. That Office is now fully staffed and it has implemented a reasonable process for monitoring the high volume of

grants that it is responsible for monitoring.

While we believe that the Department has taken positive steps

toward improving its grants management practices, these changes

will take time to fully implement and to incorporate into the Department’s regular practices.

Our work has continued to identify areas where the Department

could further improve its management of grants, particularly in

terms of its process for awarding grants and its oversight. For example, in recent audit reports we found instances where the Department either used incorrect scoring formulas or made scoring errors while reviewing grant applications. We also found instances

where the Department treated applicants inconsistently, allowing

some grant applications to be given further consideration for

awards even though they were missing key documentation while

denying other applicants further consideration for the same deficiencies.

Our recent audits also found that some Department agencies do

not consistently document the rationale for discretionary awards

despite recommendations that they should do so and, in some instances, do not explain why applications ranked lower by peer reVerDate 17-JUN-2003 13:12 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71296.TXT KATIE PsN: KATIE
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viewers received grants over those that were ranked higher. We

found that the Department should be taking additional steps to ensure adequate screening for conflicts of interest on the part of peer

reviewers who are assessing the grant applications.

The Department has agreed with the recommendations we made

and is working to implement procedures to help ensure these

issues do not reoccur.

In addition, our audits of individual grant recipients have found

deficiencies such as failing to segregate payroll duties and failure

to employ sufficient staff with the training and experience to properly manage the grants. We have recommended that the Department provide additional training and oversight of these grant recipients.

We also believe that the Department should take further action

to address outstanding recommendations to resolve questioned

costs from our audits of grantees. While the Department frequently

is able to implement our audit recommendations within a year or

two, some of our audit recommendations have lingered for years

without being resolved, despite our frequent reminders for the Department to do so.

While the Department works to improve its grant management

processes, we will continue with our important mission of providing

oversight of the Department’s efforts in this area. We also will continue with our leadership of the Grant Fraud Committee, which is

part of the Financial Fraud Enforcement Taskforce.

Through the Grant Fraud Committee, we have issued a best

practices guide for all Federal grants managers. We also have developed and are continuing to develop additional training courses

for agents, auditors, grant managers, and grantees.

In conclusion, we will continue to work with the Department and

external agencies to help reduce risks associated with Federal

grants. We believe the Department is demonstrating a commitment

to improving its grants management process and we have seen significant signs of improvement in this area. However, further improvements are needed and considerable work remains to be done

before managing the billions of dollars that the Department awards

annually in grants is no longer a top challenge for the Department.

This concludes my prepared statement and I would be pleased to

answer any questions.

[The prepared statement of Ms. Schnedar follows:]

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Mr. LANKFORD. Thank you.

Mr. Werfel.

STATEMENT OF DANNY WERFEL

Mr. WERFEL. Thank you, Chairman Lankford, Ranking Member

Connolly, and members of the subcommittee for the invitation to

discuss with you today the Federal grant management process and

how the Federal Government can improve its oversight and accountability in Federal grant programs.

The Federal Government annually awards grants totaling rough- ly $600 billion, which is one sixth of the total Federal budget. The

Federal Government therefore has a fundamental responsibility to

be effective stewards of these dollars.

The Office of Management and Budget, working with Federal

grantmaking agencies and non-Federal stakeholders, establishes

policies and initiates reforms to ensure that relevant program requirements are being met; that strong internal controls for reducing waste, fraud, and error are in place; and that grantees are

meeting their responsibilities for performance and accountability

for grant awards.

My written testimony provides background on relevant policies

such as cost allocation, single audit, improper payment review, and

Transparency Act reporting, all of which are intended to drive accountability, integrity, and transparency in the use of Federal

grant dollars.

For example, when single audits are conducted effectively, the

audit results, which are available on a public Web site, are instrumental in identifying and correcting noncompliance with laws and

regulations, including improper payments and other financial management deficiencies. A good example of this is in the Medicaid program where more than a billion dollars in disallowed costs have

been identified for recovery over the past several years as a result

of single audit activities.

In each of the areas I have identified, we have initiatives in place

to improve the overall impact of these policies. I would like to highlight a few of these areas where, in some cases, recent successes

provided a critical foundation for sustained progress moving forward.

First, in the area of improper payments prevention and recapture, the Federal Government’s error rate declined in fiscal year

2010, helping agencies avoid roughly $4 billion in improper payments. An important factor in this reduction was improvement in

the Medicaid error rate, the Government’s largest grant program.

Since the President took Office, eliminating improper payments

has been a major focus of his administration. In November 2009,

the President issued an executive order that initiated a comprehensive approach to improving results in this area, including transparency through a new Web site, www.paymentaccuracy.gov, and

the appointment of senior accountable officials responsible for coordinating improper payment efforts at their agencies.

A subsequent Presidential directive called for an increase in improper payment recoveries from contractors. Federal agencies responded by recovering $687 million in improper payments, more

than three times the amount from the previous year.

47

In 2010, the recently enacted Improper Payments Elimination

and Recovery Act further strengthened accountability on all aspects

of improper payments and provided new authorities, in particular

providing Federal agencies new authorities to recover improper

grant payments. We are now working with agencies to make sure

they leverage these new authorities to recover payments that have

been improperly paid to grantees.

Second, though related to improper payments, OMB is working

with the Recovery Board and Federal agencies to utilize cutting

edge fraud detection capabilities to enhance accountability and

eliminate fraud in Federal award spending. As you know, the Recovery Board has initiated very successful and effective solutions

for tracking fraud and error. We have initiated pilots of these tools

with other agencies.

I would like to highlight that the President recently signed an

executive order called Delivering an Efficient, Effective, and Accountable Government which establishes a new oversight and accountability board, the Government Accountability and Transparency Board. This Board will help us make sure that the tools

and lessons learned from the Recovery Board in areas such as

fraud detection and transparency are effectively carried forward to

the rest of Government.

Last, in an area of transparency bolstered by the successful

transparency initiatives in the Recovery Act, OMB has initiated requirements for the reporting of sub-award information on all Federal spending. Www.usaspending.gov provides the public with increased visibility into Federal spending beyond the prime recipient

level.

As I noted earlier, this is just a highlight of some of our work

to improve results in Federal grants. We look forward to working

closely with this committee to ensure the effective implementation

of current and future transparency and accountability efforts to ensure that Federal grant programs are accountable for taxpayer dollars.

Thank you again for the opportunity to testify today. I look forward to answering your questions.

[The prepared statement of Mr. Werfel follows:]

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Mr. LANKFORD. Thank you to all of you.

I recognize myself for 5 minutes for question time.

Ms. Franzel, thank you for what you are bringing to us. Let me

just mention a couple of things. You mentioned the tracking of the

unused funds when a grant is complete and the closeout procedures

on that. Do we have any idea how often we have funds returned

to us? Say we requested $100,000 and we only used $80,000; here

is your $20,000 back?

Ms. FRANZEL. Actually, our work in that area was to look at

funds that had not been drawn down by the grantees. It had been

obligated by the Federal agencies for draw down and the grant period had passed but for whatever reason the grant amount was not

closed out or drawn down. We don’t know if the grantee didn’t finish the program or if there was some kind of a problem, etc.

What this indicates, and we found this in 325 different Federal

programs, is it indicates a grant closeout problem. And so part of

getting unused Federal funds returned to the Federal Government

would also be part of the closeout process.

So no, I can’t answer questions about how much maybe should

have been returned and wasn’t. But I think we are fairly confident

in saying that there are some issues with the closeout process.

That is what would be included in the closeout process.

Mr. LANKFORD. Thank you.

Ms. Keegan, you had mentioned a couple of things. You made a

comment about how there is no clear picture of how the grants are

selected in that process and how we go through that, that review

panel scores aren’t necessarily used, and that type of thing. Then

you mentioned a formula report coming back to Congress that was

sunsetted in 1995. Obviously grants have dramatically increased in

that time period. Is it your recommendation that you are making

to this group that we do have some kind of formula report coming

back to Congress again?

Ms. KEEGAN. I think when considering the issue of transparency

in Federal grants, certainly an investigation into what information

is available and what information would be useful is something for

Congress to evaluate. The report did provide a great deal of information about the specific calculations in the formulas. There isn’t

anything available now. It is really up to Congress to decide whether they need that information or not.

Mr. LANKFORD. Mr. Werfel, there are a lot of circulars out there

and executive orders that give instructions to the agencies. Do you

see a need to be able to gather those different circulars together

and for consistency’s sake, administration to administration, codify

some of those? Say these have been either through several administrations or through trial and error in our own administration determined to be good ideas to get some baseline standards for grant

writing?

Mr. WERFEL. Let me start by saying, Mr. Chairman, that generally I think the overall concept of cleaning up a variety of different requirements that are out there—whether issued through

memorandum or circular, some of which are pushed into the Code

of Federal Regulations and some of which aren’t—I think is an important suggestion that we should consider. It is a complex array

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of requirements that exists today and I think there would be some

benefit in reconciling some of that.

Mr. LANKFORD. Is there the possibility of being able to gather together some of those things so you would say this is a series of

maybe 50 different ideas or whatever it may be, that these should

be looked at and examined as our top areas that we suggest that

we could get to this committee?

Mr. WERFEL. Well, there is some of it that is legislative and

therefore I think we could tee it up for this committee as being

impactful. I mean there are a couple of dimensions, I think, to this

question.

On the one hand, we are trying to improve these policies and

make them more impactful. So, for example, in the area of single

audit, we have ongoing working groups that extend across Federal

agencies and into state governments into both programmatic and

audit communities within the state governments. Asking the fundamental questions that GAO raised in their testimony in terms of

how can we make sure that these single audits are getting to the

right issues and the results are being used.

There are other questions in terms of making sure that we are

presenting clear policies so we have the right policies.

Mr. LANKFORD. Right, but some of it is just a consistency basis

so that if you are agency to agency you know the standard and criteria. I am not talking about creating a whole FARs system for

grants but some sort of consistent system so that we know if you

are going after a Federal grant, this is a given. All of these factors

have to go into the background on it.

Let me ask you a quick question. Has OMB done any kind of

studies or documents to be able to study the grant process that you

have in draft form or in a final form that this committee could get

to be able to see some of the work that you are doing to be able

to research grants and how grants are done?

Mr. WERFEL. I don’t think we have anything specifically off the

shelf but we have a lot of work. I don’t think it would be a big lift

for us to put together something for you.

Mr. LANKFORD. If we could get that, even if it is in draft form

at this point, we could get a chance to take a look at it and see

some of the ideas that you are building as well with your own research. I am sure OMB is tracking this as well. We would be able

to look at it and see what is being done and how it is being handled

currently.

Mr. WERFEL. There are certainly particular areas right now that

we are very invested in trying to improve, including single audit,

www.grants.gov, and other areas.

Mr. LANKFORD. Great, we will follow up with you on requesting

those specific documents, may it be drafts or final reports on that.

With that, I yield to Mr. Connolly.

Mr. CONNOLLY. Thank you, Mr. Chairman.

Before my 5 minutes begin, if I might be given a point of personal privilege? I know Mr. Kelly will join me in this, we want to

congratulate you on your recent win. Your dog, Liberty, won the

People’s Choice at the Humane Society. My dog, Abigail, is still in

recovery from her loss to Liberty but she sends her best wishes and

congratulations.

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Mr. LANKFORD. Well, I will pass that on to my dog Liberty.

Mr. CONNOLLY. Ms. Keegan, your testimony is pretty compelling

about the fact that there seems to be no rhyme or reason within

the Federal Government for grant-giving. I mean, each agency may

have a reason, may have its own formula, and may have its own

process but we have no standardized transparency system. We

have no standardized set of criteria. We have no standardized policy with respect to whether someone can, in fact, look at whether

they won or lost and why. You frankly have more transparency in

the contracting system than you do in what you described in the

grant-giving system.

We sort of are juggling, it seems to me, in this hearing and this

committee with two sets of responsibilities. One is on the receiving

end—are they accountable, are they using the money for the purposes intended, and is it efficacious. But we also need to focus on

the grant-giving side, it seems to me.

You know, listening to you I am persuaded, gosh, we have to be

able to do better than that. That is not very professional. But on

the other hand, what I worry about is that in our desire to be more

transparent and to try to make sure that this is a process that is

accountable, as it should be, Government tends to want one size

fits all because that is easier. So we are going to treat the grant

to the lab bench scientist the same as a grant to, you know, a local

government to build a highway. They aren’t the same thing and we

have to recognize the distinction.

What is your reaction?

Ms. KEEGAN. I think that the interesting thing about your point

is that there are a great deal of variations across grant programs.

I will give you a specific example. I cover the Department of

Homeland Security grants at CRS. One of the elements that I mention in my testimony is regarding disclosure of information in the

grant applications themselves. Beyond the issue of proprietary information, for the Department of Homeland Security grants it

could be argued that some of that information may not ideally be

disclosed in the interest of national security.

It is really up to Congress to weigh that and decide which programs, or all programs, or just certain selection of categories of programs need that kind of uniformity and transparency. It is up to

Congress whether you need to balance, you know, the particular intent of the programs and the information that might be available

with the overall goal of transparency. I do agree that there is definitely a need to create that balance.

You know, when you look at uniformity there are some things

that you can do where there might not be as many issues to address as there are in others for uniformity. For instance, there is

reporting the scores or other things where there is not so much detail that there is a risk to a national goal or national security.

Mr. CONNOLLY. Mr. Werfel, welcome back to this committee. I almost think you are a member of our staff since you come with such

frequency. Thank you for being so responsive.

How will the Government address the issue of data integrity in

Federal spending related to acquisition management, grant management, and the like?

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Mr. WERFEL. It is a huge issue because the value of the information that is up on public Web sites such as www.usaspending.gov

and www.recovery.gov is so dramatically diminished if we don’t

have confidence in the quality and the reliability of the information.

I think in this regard the Recovery Act really positioned us well

to do a better job more globally. We had an information collection

system that had built-in controls over time. It got better and better

over time to make sure that information reported in by recipients

was more valid. A good example of that is in the early part of the

Recovery Act when the system would accept any version of congressional district. Mistakes were made. We got smarter and now if you

type in the wrong congressional district, it won’t let you type that

in.

I tell that story to say that the systems that capture the information can be made better. The Recovery Act was a lessons learned

there.

We also had a very dedicated process during the Recovery Act

where Federal agencies over a short period of time really focused

on data anomalies and mistakes in the data to make sure that the

information going on www.recovery.gov was accurate. Of course the

public was very important in pointing out errors.

The key is can we do the same thing more broadly on

www.usaspending.gov and learn those lessons. We have already

started to do that.

One of the challenges is that you need to invest in systems in

order to make those improvements but we have to do investments

within our current resource constraints.

But in particular we are working with agencies to kind of carry

forward things that have worked well in the Recovery Act in terms

of data reliability and having them do a better job reviewing their

www.usaspending.gov spending information.

Mr. CONNOLLY. Thank you.

Mr. LANKFORD. I am going to recognize Mr. Meehan for 5 minutes.

Mr. MEEHAN. Thank you, Mr. Chairman.

Thank you, each of you, for your tremendous work in this area,

which is something that Congress is just not paying enough attention to. As we are dealing with the requirement to be faithful stewards of Government moneys, I thank you for taking the time to

point out many of the places where some opportunities arise.

I think I am stunned by the observation, Ms. Franzel, in your re- port of close to $125 billion in improper payments that are made.

How do we begin to put our arms around that kind of a number

and look for ways in which we can capture that before those dollars

go out the door?

Ms. FRANZEL. The estimate that you cite covers various Federal

programs. Not all of them are grant programs but in the top 10,

5 of them are in fact grant programs. So grant programs are certainly included in the estimate of improper payments Governmentwide.

We and OMB have been certainly working closely on this matter.

We are really at a point where we need to get to the next step on

improper payments. Over the past several years the Government

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has made a lot of progress in terms of monitoring and measuring

the amount of improper payments out there. At this point, we really need to get at the causes of those improper payments so that

those causes could then be remedied in order to prevent improper

payments from happening.

Mr. MEEHAN. Could you give me an example of something you

would point to that people would understand is a cause that we

aren’t following up on?

Ms. FRANZEL. Certainly. There are many different types of improper payments. In fact, sometimes something is categorized as an

improper payment because there is no documentation available to

verify that the payment should have been made. In that case, we

are really not sure if the payment should have been made or not.

So in those cases it is important to figure out why. Why is there

not documentation?

In other cases, a program might be giving payments to ineligible

recipients. Then it is important to ask why and how that is happening. In some cases it may be weak controls at the agency or organization that is really signing up recipients for a program. In

other cases it could be that the program design is so difficult to implement that, in fact, sometimes it is not always clear if somebody

is eligible.

So there can be a wide range of causes. I think across agencies

and programs the Federal Government needs to get a handle on

these causes so that the problems can be fixed and so that improper payments can be prevented.

Mr. MEEHAN. We were talking just the other night, Congressman

Lankford and myself, about this opportunity. These are the kinds

of things that we need to work with you on so that we can have

some sort of measure of accountability as we go along.

We do an awful lot of pay and chase. I used to do work as a corporate attorney. In a lot of the contract field there would be requirements that would have to be met before we would pay the

next installment. Do we do enough of that in Government contracting now or in other kinds of grant programs where there has

to be an accountability that is almost contemporaneous with the release of the next line of funding?

Ms. FRANZEL. It really is a delicate balance. For instance, in

Medicaid the payments do need to get out so that medical services

can continue to be provided. So there needs to be a good balance

of controls up front along with getting payments out.

In fact, we at GAO are starting some work in the near future on

looking at the Medicaid program. We are also currently working on

foster care to really drill down and take a look at what are some

of the causes of improper payments and then matching that up

with some of the initiatives that are ongoing. There are many initiatives ongoing in Government but we really need to match all of

this up.

Mr. MEEHAN. You hear oftentimes from physicians and others

that there are late payments for them. They perform the service

and then they carry for a long period of time.

Let me ask one last question of anybody on the panel. When I

was a prosecutor in the U.S. Attorneys’ Office, we used to make a

lot of use of the Qui Tam laws in which people were awarded a perVerDate 17-JUN-2003 13:12 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71296.TXT KATIE PsN: KATIE
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centage of a recovery that they brought to the attention of the Government. This goes all the way back, of course, as you well know

to the Civil War era. Do we make use of that in the kind of programs that we have, not the big-ticket Government programs

where we have found our benefit?

How do we use that capacity to be able to have others be eyes

and ears to help us identify some of the remarkable $125 billion

in wrongful payments? That is to any panelist.

Mr. WERFEL. Thank you, Congressman, for the question and the

opportunity to respond.

Dating back to 2002, Congress created a provision that enabled

Federal agencies to basically hire contingency-based contractors to

go and help them find their improper payments and recover them.

It was limited to improper payments to vendors. The way it would

work is let us say an agency made $10 million in payments to contractors in a given year. They would hire a specialized audit firm

to come in. They wouldn’t have to pay that audit firm, only pay

them out of the percentage of improper payments that they identify

were made to the contractor.

That has been a very successful program. It was so successful

that the Medicare program initiated it. So now we are moving beyond contractors. Medicare can hire these specialized auditors to go

into hospitals and pull out these improper payments and get paid

out of a portion of that. Now that has been expanded to Medicaid

and with the recent enactment of new improper payments legislation we have it for all activities.

So we are right at this cusp moment where we are trying to build

on the successes we have had preliminarily with contractor improper payments and transition it to grant improper payments and

elsewhere.

Mr. MEEHAN. Mr. Chairman, I know I am over my time but may

I just ask one more question on that point?

Mr. LANKFORD. Yes, you may.

Mr. MEEHAN. Are we able to utilize current technology to see

outliers on what our patterns of payments are? I use again a Medicare or Medicaid situation in which you would see somebody who

is doing an inordinate amount of billing for a particular issue in

a geographic or demographic area that is suspect just by its very

number?

Mr. WERFEL. Absolutely, Congressman. There is good news and

bad news there.

The very good news is that we, for the first time, have had a significant breakthrough. The Recovery Board took technology that

was generally used in law enforcement and intelligence and also

used by credit card companies to look for payment anomalies and

they deployed it for the first time that I am aware of in a very systemic way over all Recovery Act dollars. They have been able to do

things that in my 14 years of Federal service I had never seen and

a lot of agencies had never seen. So we are piloting that solution.

The bad news is that we are in the embryonic phase of this

across Government and that agencies are going to have to ramp up.

We are low on the learning curve right now in terms of deploying

these types of technologies.

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But the Recovery Board’s deployment was a significant breakthrough and I think it is going to give us some momentum for programs like Medicare and Medicaid.

Mr. MEEHAN. Thank you.

Thank you for your courtesy, Mr. Chairman. I yield back.

Mr. LANKFORD. Thank you.

I recognize Mr. Kelly for 5 minutes.

Mr. KELLY. Thank you, Mr. Chairman.

I would like to thank the panel for appearing.

Mr. Werfel, you describe www.usaspending.gov as a way of increasing public visibility on the grants spending. Describe that a

little bit. How does that work? How does that increase the visibility

for folks?

Mr. WERFEL. It is, in my experience, one of the more critical

ways in which the citizenry can have an understanding of what is

going on with taxpayer dollars.

They way it works is that all payments, essentially, greater than

$25,000 are submitted into this warehouse and pulled onto this

Web site so that they are searchable. So you can type in Yale University or ABC Co. or the State of Arizona and see all the payments that these various entities have received. You can look at

them in different categories and have an understanding with a description of how that money is being used.

It enables people to understand within their local communities

where the Federal dollars are going and how they are being used.

And www.recovery.gov just took that to the next level. It provided

way more granularity and detail than we had seen before.

Mr. KELLY. So on the Web site you can see where the grant was

made but does it track the progress that is being made?

Mr. WERFEL. It does not. It is more of a capture of who got the

money and what was the intended use of the money. It doesn’t necessarily tell you progress, whereas www.recovery.gov goes a little

bit deeper into progress points, in particular job impacts in terms

of job creation.

Mr. KELLY. Okay, so it would be helpful, I think, if we could also

track the spending and get more of a universal recipient tracking.

You mentioned earlier about the President’s executive order on

the Government Accountability and Transparency Board. But

under that, their only responsibility really is to write a report and

release it 6 months from now. The DATA Act is going to shed more

light on it and be a much better tracking vehicle. Help me with

that a little bit, if you would, with the Board itself and what its

function is.

Mr. WERFEL. I think there are a couple of fundamental purposes

of the new Board that the EO created.

One is that we have right now a Recovery Board in place that

has a lot of lessons learned and a lot of infrastructure technology

skills that they have developed. We have to figure out how to marshal that through to the future. Currently the Recovery Board is

set to expire September 30, 2013. So as good stewards of the taxpayer dollar and good public policy personnel, we want to make

sure that we have a plan for how we are going to transition past

September 30, 2013 to make sure that these practices don’t go to

waste and are carried forward. This Board is going to help us marVerDate 17-JUN-2003 13:12 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71296.TXT KATIE PsN: KATIE
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shal the types of steps that we need to take to conduct that transition.

The other, I think, primary purpose of this group is to help us

provide more integrated, strategic leadership on transparency and

accountability by bringing together the best and brightest of the

CFO, management, and Inspectors General communities for a dedicated, Presidentially directed purpose around how we can enhance

transparency and accountability. It is going to help give us that

strategic roadmap. We may need Congress’ help in developing legislation that helps us execute on that strategic roadmap, but I

think it is important that we get started on planning and figuring

out what the right next steps are.

Mr. KELLY. And I think the DATA Act adds an awful lot of credibility to that whole process.

I just wanted to go back to Ms. Franzel and Ms. Keegan. The

pre-award process concerns me greatly because I am not exactly

sure how these agencies determine whether a contract or grant is

the appropriate vehicle. What are the implications of this decision?

The pre-award phase seems to be critical.

Ms. FRANZEL. I will start and I will let Ms. Keegan finish.

First of all, not all grants are competitive so there are some

grant programs out there that are not competed. For those that are

competitive, it is important to determine whether the grantee has

the financial management capabilities to track the use of the Federal funds as well as the programmatic capabilities to actually successfully carry out the program. Then each grant program also has

its own specific requirements.

It is really the up front determination that a particular candidate

would be successful in carrying out a Federal program with Federal

funds.

Ms. KEEGAN. Congressman, I also think that it is important to

point out that the purposes of grants and contracts are a little bit

different. Grants are generally to support a public purpose or a national goal through the authorization of funds to a particular grant

program. Contracting, has a little bit of a different purpose. So I

think because the intent of the different vehicles is different, the

approach to what should be funded with the different vehicles is

different.

Mr. KELLY. I noticed in my private life that when we put together and we structure these RFPs, as it were, it is critical that

we have exact language in there that really leads people to be able

to either get a grant or a contract.

I worry sometimes as we talk about all of this that there is such

an inconsistency in the way we do all of this. It really doesn’t make

sense to a lot of us as to how we actually get to these ends.

Ms. KEEGAN. Congressman, at one point in my career I was a

grants writer as well for local governments. It is a challenge when

you are trying to direct the resources as best you can as a small

entity, whether a public entity or a non-profit, and to be able to

best identify what the criteria are that are going to be considered,

what was funded in the past, and what the real goal of the grant

program is in very specific detail. All of that information is helpful

for grant writers in order to best use their resources.

Mr. KELLY. Thank you.

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Mr. LANKFORD. I would like to take a couple of moments just for

a few followup questions and then we are going to transition to our

second panel. I do appreciate you all coming and getting a chance

to hear you.

Mr. Werfel, I wanted to be able to follow up on something Mr.

Kelly mentioned about contracts versus grants. How comfortable

are you that the agencies are not using a grant when they should

use a contract because the grant process is easier than the contracting process? But we are receiving a deliverable, whether that

be a research report or something else. When we really should be

doing a contract rather than a grant on that. Are you comfortable

on that?

Mr. WERFEL. First of all, I think that there is sufficient guidance

that I have used and helped advise coming out of OMB. And I

think there are some Comptroller General positions that are in the

literature that help an agency determine whether this situation is

appropriately awarded as a grant versus a contract. I think Congress can often be helpful there in terms of signaling its congressional intent for how the money can be spent.

Mr. LANKFORD. We just had a dramatic increase in the number

of grants. I am just trying to probe and see if you are comfortable

at this point that we are not just seeing people that should be writing contracts writing grants instead.

Mr. WERFEL. I am not aware of any systemic issue in that area.

Mr. LANKFORD. On the www.grants.gov site, obviously that is

building up and adding in some of the www.recovery.gov elements

into it, the self reporting and, again, what Mr. Kelly was talking

about before about trying to get into the details of how it is going.

Also, if there is a deliverable at the end of it, we need to not only

know that it was awarded and how much was awarded but if there

was some report or if there was some response back to it. Is it possible to have that at the end as well so that Americans, whoever

they may be, could look over the shoulder in the years to come and

say we awarded to this for this amount and this was the deliverable at the end?

Mr. WERFEL. Absolutely. I think an important step that Congress

recently took was the passage of the GPRA Modernization Act

which updated requirements that we have to report on performance

goals. The last time that law was enacted, I think, was first enacted in the early 1990’s. We obviously live in a very different

world in terms of technology and how information can be provided

in more real time.

Our challenge right now as the Federal Government is to synthesize all of these various efforts and technologies. We have more

information on where the dollars are going and who is getting them

than we have had before. The technologies we have to report that

information and make it searchable and usable are good. We need

to improve the quality and, as you said, we need to figure out how

to find the right synergy so that when you are reading this information you are not just learning that XMY University got a grant,

you are learning what the impact has been. That is really taking,

I think, spending transparency to the next level and we need to

move in that direction.

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Mr. LANKFORD. Right, and that is what we have talked about before, just a single portal for this, a single portal where people can

go to be able to do their research on it.

I have two quick things and then we are going to switch to the

next panel.

But with the payment time period, a couple of you have brought

up how we make payments, whether it is as we go along or whether it is at the beginning or at the end. I have spoken to people that

are in very small communities and are maybe getting a grant for,

let us say, water treatment to do some of the certification. That

grant payment comes at the end.

So a very small community in a very poor area has to come up

with $250,000 on the promise that the Federal Government will

pay at the end. But they are having to go get bank loans and literally go put their city park on collateral for something that will

be paid at the end when the process is complete. That kind of ordering is something I would think needs to be examined in the

grant process as well.

Then, Mr. Werfel, you brought up the issue of trying to deal with

fraud after the fact by what could affectionately be called fraud

bounty hunters. They can go out there after different companies

and be able to find areas where there is fraud. Then they are paid

a percentage of what they find. The benefit of it is obviously that

they are going to go find fraud. The challenge of it is that they are

in an adversarial role from the moment they walk through the

door.

Immediately when they walk through the door, for whatever entity they are evaluating, they are going to be paid if they find

something wrong. So they are going to stay until they find something wrong. That puts every single grant recipient in a very difficult position because you will have human error at some point

and they will stay until they find it.

Now you have an adversarial role. Instead of the Federal Government being your ally, now suddenly the Federal Government is

your enemy walking through your doors. Instead of serving that

company, we are at odds with them based on the bounty hunter

that we said is going to go find something.

So we have to be able to resolve that process. I have numerous

people back in my district that are very frustrated with those companies that step in, that they know are paid to find the issues and

that will stay until they do, no matter how small. They will find

them to the maximum that they can possibly do it. So that is just

an issue we are going to need to work through in the days to come.

With that, do you have further comments?

Mr. CONNOLLY. If I could just add, Mr. Chairman, that I want

to reemphasize that just as we are looking at the transparency and

accountability on the receiving end of grants, I think Ms. Keegan’s

testimony really underscores that we have to look at the possibility

of waste at the front end. Some more accountability if not standardization within the Federal family may very well help us reduce

improper payments at the front end rather than having to collect

them at the receiving end.

Thank you.

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Mr. LANKFORD. With that, I thank this panel very much for not

only the time that you spent in preparing your written statements

but for coming here for the oral statements and questions as well.

We will now take a short recess so we can transition to our second panel.

[Recess.]

Mr. LANKFORD. I now welcome our second panel.

Dr. Tom Coburn is a U.S. Senator from the State of Oklahoma.

Dr. Coburn, we really appreciate you taking so much time out of

your busy schedule as well to be able to appear before the subcommittee today. Your entire written statement will obviously be

made a part of the record.

You have done extensive work in grant research. We are very

grateful for your testimony today would be very honored to be able

to receive that now.

STATEMENT OF HON. TOM COBURN, A U.S. SENATOR FROM

THE STATE OF OKLAHOMA

Senator COBURN. Thank you. It is a pleasure to be before you.

I was just observing the members in here. Not one of you were in

the House with me, which was not all that long ago. I left in 2000.

So it is a privilege and a pleasure to come before you.

I want to say something at the outset about your last panel. I

worked with Danny Werfel for 7 years and he is phenomenal. I am

glad he is where he is now. When you talk about IGs, they are key

to us knowing what is going on. The Government Accountability

Office is key. I could not work in the Senate without the Congressional Research Service. They are excellent.

So we have the tools to solve the problems in front of us. The

problem is that not enough people know what the problem is.

I would say that if you are looking for a model agency on how

they handle grants, go look at the Institute of Museum and Library

Services. First of all, there is not a grant that they put out that

they don’t follow up. There is not a grant that they don’t check to

see if they are meeting the requirements of the grant that was submitted. They have 100 percent follow up.

Consequently, the expectation has changed in terms of Museums

and Libraries that if you get a grant from the Federal Government,

you had better perform. In other words, they have created the expectation. We don’t even hardly look at them anymore because they

really do a great job. So they are a great model.

If you wanted to follow up on this, bring them up and ask what

they are doing. I can guarantee you it is not being done in the rest

of the Government the way they do it.

Mr. Werfel talked about www.usaspending.gov. Myself and President Obama were the authors of that. They are basically in violation of that bill because they were supposed to have sub-grants and

sub-contractors on that at this time and they have chosen not to

put the resources in to get there. But if we had sub-grantees and

sub-contractors on it, you could actually find them.

You can search that site by anything. It is like a Google site. You

put in the name fish and you will see every penny we spend on

fish. In other words, it is a good site. It just hasn’t been fully blendVerDate 17-JUN-2003 13:12 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71296.TXT KATIE PsN: KATIE
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ed out. The granularity in there is because we don’t put the subcontracts and sub-grants in there.

And it is important to know throughout the grant process who

is getting the money and for what. It is not just to look at the

money, but to look at what is being done with it to see if it is really

a purpose that we intend.

As you noted, my statement will be made part of the record so

I will be very brief.

We have done several reports on grants and agencies through my

Office. I could not do that without GAO, CRS, and the IGs as well.

They make it easy for us to put together the information.

But let me talk about the National Science Foundation. I am a

big supporter of NSF. They do key, legitimate Government work

with a priority to keep us ahead of the curve. But even the agencies that I love are wasteful. What we did was a report, and you

can’t really reflect that on the present management because the

present Director has only been there 6 months so this report that

we put forward actually reflects what happened before he got

there. But we had some pretty significant findings.

When grants aren’t utilized, you are supposed to give the money back. We found $1.7 billion in money that should be ours that

wasn’t pulled back. That is 25 percent of their annual budget. So

we found that money that they should have been pulling back that

was growing every year. All of that is management, paying attention when something expires and getting rid of it.

We also found a significant amount of low priority projects, which means they weren’t paying attention. There was an $80,000

study on why the same teams dominate March Madness. Well, the

same teams don’t dominate it so the premise of the study in the

first place fails. And I am not sure what that lends to us as a country in terms of creating leading science technology. The point is if

we have great oversight, and I am on the Oversight Committee on

the other side of the Hill, the purpose ought to be to call attention

to where we are missing the mark in terms of what our goals are.

So what are some other things? There was $1 million for an analysis of how quickly parents respond to trendy baby names. As a scientist, I have trouble finding out how that, as a country and especially in a constricted budget environment, is going to help us.

What is the positive thing that is going to come out of that research? Maybe there is something, but is it a priority? Does a costbenefit analysis say for what we are going to get we could have

spent the money somewhere else to get much better leading edge

technologies?

There was $315,000 to study whether FarmVille on Facebook

helps adult relationships and $581,000 to study whether online

dating users are racist in their dating habits. Maybe there is value

in those but the point is that it is all about priorities. The reason

that in a lot of grants you are not seeing priorities is because we

are not looking at it. We are not holding the agencies accountable.

Here is a mission statement, here is what we are supposed to be

doing, and then they kind of get off track.

The reason they can get off track is because they are not before

the Congress every year with somebody going over their grants

with them. Aggressive oversight is one of the most important

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things we can do. It doesn’t mean we are right about our assessment of what they are doing. But knowing that they have to come

before us and explain their grants will limit a lot of questionable

grants that go out there for things that don’t have great cost-benefit analyses to them.

We found significant fraud and inappropriate expenditures at the

National Science Foundation. We also found significantly poor contracting practices.

Let me comment on something the other panel said. There

shouldn’t be, other than in rare instances, any grant that isn’t competitive. There should not be any contract that isn’t competitive.

We know we have problems in our Government. For example, we

have $64 billion a year in IT and $32 billion of that is at risk. In

other words, it is never going to get accomplished. We will have

blown 50 percent of our IT budget and we do it every year. We

blow it because of the way we contract and the way we oversee it.

There is a lot of money that we can spend more wisely and also

get greater value for the American public if we make sure, one,

that we competitively bid all of these things, and two, that we

know what we want before we contract.

That is a big problem in the Defense Department. It is a big

problem in the large agencies. They don’t know what they want

and they write a contract anyway. What they should be doing is

waiting until they figure it out or create a research only contract

to say what is it that we want. It is a giant problem that has $100

billion a year worth of waste in the Federal Government.

Let me just talk for a second about the poor contracting practices

and then I will stop. We found that NSF in 2010 spent $422 million for contracts, $283 million of which were not competitively bid. They were costplus. They were paid whether the work was completed or not. Seventy percent, or $204 million, went to contracts permitting advanced payments to just three groups.

None of these contractors had an approved disclosure statement.

So what happened was the agency couldn’t identify or document

the actual costs, which is a problem with the contract at the beginning. In other words, they didn’t do it right at the beginning. Then,

when they found that they couldn’t get what they wanted, they

didn’t have the tools to find out whether or not they got good value

because they couldn’t get the information.

One of the things we have to do as a Congress with all of the

grants is to deal with the tremendous amount of duplication. I will

give you an example in NSF. NSF is one of 15 programs, 72 subagencies, and 12 independent agencies engaged in research and development. In other words, we don’t just have NIH, Department of

Defense research, and NSF. We have 72 sub-agencies, 15 Federal

departments, and 12 independent agencies.

We are all interested in education. We are interested in getting

more scientists, more technologists, more engineers, and more

math. Well, we now have in the Federal Government some 105

science, technology, engineering, and math programs. Twenty-eight

of them are coming through the National Science Foundation at a

cost of $1.2 billion. None of them are cross referenced to see if they

are duplicating anything else that the rest of the Federal GovernVerDate 17-JUN-2003 13:12 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71296.TXT KATIE PsN: KATIE
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ment is doing. Not one of them has a metric on it as to whether

or not it is accomplishing the purpose.

So the whole idea is when you begin to look at grants then you

start looking at a bigger area. We need to focus down and put

somebody in charge of science, technology, and math but not 12 different agencies that are spending over $2.5 billion a year with no

measurements in terms of what their results are.

There is methodology in how the agencies utilize grants but we

are responsible for allowing all of the duplication that has come because we have passed the legislation and appropriations bills that

have actually caused it.

With that, I will take any questions you might have.

[NOTE.—The Report of the National Science Foundation: Under

the Microscope, may be found in committee files.]

[The prepared statement of Hon. Tom Coburn follows:]

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Mr. LANKFORD. Thank you, Dr. Coburn, very much for being able

to come.

I am just going to bounce a couple of things off you just for additional information. Let me start with the last statement you were

making about duplication. A lot of the stories we have heard and

we have seen some of the reports that are coming out on it.

How do you get there? How do you actually start combining

those? I understand that legislatively we ultimately have the responsibility but we are talking about killing one program and moving that money, or whatever percentage it may be, to another and

combining multiple agencies. Realistically, how do we get there?

Senator COBURN. I think you have to have leadership where you

have cross jurisdiction among committees to come together. Let us

say science, technology, engineering, and math. You take the committees in the House and the Senate that are responsible for those;

have some experts; and ask what is it we really want to accomplish

in that, what are the 105 programs we have today that are doing

that, where are they directed, and what is it that we really need.

Then split that up and come to a consensus that we are going to

have a combined committee that is going to address that and agree

to it.

None of these are partisan issues. It is just a matter of silliness

and the right hand not knowing what the left hand is doing. So it

is a great question. First of all you have to know there is a problem

there to address it, and then you have to build a consensus within

each body to say let’s get together and form a joint committee to

address science, technology, engineering, and math. Let us have

one set of bureaucracy running this rather than 20.

What we did with the last debt limit was we went to GAO and

CRS and we asked them this question: We would like a list of all

the programs in the Federal Government. They both told us to take

a hike, there is no way you can do it. Both of them did. I understand that. It is a massive project. There is only one agency that

lists all of their programs. That is the Department of Education.

You can go to any head of any agency and they can’t tell you all

of their programs. They don’t even have them written down.

So what we have over the next 2 years is the rest of the Federal

Government coming though GAO to where we are going to be see

every program at every agency. In the Senate, I am trying to attach to every bill that goes through there a mandate that each

agency has to list each year their programs just so they know what

they are and so we can know what they are.

The problem is so big and so massive that you have to start by

knowing what the programs are. Last year, two times in one other

committee, and I won’t name which committee, we had members

of the Senate offer amendments to do well-intentioned things without knowing that we already had a program and a department

doing exactly what they were writing, already and exactly. Of

course, the amendment was withdrawn when they were made

aware of that but the fact is that most of us as Members of Congress aren’t aware. So you have to aggressively pursue it.

Mr. LANKFORD. We had been working on that on this committee

as well, looking for areas just to get disclosure out there in the public, even to have a Web site that lists not only the agency but all

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the programs that are within that agency. Then anyone can get a

chance to look and see where their dollars are spent, what programs are available, and how much goes into that program as well

as how many staff are dedicated to that. It gives people a basic

look.

Let me ask you a question about some of these grant programs

that you mentioned before that are coming up like developing a relationship through FarmVille. I don’t remember a bill that was related to that. How do grants like that come into existence?

Senator COBURN. Well, it is because we are lazy legislators. What

we decide is we will pass a bill and grant maximum flexibility to

the bureaucracy. In fact, we are transferring our own authority as

Congress to the bureaucracy.

I just came from a hearing in the Senate on regulations. Regulations are killing our country. That is not partisan. It was happening under the Bush administration; it is happening a little more

now. It is more important now because we are in the midst of a

slow economic time and we need the regulations to go down so

business can grow.

But when we give up our responsibility to actually direct the

agency specifically in terms of what we intend, that is how you get

that. We do that because, one, we are not thorough, and two, a lot

of times we don’t know what we want when we write a piece of legislation. That should be a caution to us.

If you don’t know what you want, you are not any different than

the agency that is passing a grant out there. You need to know

what you want before you write it, what you intend and what you

expect. Then you need to follow up.

When was the last time every agency in the Federal Government

was overseen? With 535 Members of Congress, we could do that

every 2 years if we would do it. You know what? We would see a

marked change in the bureaucracy.

Mr. LANKFORD. On the transparency side, not only coming back

to Congress to be able to denote that, but also we need to be able

to get it out just to the general public. Then any individual could

get a chance to look in and see the grants, how they are spent, and

what they are spent on so that anyone could look over their shoulder.

You would have the possibility of a newspaper out there going

through all the details of each and every grant. So it is not only

a congressional committee but it is also that media source that is

out there asking the same questions.

Senator COBURN. You can do that on www.usaspending.gov right

now.

Mr. LANKFORD. Yes, if it was populated with all of the information.

Senator COBURN. Well, for example, in Museum and Library

Sciences I think you could go there and you could see every grant.

They are very compliant. Now they are small but they have also

been extremely aggressive to make sure they are great stewards

with that money.

Mr. LANKFORD. That is terrific.

I would like to recognize Mr. Connolly for 5 minutes.

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Mr. CONNOLLY. Thank you so much, Mr. Chairman, and welcome

Senator Coburn.

Senator COBURN. Thank you.

Mr. CONNOLLY. Thank you for your vigilance in protecting the

U.S. tax dollar and shedding some light on research and grant

funding. Let me just share with you concerns, though, I have

maybe on the other side.

I heard you say that you thought all of these grants ideally ought

to be competitively bid. Respectfully, I guess I would want to see

the ability of the Federal Government in awarding research and

development grants preserved. I would remind us of the fact that,

for example, the successful crash effort to make sure the United

States had the atom bomb before the Nazis was not competitively

bid.

I spent 20 years of my life in the private sector for organizations

that did Federal research and I saw firsthand where there was

value in preserving flexibility for the Federal agency to look at expertise and say, I don’t want to reinvent the wheel since you have

that expertise. We want to fund that because that can develop

something that is going to help our economy or help medicine or

whatever it may be.

So this is just a word of caution. I think you are right and I am

not unsympathetic with the idea that by and large we ought to

have a really good reason why something isn’t competitively bid.

But to go to a rigid formula where everything is competitively bid,

especially in the research field, I think could be risky, frankly, and

could choke innovation unwittingly.

Senator COBURN. Let me respond to that. If you only have one

company or one institution that is capable of doing what you are

wanting to do, I think that is true.

But I would put out to you that the reason we have seven major

weapons programs in the Department of Defense today that are

vastly over budget and are at risk is because we had cost-plus contracting on the research and development and no capital risk exposure by those companies that were involved in it. Human nature

is to say whatever you want, since it is cost-plus, we will do it for

you.

We have three problems in the Federal Government in terms of

that contracting. One is that we are losing our contracting experts.

We have a real problem with contract managers. We are short on

them and we are short on experienced contract managers. There is

great wisdom in them because they have the experience and they

have known these businesses. They know who can actually do

what. So I tell you that is the first thing.

The second thing is that in a lot of agencies, including the Pentagon, we don’t have an adult in the room as far as requirement

creep.

The third problem we have across agencies when we do cost-plus

contracting is it is low-balled on purpose. They know it is going to

cost a whole lot more but they want to get it started because they

know once they get it started and once we get a lot of money invested in it we will be more reticent to pull the plug on it.

I think you could address all of those three. I agree with you if

we have a unique level of expertise. But I would tell you if there

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are two of them that have that level of expertise, we ought to have

them compete. If there is nobody that has that level of expertise,

then I am fine with that.

Mr. CONNOLLY. I agree and I am glad you brought up acquisition

expertise in the Federal Government.

By the way, I commend to you Susan Collins’ bill. I introduced

it here in the House. Susan Collins has a companion bill on the

Federal Acquisition Institute trying to upgrade those capabilities.

But we have to hire more people to manage contracts. And you

are right, we need continuity. Requirement creep often occurs because you have multiple project managers over the life of a contract, many of them.

One more point I would like to make if I can. And you did not

do this; I don’t mean to imply you did. But one of the things that

sometimes concerns me is that in the political arena we make fun

of research. I can remember in my campaign last year my opponent

went on and on and on about funding research on monkeys. Well,

it happened to be HIV research and monkeys were the best analog

to humans.

Senator COBURN. Yes, they are primates.

Mr. CONNOLLY. It was frankly to me a despicable thing but it became the political arena.

There is one that came up recently, Mr. Chairman, in the Science

and Technology Committee. The Golden Fleece award, which was

issued by a Democrat from Wisconsin at the time, was given to an

odd sounding study called The Sexual Behavior of the Screw-Worm

Fly. Why would we waste $250,000 on that? Yet that research,

which cost $250,000, saved millions of livestock. It is estimated

that it saved and enhanced the cattle industry profits by $20 billion

and lowered the cost of beef at the supermarket by 5 percent.

Other than that, yes, it was a frivolous piece of Federal research.

So it is easy to demagogue research sometimes, especially with

the public not spending time on research directly. I would hope

that all of us in the political arena would show a little bit more respect for what we are trying to do, as you say.

Senator COBURN. No, I agree. We don’t know the depths and the

intents. But that is the other thing that ought to be put in the

grant. What are we trying to accomplish here? When you read a

grant proposal and you don’t see the endpoint in it and you don’t

see what they are actually going for, then we ought to be asking

a question about every one of those.

It is the same thing with the pine beetle out West right now. If

we would have had good research on hurting its reproductive capability, we wouldn’t have half the forests in Colorado and Wyoming

turning brown right now.

Look, I am a two time cancer survivor. I believe in science. It is

why I am still alive. But the point is that even our good agencies

like NSF need to be overseen so that when they are not paying attention, they will pay attention. That is my whole point.

Mr. CONNOLLY. Thank you.

Mr. LANKFORD. I have enjoyed multiple rounds of conversation

with this but you have a vote coming up very shortly on the Senate

side. We appreciate your time and very much value your input on

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this. We look forward to getting a chance for our committees to be

able to work together in the future.

Senator COBURN. Thank you very much.

Mr. LANKFORD. With that, this committee hearing is adjourned.

[Whereupon, at 11:56 a.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Elijah E. Cummings and additional information submitted for the hearing record follow:]

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