Testimony 

Before the House Committee on 

Education and the Workforce 

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 2:00 p.m. EST 

Tuesday, April 5, 2005 HEAD START

Comprehensive Approach 

to Identifying and 

Addressing Risks Could 

Help Prevent Grantee 

Financial Management 

Weaknesses 

Statement of Marnie S. Shaul, Director 

Education, Workforce, and Income Security Issues 

GAO-05-465T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-465T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Marnie S. 

Shaul at (202) 512-7215 or shaulm@gao.gov. 

Highlights of GAO-05-465T, a testimony 

before the House Committee on 

Education and the Workforce 

April 5, 2005

HEAD START

Comprehensive Approach to Identifying 

and Addressing Risks Could Help 

Prevent Grantee Financial Management 

Weaknesses 

ACF has not developed a comprehensive risk assessment system to 

identify financial management weaknesses of Head Start grantees. ACF 

has many processes it uses to collect information on how well grantees 

are performing and managing their federal grant funds. But different 

organizations within ACF conduct these activities, and we could not 

identify a systematic process that ACF uses to bring together information 

gained from the different data collection processes. 

Moreover, when we looked more closely at each of the processes ACF 

uses to oversee Head Start grantees, we identified flaws that limit the 

quality, accuracy, and reliability of the information ACF collects. ACF 

does not ensure that its on-site reviews are conducted in accordance 

with its own guidelines for grantee compliance; it does not verify the 

accuracy of the data grantees submit on key performance indicators each 

year; and it does not reconcile grantees’ actual withdrawals with 

reported expenditures until all the funds have been spent. In addition, 

many of the staff we spoke with said that they often learn about 

problems after they get calls from parents and teachers—an ad-hoc, 

reactive approach on which ACF relies too heavily instead of 

comprehensive, proactive risk assessment. 

 

Our analysis of the data shows that more than half the grantees cited for 

failure to comply with rules related to financial management were out of 

compliance again with one or more financial management standards 

during their next review. We also found poor linkages between grantee 

performance and funding. ACF rarely invokes its authority to terminate 

grantees when a community is being served by a poorly-performing 

grantee. Instead, ACF usually tries to convince a grantee to relinquish its 

grant, and only then will look for another grantee to serve that 

community. Opening competition to qualified applicants to replace a 

poorly-performing grantee may be a necessary step toward ensuring that 

as many eligible children as possible are provided with services that meet 

Head Start’s standards. 

A comprehensive risk assessment system would provide ACF with the 

information it needs to target its oversight more effectively, reduce the 

risks inherent in managing a large federal grant program, and help 

grantees manage resources more effectively. 

In fiscal year 2004, the Congress 

appropriated $6.8 billion to serve 

919,000 poor children through 1,680

Head Start grantees nationwide. 

Recent reports of financial 

improprieties at a number of Head 

Start programs around the country 

raised questions about the 

effectiveness of the oversight 

provided by the Department of 

Health and Human Services’ (HHS) 

Administration for Children and 

Families (ACF) in identifying and 

resolving financial management 

weaknesses in Head Start grantees. 

This testimony discusses (1) the 

processes ACF uses to assess the 

programs’ risks, (2) whether those 

processes could be improved to 

ensure the accuracy and reliability 

of the information ACF collects on 

its Head Start grantees, and (3) 

whether ACF ensures that grantees 

with financial management 

weaknesses correct those 

problems in a timely manner. 

What GAO Recommends

This testimony repeats 

recommendations we made in our 

report: Head Start: Comprehensive 

Approach to Identifying and 

Addressing Risks Could Help 

Prevent Grantee Financial 

Management Weaknesses (GAO-05-

176, Feb. 28, 2005) for improving 

ACF’s oversight of Head Start 

grantees. 
Page 1 GAO-05-465T 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss our recent report on oversight of 

the Head Start program by the Department of Health and Human Services 

(HHS) to ensure that federal funds are used to achieve Head Start’s goals. 

Head Start is the federal government’s single largest investment in early 

childhood education and care for low-income children. HHS’s 

Administration for Children and Families (ACF) manages Head Start and 

relies on hundreds of different grantees throughout the country to provide 

services to more than 900,000 children and their families. Head Start 

funding increased three-fold in real terms during the 1990s. Currently, ACF 

disburses about $6.8 billion annually to Head Start grantees. As you can 

imagine, managing a program of this size, with this many grantees and 

beneficiaries, can present many challenges. 

The reauthorization of Head Start presents an opportunity to discuss some 

of these management challenges. Although Head Start is a popular 

program and millions of low income children have benefited from the 

program over the past 40 years, it is important to ensure that all grantees 

are held accountable for achieving program results and properly managing 

their federal funds. 

My testimony today will focus on how well ACF manages the financial 

risks associated with the Head Start program. Specifically, I will discuss 

(1) ACF’s processes to assess financial risks, (2) how those processes can 

be improved to ensure the accuracy and reliability of the information ACF 

collects on its Head Start grantees, and (3) the effectiveness of the 

approaches ACF uses to make sure Head Start grantees address any 

financial management weaknesses in a timely manner. 

My written statement is drawn from our recent report on Head Start risk 

management, which was completed for the Committee in accordance with 

generally accepted government auditing standards.1

 1

GAO, Head Start, Comprehensive Approach to Identifying and Addressing Risks Could 

Help Prevent Grantee Financial Management Weaknesses, GAO-05-176 (Washington, D.C.: 

Feb. 28, 2005). 
Page 2 GAO-05-465T 

In summary: 

• ACF does not have a comprehensive risk assessment process it can use 

to collect information on how well grantees are performing and 

managing their federal grant funds. Such an assessment should be able 

to provide ACF with the information it needs to target its oversight 

activities, reduce the risks inherent in managing a large federal grant 

program, and help prevent grantees from failing financially, through 

earlier intervention. While ACF has many processes it uses to collect 

information on its grantees, these efforts are conducted by different 

organizations within ACF, and ACF does not have a process in place to 

systematically bring the information together in one place to do an 

assessment of how well the program is operating. 

• When we looked more closely at ACF’s oversight processes, we 

identified flaws that limit the quality, accuracy, and reliability of the 

information ACF collects on its grantees. For example, ACF does not 

have a quality assurance process that could validate the findings of the 

reviews it conducts of its grantees at least every 3 years; it does not 

verify the accuracy of the data it asks its grantees to submit on key 

performance indicators each year; and it does not reconcile a grantee’s 

actual withdrawals with its reported expenditures until all of the funds 

have been spent. These flaws limit the information ACF has on Head 

Start grantee’s financial status and operations and, as a result, many 

program specialists in ACF regional offices that we visited told us they 

most frequently learn that a grantee is having trouble through a call 

from a parent or teacher reporting a problem. Program specialists said 

that such calls were a routine part of their day-to-day monitoring 

activities. Over-reliance on this approach to identifying problems can 

result in missed opportunities to help grantees address management 

challenges before they become problems. As a result, unchecked 

problems may worsen. Although infrequent, there have been cases in 

which grantees have furloughed employees or temporarily closed 

centers—thereby disrupting services to children and their families—

because they spent their grant funds too quickly and did not adequately 

manage their grants to ensure that there would be funds available 

throughout the school year. 

• When ACF identified grantees with financial management problems, 

we found that it took limited actions to ensure that grantees quickly 

corrected their problems and made lasting changes to their programs 

so the problems would not surface again. This is a concern because 

ACF’s data show that more than 76 percent of Head Start programs 
Page 3 GAO-05-465T 

that were reviewed in 2000 were out of compliance with financial 

management standards, and more than half of these grantees were still 

out of compliance during their next review. When we looked at the 

approach ACF takes to ensure that grantees correct their problems, we 

found that ACF most frequently relies on grantees to self-certify that 

they have corrected their problems without ever visiting the grantees 

for verification. One of the more aggressive approaches ACF can take 

to address long-standing problems is to require the grantee to develop 

and implement a quality improvement plan, but first ACF must declare 

the grantee “deficient”—a term it uses to identify grantees with severe 

problems. Yet, we noted inconsistencies in the process used by the 

ACF regional offices to determine the severity of the problem. As a 

result, one grantee could be deemed deficient while another, with 

similar problems, would not. We also found that ACF makes limited 

use of its authority to terminate its relationship with poorly performing 

grantees. ACF does not seek competition for a grant until after the 

current grantee has exhausted all its appeals or it has convinced a 

poorly performing grantee to voluntarily relinquish its grant. The 

process to remove a grantee that fails to perform up to standards is 

protracted, and that grantee can continue to receive funds long after 

financial management weaknesses have been identified. In the 

meantime, the community has no other option for Head Start services 

and low-income children may not receive the quality or intensity of 

services that they need. 

We made a number of recommendations in our report and ACF agreed to 

implement many of them. Implementing these recommendations will go a 

long way towards ensuring that those responsible for overseeing the Head 

Start program and its 1,680 grantees have the information they need to 

target oversight resources effectively and reduce the program’s risks. More 

importantly, however, these improvements should help ACF prevent 

grantee financial management weaknesses before the problems become 

too severe. We also recommended that ACF make greater use of its 

authority to seek competition by taking steps to seek qualified applicants 

where the current grantee fails to meet program requirements. While such 

a step should be taken after carefully considering all available options, 

competition would help to ensure that children are no longer served by 

poorly performing grantees. Ultimately, enforcing all the program’s 

requirements—especially financial management requirements—

strengthens the federal commitment to poor children and their families by 

effectively managing scarce federal resources and making sure as many 

eligible families as possible can participate in the program. 
Page 4 GAO-05-465T 

Begun in 1965 as part of the Johnson Administration’s War on Poverty, 

Head Start offers poor children and their families a range of services, 

including preschool education, family support, health screenings, dental 

care, and assistance in accessing medical services. The program may 

either provide the services directly or facilitate access to existing services. 

Eligibility for Head Start is generally limited to children who are below the 

age of school entry and from families with incomes below the federal 

poverty level or receiving cash assistance from the Temporary Assistance 

for Needy Families program. To accomplish Head Start’s goals for these 

poor children and families, the Congress last year provided $6.8 billion in 

federal funds, which HHS awards directly to nearly 1,700 grantees 

nationwide. As funding for this longstanding program has grown, so has 

the risk associated with any mismanagement of program funds. 

While effective oversight of federal funds is always a guiding principle in 

managing the various federal government programs, accounting scandals 

in the private sector in 2001-2002 reinforced the need for organizations to 

have stronger financial oversight. Since that time, both public sector and 

private sector organizations —including many not-for-profit 

organizations—are paying closer attention to managing the risks in their 

operations. Indeed, the Office of Management and Budget (OMB) recently 

revised its guidance for federal agencies’ financial managers to better 

integrate and coordinate their risk assessments and other management 

activities. 

The primary goal in managing any federal program is to provide 

reasonable assurance that the program is operating as intended and is 

achieving expected outcomes. A key step in the process of providing this 

assurance is conducting a risk assessment. A risk assessment is a 

comprehensive review and analysis of program operations, especially the 

management of federal funds, to identify risks and to measure the 

potential or actual impact of those risks on program operations. The 

potential for such risks exist in all federal grant programs; for example, the 

diversion of funds to other purposes, inefficient use of funds, failure to 

contribute the grantee’s share of funds, or other problems that reduce the 

effectiveness with which financial resources are brought to bear on 

achieving program goals. When a federal program relies heavily on 

grantees to provide services, as the Head Start program does, the risk 

assessment process can become more complex. Processes must be 

developed to assess the operations of every grantee to ensure that each 

complies with program rules and to measure whether each achieves 

expected results. 

Background 
Page 5 GAO-05-465T 

The federal government makes Head Start grants directly to nearly 1,700 

local organizations, including community action agencies, school systems, 

for-profit and nonprofit organizations, other government agencies, and 

tribal governments or associations. Many of these grantees operate other 

federal, state, or local programs in addition to the Head Start program. 

Many of these Head Start grantees also provide services by subcontracting 

with other organizations, known as delegate agencies. In 2003, there were 

about 800 delegates providing services in the Head Start program. Some 

grantees had multiple delegate agencies while others had none. The 

various layers of grantees, the administrative complexity of the program, 

and the interrelationship between programs operated by the same grantee 

add to the challenges of overseeing the Head Start program. 

ACF uses a number of processes to collect information on grantee 

performance and financial management. Table 1 summarizes ACF key 

processes for monitoring Head Start grantees. 
Page 6 GAO-05-465T 

Table 1: ACF’s Oversight Processes for Monitoring Grantees’ Financial Management 

Monitoring process 

Required 

frequency Purpose and description 

On-site review (PRISM) Triennial To determine whether a grantee meets standards established in the Head Start 

Act, including those related to financial management, teams of federal staff and 

contracted consultants conduct a weeklong, on-site review using a structured 

guide known as the Program Review Instrument for Systems Monitoring 

(PRISM). 

Survey of grantees (PIR) Annual To provide management information to the Bureau and policymakers, all 

programs (grantees and delegates) are mandated by federal regulations to 

submit performance data, including key financial measures such as enrollment 

and teacher salary ranges. Grantees report these data through a survey known 

as the Program Information Report (PIR). 

Review of financial reports Semiannual To account for use of grant funds, all grantees must submit semiannual reports 

on the status and use of their federal funds. 

Review of audits Annual To ensure that federal grantees’ financial statements are accurate, that they 

have adequate controls in place to protect federal funds, and that they are in 

compliance with key regulations, under the Single Audit Act all grantees must 

obtain an annual audit of their financial statements and compliance with 

selected federal laws and regulations. 

Day-to-day contacts with grantees Variable To assist Head Start programs, program specialists in ACF regional offices 

respond to grantee queries and other calls from grantee staff, parents, and 

others with an interest in their local Head Start programs. 

Renewal application Annual To provide information to support determination of the grantee’s future funding 

level, grantees are required to submit renewal applications each year to the 

ACF regional office. 

Source: GAO analysis. 

Various offices within ACF have roles in developing and implementing 

processes to monitor grantee performance and financial management. 

(See fig. 1). The Head Start Bureau develops program policies and designs 

the program-specific oversight processes to collect information on grantee 

performance. Staff from the ten regional offices implement the policies 

developed by the other offices within ACF, ensure that all grantees are in 

compliance with program rules, and frequently develop additional policies 

to aid in their oversight responsibilities. 
Page 7 GAO-05-465T 

Figure 1: ACF Organizational Chart 

ACF uses many processes to collect information on grantee performance 

and financial management but does not bring together this information to 

comprehensively assess the program’s risks or identify areas where it 

might need new or improved processes to collect information. Staff in 

ACF regional offices maintain day-to-day contact with the Head Start 

grantees and monitor the operations of those grantees throughout the 

ACF Lacks a 

Comprehensive Strategy to 

Assess Head Start Risks 

Assistant

Secretary for

Children and Families

Office of

Planning,

Research,

and

Evaluation

Office of

Public

Affairs

Office of 

Family

Assistance

Office of

Child Support

Enforcement

Office of 

Refugee

Resettlement

Administration

on 

Developmental

Disabilities

Administration

 for

Native 

Americans

Office of

Community

Services

Office of

Legislative 

Affairs

and Budget

Office of

Regional

Operations

Deputy Assistant

Secretary for Policy

and External Affairs

President's

Committee for 

People with

Intellectual

Disibilities

Deputy

Assistant Secretary

for Administration

Regional

Offices

(Total 10)

Review of audits

Survey of grantees (PIR) and policies for on-site review (PRISM)

Renewal applications, day-to-day contacts with grantees, review of financial reports, and 

implementation of on-site reviews (PRISM)

Source: GAO analysis of ACF information.

Office of

Financial

Services

Division of

Financial

Integrity

Division of

Grants

Policy

Division of

State Systems

Policy

Head Start

Bureau

Family and

Youth Services

Bureau

Children’s

Bureau

Child Care

Bureau

Administration

on

Children, 

Youth,

and Families
Page 8 GAO-05-465T 

country. Many of those regional office staff told us that they most 

frequently learn if a grantee is having a problem through a call from a 

parent or a teacher. The staff in the regional offices said these calls are a 

routine part of their day-to-day monitoring activities. Over-reliance on this 

approach can result in missed opportunities to help grantees address 

management challenges before they become problems. Greater linkages 

among the various programs offices and oversight activities could produce 

a more comprehensive approach to assessing program risks and help 

prevent financial management weaknesses in Head Start grantees. (See fig. 

2). 
Page 9 GAO-05-465T 

Figure 2: Head Start Oversight Activities Undertaken by Several Offices 

In our review of ACF’s management of the Head Start program, we noted a 

number of on-going activities that were not well-integrated and did not 

present a comprehensive view of the program’s risks. For example, Head 

Start’s 2004 Management Initiative targeted risks that were identified in 

recent GAO reports, news articles, and congressional inquiries. The 

Initiative targeted well-known problems such as underenrollment, 

overenrollment of children from families that did not meet income 

eligibility requirements, and excessive executive compensation at some 

Head Start programs. However, efforts to address broader concerns about 

Financial

management of

Head Start

grant programs

On-site

review

(PRISM)

Review of

financial

reports

Review of

audits

Day-to-day

contacts with

grantees

Time dimension

Source : GAO analysis.

Renewal

application

Survey of

grantees

(PIR)

HEAD START BUREAU

DIVISION OF

FINANCIAL INTEGRITY

REGIONAL OFFICES

HEAD START BUREAU

AND

REGIONAL OFFICES

Annual

Annual

Triennial

Variable

Annual

Semiannual
Page 10 GAO-05-465T 

program governance—the skills and knowledge of local Head Start 

governing boards to effectively manage their programs—were notably 

absent from the Initiative. 

In another example of an ACF oversight process that is too limited in 

scope, we reported that before 2004 ACF had not collected information it 

could use to estimate the extent of improper payments made by grantees 

or the Head Start Bureau. But when ACF began to collect this information, 

the agency focused on just one type of improper payments to grantees—

payments made to grantees that enrolled too many children from families 

that did not meet the program’s income eligibility requirements. These 

improper payments pose a program risk because eligible children may not 

have access to services. While this effort is an important step in 

systematically assessing risks, the study overlooked many other possible 

forms of improper payments, such as those made to contractors, to 

grantees that are significantly underenrolled, or for unallowable program 

activities. 

Finally, we noted in our report that ACF relies on its regional offices to 

assess their own operations for gaps that might pose risks to all ACF 

programs, including Head Start. Such gaps might include failure to follow 

ACF grant management policies or to maintain files on property acquired 

or renovated with Head Start funds. Self-assessments can be an important 

tool, but ACF had not recently conducted an independent compliance 

review to ensure that its own grant policies are enforced and that the 

federal government’s financial interests are protected. 

We found that the main processes ACF uses to collect information on its 

grantees’ financial management—on-site reviews, annual grantee surveys, 

and analyses of financial reports and audits—have flaws that limit the 

value of the information collected. The on-site review process, mandated 

by the Head Start Act and often known as PRISM—the name of the review 

protocol—is ACF’s main tool to assess whether grantees are in compliance 

with statutory and regulatory requirements. While the Head Start Bureau 

has made progress in improving its on-site reviews, we found that 

problems remain. We found that the Bureau has no process to ensure that 

the teams of reviewers follow the Bureau’s guidance. This is a concern 

because there is evidence that some PRISM reviewers might not follow the 

guidance for the on-site reviews. For example, comparisons of 

simultaneous on-site reviews of the same grantees by two different 

teams—a PRISM review team and an improper payments study team—

revealed significant discrepancies. Notably, 21 of the 50 grantees in the 

Processes ACF Uses to 

Collect and Analyze 

Information on Grantees 

are Flawed 
Page 11 GAO-05-465T 

improper payments study were cited for enrolling too many children that 

did not meet the income eligibility guidelines, but the PRISM review teams 

cited only 3 of those same grantees for failing to comply with income 

eligibility criteria. 

The effectiveness of on-site reviews to systematically identify grantees 

with financial management weaknesses depends on some assurance that 

the on-site review is implemented as designed and that the reviewers have 

the necessary skills to assess grantees’ compliance with Head Start 

performance standards. The review teams are lead by staff from ACF’s 

regional offices and include a number of reviewers under contract with 

Head Start. Many of these contractors are employees of Head Start 

programs throughout the country. While this level of experience should 

indicate a familiarity with Head Start program requirements, ACF does not 

check reviewer credentials or test their knowledge of the rules before they 

are sent to conduct reviews. ACF seeks feedback, on a voluntary basis, on 

the contractors’ performance but ACF’s Director of Regional Operations 

expressed reluctance to solicit feedback on the team leaders’ 

performance. 

ACF also uses an annual survey of its grantees to collect information on 

the status of their programs to measure results, but ACF does not verify 

the information collected. We reported last year that important 

information, such as enrollment in many Head Start programs, is often 

reported inaccurately. Also, our analysis raises concerns about the 

reliability of the survey data. ACF relies on 700 checks of internal 

consistency to ensure that data are reported accurately. Many ACF 

officials said that the checks make it difficult for grantees to provide 

inaccurate information. However, our own review of the internal 

consistency of the data found problems; as long as grantees complete the 

survey consistently, the data—whether accurate or not—would pass the 

tests. While ACF officials said they would be able to address the problems 

we identified in our analysis, because the data are used widely by 

policymakers and the public to assess the program’s results, until ACF 

takes steps to ensure the accuracy of the database we urge caution in 

using data from the survey to monitor Head Start grantees. 

All Head Start grantees report on the status of their funds through periodic 

financial reporting and annual audits of their financial statements. We 

found that ACF made limited use of the information collected through 

these two processes to analyze Head Start grantees’ financial status. For 

example, ACF does not routinely reconcile a grantee’s withdrawals with 

its reported expenditures until after the funds have all been spent. It is 
Page 12 GAO-05-465T 

therefore difficult for ACF to identify grantees that might be drawing down 

excess funds at the beginning of the grant period and risking shortfalls at 

the end of the period. Regarding audits, all grantees must obtain an annual 

audit of their financial statements and compliance with selected federal 

laws and regulations. These audits are conducted under a framework 

mandated by the Single Audit Act. While these audits may not be as 

comprehensive as an on-site program review, they are designed to ensure 

that federal grantees’ financial statements are accurate, that they have 

adequate checks and balances in place to protect federal funds, and that 

they are in compliance with key regulations. However, ACF officials cited 

limitations in the scope and timing of the audits for failing to use them 

more systematically in their day-to-day oversight activities. In focusing on 

the limitations of these audits, ACF officials may overlook some valuable 

information on grantees’ financial management practices. 

One way to assess the effectiveness of the approaches ACF uses to 

address grantees’ financial management weaknesses is to examine 

whether grantees resolve their problems and then stay in compliance. 

ACF’s data from its on-site reviews from 2000-2003 show that many 

grantees that were cited for failing to comply with financial management 

requirements in one review still had problems in their next review.2

 Our 

analysis of the data shows that more than half of the grantees cited for 

failure to comply with financial management-related rules were out of 

compliance again with one or more financial management standards 

during their next review. (See fig. 3). 

 2

 The data base for on-site reviews, PRISM, contains both grantees and grantees with any 

delegate agencies reviewed. The data presented in this section contains both types of 

entities. When we analyzed the grantees separately, we obtained the same results about 

percentages of grantees that were non-compliant and had recurrent problems in their next 

review. 

ACF Does Not Ensure that 

Grantees Effectively 

Resolve Financial 

Management Problems 
Page 13 GAO-05-465T 

Figure 3: High Incidence of Continued Noncompliance with Head Start Standards 

among Grantees Reviewed by ACF in 2000 

Moreover, the number of areas of financial management in which grantees 

were noncompliant did not decrease with subsequent reviews. As figure 4 

shows, of the 70 grantees cited in 2000 for problems in all three major 

areas of financial management—fiscal management, program governance, 

and record keeping/reporting—69 still had one or more problems in each 

area at the next review. 

The repeat problems could be a result of failure to correct the problems in 

the first place—something that might have been identified with a follow up 

review—or an initial correction that did not take hold. One senior official 

in a regional office said that many Head Start grantees will fix a problem 

identified in the PRISM report in the short term but fail to make lasting 

changes to their financial management systems. For example, a grantee 

might try to meet financial reporting deadlines for a few months after 

being cited by a PRISM review team for missing deadlines, but if the 

grantee did not implement a system to ensure that these reports are 

consistently on time, the improved performance may not be sustained 

53% of the 76% of grantees

faced recurring financial 

management problems

Source: GAO analysis of PRISM data. Graphics in part by Art Explosion.

Head Start grantees reviewed in 2000

0

25

50

75

100

76% of grantees reviewed 

in 2000 were out of 

compliance with financial 

management standards

in their 

next 

review

Percent
Page 14 GAO-05-465T 

Figure 4: Grantees with Recurring Financial Management Problems (2000-2003) 

When grantee problems are identified through on-site reviews or audits, 

ACF often relies largely on grantees’ self-certification that they have 

corrected problems rather than imposing special conditions or conducting 

a site visit. While self-certification may be appropriate in cases when 

minor problems can be corrected quickly, the analysis in figure 4 suggests 

that many grantees with problems are not getting the help they need to 

correct their problems and make lasting improvements in their financial 

management capabilities. We reviewed the files of 34 grantees with 

financial management problems identified by ACF during its on-site 

reviews. In 18 cases, ACF determined that the grantees’ problems were not 

severe enough to be deemed deficient—a term ACF uses to identify 

grantees with severe problems. Of those 18 grantees ACF required 16 to 

submit letters certifying that they had corrected the problems and no 

further action was pursued. In the other 2 cases, ACF returned to the 

review the grantees and found that they had not corrected their problems. 

It was not clear from our file review how ACF prioritized these 2 grantees 

for follow-up, but in revisiting these grantees ACF took an aggressive step 

to ensure compliance. Because the two grantees had not corrected their 
Page 15 GAO-05-465T 

problems, as required by law, ACF deemed them deficient and required 

them to develop a quality improvement plan. 

ACF also relies primarily on self-certification to resolve problems 

identified in grantees annual audits. In each of the 30 audits we tracked 

from the date the auditor completed a report identifying financial 

weaknesses until the regional office judged the audit findings resolved, 

that judgment was based on a letter from the grantee rather than a site 

visit or other follow-up. Regional staff said they relied on subsequent 

audits to ensure that such findings are resolved, but we found it frequently 

takes up to 2 years from the point an audit identifies a problem until the 

regional office receives the next audit, during which the grantee continues 

to receive federal funds. While the results of our review in four regional 

offices may not represent the range of actions taken by all ACF regional 

offices nationwide, we interviewed managers in other regional offices who 

generally described similar procedures. 

To the extent that grantees have recurring financial management 

problems, more aggressive approaches might be appropriate. ACF has the 

authority to impose special award conditions—such as requiring grantees 

to seek approval for every withdrawal of grant funds—but ACF rarely 

imposes these conditions. ACF can also make a follow-on visit to ensure 

that the grantee has implemented corrective actions and is in compliance 

with the program’s rules. The Head Start Act requires ACF to conduct 

follow-on visits when it determines that a grantee has such severe 

problems that it deems the grantee deficient; ACF can also return to 

grantees with less severe problems, but we found ACF rarely does so. We 

could not discern an objective rationale for when ACF regional offices 

decide that a grantee is deficient and when they do not. For example, 

reports based on the on-site reviews for 20 of the grantees we reviewed 

showed similar problems in the quantity of violations and the severity of 

the problems cited, but the regional offices deemed only 10 of the grantees 

deficient. Regional office staff and their managers in the offices we visited 

said they meet to discuss any problems identified during the on-site review 

to determine whether to deem the grantee deficient, but they said they 

treat each case differently and largely base their determinations on their 

previous experiences with the grantee. 

The most aggressive approach ACF can take to ensure that a community is 

served by a Head Start grantee with sound financial management is to seek 

a new grantee if the current grantee cannot perform as expected. 

However, we found that ACF rarely terminates its relationships with 

poorly-performing grantees. Instead, ACF said that, in lieu of terminating a 
Page 16 GAO-05-465T 

poorly performing grantee, it will try to convince such a grantee to 

voluntarily relinquish its right to its grant. When ACF does undertake the 

protracted process of terminating its relationship with a grantee, the 

grantee will continue to receive funding even if it appeals ACF’s 

decision—regardless of the appeal’s merits. Under ACF’s current 

regulations, it must also fund a grantee’s legal costs until the grantee has 

exhausted its appeals before HHS’ Departmental Appeals Board. 

According to an Administrative Judge on the Appeals Board, no other HHS 

grant program except Head Start allows grantees to continue receiving 

funding throughout the appeals process. 

When ACF decides to award a grant, the Head Start Act requires that ACF 

give priority to grantees already operating a Head Start program in that 

community. This aspect of the law provides important continuity for Head 

Start services in a community. It also provides important stability for 

grantees. However, the act allows the Secretary to deny priority to any 

grantee the Secretary finds fails to meet the program’s performance or 

financial management requirements. Denial of priority status to current 

Head Start grantees would open up the possibility of competition for the 

grant among other qualified applicants. ACF could seek a new grantee that 

can demonstrate the ability to manage federal funds responsibly, in 

accordance with program rules, and that can provide high-quality Head 

Start services to eligible children in the community. Obviously, denying 

priority status to a grantee that has been a part of a community for years, 

has educated multiple generations of children from that community, and 

has employed a number of staff from the community is a major step that 

should be taken after carefully considering all available options. But, 

denial of priority status is a step that ACF should take if a grantee fails to 

make the necessary changes to effectively manage its program. Ultimately, 

enforcing all the program’s requirements—especially financial 

management requirements—is really about strengthening our commitment 

to future generations of children, seeking better ways of managing scarce 

federal resources, and making sure that we reach as many eligible families 

as possible. 

We made 8 recommendations in our report to improve the overall 

management of the Head Start program, strengthen the tools ACF uses to 

collect useful information on its grantees, and improve ACF’s analysis of 

the information it collects. Specifically we recommended that the 

Assistant Secretary for Children and Families: 

• Produce a comprehensive risk assessment of the Head Start program and 

update it periodically. Such an assessment should: 
Page 17 GAO-05-465T 

• Consider plans to collect data on and estimate the extent of improper 

payments made for unallowable activities, payments to grantees that 

are significantly underenrolled, or other unauthorized activities, 

• Aim to improve the processes ACF currently uses to collect and 

analyze information on program risks; for example, ACF should: 

• Train and/or certify its on-site reviewers to ensure they have the 

skills and knowledge necessary to perform their responsibilities, 

• Develop an objective approach for regional office management to 

use in assessing the severity of the problems identified during onsite reviews and for finding grantees deficient or not, and 

• Implement a quality assurance process to ensure that the 

framework for conducting on-site reviews is implemented as 

designed, including holding ACF’s regional management 

accountable for following this framework and for the quality of the 

reviews. 

• Verify key data from the annual survey of grantees to enhance the 

usefulness of this data in overseeing its grantees and managing the 

program, and 

• Seek ways to make greater use of the data it collects on the status and 

use of federal funds through a periodic reconciliation of grantees’ 

reported expenditures with their withdrawals. 

• Take steps to obtain competition for a grant if ACF has determined that 

the current grantee fails to meet program, financial management, or other 

requirements. Such a competition could be held without giving priority to 

the current grantee. 

ACF agreed to implement most of our recommendations. However, ACF 

expressed concerns about our last recommendation, suggesting that it did 

not have the authority to seek competition from other qualified applicants 

for grant funds in communities that are currently served by poorly 

performing grantees without first terminating its relationship with such 

grantees. Seeking other qualified applicants under these circumstances 

would strengthen the linkages between a program’s performance—

including financial management—and its funding. Congress may wish to 

seek other qualified applicants and clarify the extent of ACF’s authority to 

deny priority status to grantees it determines fail to meet program, 

financial management, and other requirements. 
Page 18 GAO-05-465T 

Mr. Chairman, that concludes my prepared statement. At this time, I would 

be happy to take any questions you or other Committee Members may 

have. 

For more information regarding this testimony, please call Marnie S. Shaul 

at (202) 512-7215. Individuals making key contributions to this testimony 

include Betty Ward-Zukerman, Bill J. Keller, Mark Ward, and Neal Gottlieb 

of our Education, Workforce and Income Security Team; Kim Brooks, 

Diane Morris, and Gabrielle Fagan of our Financial Management and 

Assurance Team; Curtis Groves of our Applied Research and Methodology 

Team; and Richard Burkard and James Rebbe of our General Counsel. 

GAO Contact and 

Staff 

Acknowledgments 

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