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S. HRG. 108–366

GRANTS MANAGEMENT AT THE ENVIRONMENTAL

PROTECTION AGENCY

HEARING

BEFORE THE

COMMITTEE ON ENVIRONMENT AND

PUBLIC WORKS

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MARCH 3, 2004

Printed for the use of the Committee on Environment and Public Works

(
(II)

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JAMES M. INHOFE, Oklahoma, Chairman

JOHN W. WARNER, Virginia

CHRISTOPHER S. BOND, Missouri

GEORGE V. VOINOVICH, Ohio

MICHAEL D. CRAPO, Idaho

LINCOLN CHAFEE, Rhode Island

JOHN CORNYN, Texas

LISA MURKOWSKI, Alaska

CRAIG THOMAS, Wyoming

WAYNE ALLARD, Colorado

JAMES M. JEFFORDS, Vermont

MAX BAUCUS, Montana

HARRY REID, Nevada

BOB GRAHAM, Florida

JOSEPH I. LIEBERMAN, Connecticut

BARBARA BOXER, California

RON WYDEN, Oregon

THOMAS R. CARPER, Delaware

HILLARY RODHAM CLINTON, New York

ANDREW WHEELER, Majority Staff Director

KEN CONNOLLY, Minority Staff Director
(III)

CONTENTS

Page

MARCH 3, 2004

OPENING STATEMENTS

Crapo, Hon. Michael D., U.S. Senator from the State of Idaho, prepared

statement .............................................................................................................. 26

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma .................... 1

Jeffords, Hon. James M., U.S. Senator from the State of Vermont .................... 3

WITNESSES

Ellis, Steve, vice president for programs, Taxpayers for Common Sense ........... 10

Prepared statement .......................................................................................... 66

Heist, Melissa, Assistant Inspector General for Audit, Environmental Protection Agency ........................................................................................................... 5

Prepared statement .......................................................................................... 27

Responses by Inspector General Nikki Tinsley to additional questions

from Senator Inhofe ...................................................................................... 32

O’Connor, David, Acting Assistant Administrator for the Office of Administration and Resources Management, Environmental Protection Agency ............. 8

Prepared statement .......................................................................................... 51

Responses to additional questions from:

Senator Crapo ............................................................................................ 65

Senator Inhofe ........................................................................................... 56

Senator Jeffords ......................................................................................... 64

Stephenson, John B., Director, Natural Resources and Environment, General

Accounting Office ................................................................................................. 6

Prepared statement........................................................................................... 33–50

ADDITIONAL MATERIAL

Audit Report, March 1, 2004, Consumer Federation of America FoundationCosts Claimed Under EPA Cooperative Agreements CX825612–01,

CX825837–01, X828814–01, CX824939–01, and X829178–01, Office of the

Inspector General, Environmental Protection Agency..................................... 69–153

Chart, Percentage of Key Pre-Award Steps Not Completed ................................ 31

Letters from Consumer Federation of America ..................................................... 17–18

(1)

GRANTS MANAGEMENT AT THE

ENVIRONMENTAL PROTECTION AGENCY

WEDNESDAY, MARCH 3, 2004

U.S. SENATE, COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS, Washington, DC.

The committee met, pursuant to notice, at 9:30 a.m., in room

406, Senate Dirksen Building, Hon. James M. Inhofe (chairman of

the committee) presiding.

Present: Senators Inhofe and Jeffords.

OPENING STATEMENT OF HON. JAMES M. INHOFE,

U.S. SENATOR FROM THE STATE OF OKLAHOMA

Senator INHOFE. The hearing will come to order.

I want to thank our witnesses for their testimony. The committee

will receive testimony this morning regarding the grants management at the Environmental Protection Agency. Each year the EPA

awards over half its annual budget in grants to various recipients,

including State, local, tribal government entities, educational institutions, nonprofit organizations, and others. Historically, the EPA has awarded over $4 billion in grants each

year for the past several fiscal years. The majority of the grants

are awarded to governmental agencies. As a former mayor, I can

tell you that the greatest problem that we faced was not crime and

was not poverty, but it was unfunded mandates. These grants are

well placed to take care of that. It is something that is very meaningful.

The mission of the EPA is to protect human health and the environment. I believe that grants to locate recipients can be one of the

best tools to accomplish that mission. However, the EPA Inspector

General, the General Accounting Office, and the Office of Management and Budget have consistently criticized the EPA for persistent problems in grants management.

The OMB, the EPA, and the IG recommend as recently as 2002,

that the Agency designate grants management as a material weakness which is the most severe category of weakness under the Federal Management Financial Integrity Act. For nearly the last 10

years, the EPA has even acknowledged that grants management

has been a weakness which, to me, proves that this should be a

nonpartisan issue. These problems have persisted regardless of

change in Administration. We have had the same problems when

Carol Browner was here, as we do currently, and certainly during

the Clinton administration, the Bush administration, or going on

back into the past years.
2

The committee has an obligation to ensure that the EPA budget

is consistent with its mission to protecting human health and the

environment. One week from today we will have the EPA Administrator, Mike Leavitt, in for a budget hearing. He will testify before

this committee. Most importantly, however, the EPA has an obligation to ensure taxpayers that it is accomplishing its mission with

the funds it awards each year.

However, for the last 10 years, the story of grants management

is seemingly a revolving door of the EPA, IG audits, the GAO reports, congressional hearings, and new EPA policies and response.

Even with this constant cycle of criticism, hearings, and new policies, the GAO reported late last year that the EPA continues to

demonstrate the same persistent problems in grants management.

These problems include a general lack of oversight of the grantees,

a lack of oversight of the Agency personnel, a lack of any measurement of environmental results, and a lack of competition in awarding grants. It is imperative that Agency personnel are accountable

for monitoring grants. The measurable environmental results are

clearly demonstrated.

Interestingly, the GAO characterized changing part of the deficiencies in the last 10 years of grants management as required a

major cultural shift at the EPA. I realize GAO was specifically referring to implementing a new competition policy in awarding

grants. However, it appears that a major cultural shift is only the

beginning of a number of reforms needed to create the culture of

accountable to which you, Mr. O’Connor, refer in your testimony

that is necessary within the Agency for new and effective grants.

I want to announce to all of you today that this committee is

going to take this oversight responsibility seriously in regards to

grants management. I can remember back when the Nuclear Regulatory Commission had not an oversight hearing in something like

5 years. We started having very serious oversight hearings. It totally changed things. I think we are going to stay on top on this.

I am going to make a personal commitment that is going to

change this time. They have always said that it is going to, but this

time, Senator Jeffords, we are going to change it. We are going to

have accountability and the revolving door will stop, with your

help.

With that, I will recognize the Ranking Member, Senator Jim

Jeffords.

[The prepared statement of Senator Inhofe follows:]

STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM

THE STATE OF OKLAHOMA

Good morning. I want to open this hearing thanking our witnesses in advance for

their testimony. The committee will receive testimony this morning regarding

grants management at the Environmental Protection Agency. Each year the EPA

awards over half its annual budget in grants to various recipients including State,

local, and tribal governmental entities, education institutions, non-profit organizations, and others. Historically, the EPA has awarded over $4 billion in grants each

year for the past several fiscal years. The majority of grants are awarded to governmental entities for implementation of environmental programs. As a former mayor

I can appreciate the availability of funds to local governments to pay for local implementation of Federal programs designed to ensure such benefits as water pollution

control and maintaining air quality. Last year my hometown, the city of Tulsa,

Oklahoma received about $3 million from the EPA for such projects as implementation of air quality standards and city water supply security.
3

The mission of the EPA is to protect human health and the environment. I believe

that grants to local recipients can be one of the best tools to accomplish that mission. However, the EPA Inspector General, the General Accounting Office, and the

Office of Management and Budget have consistently criticized the EPA for persistent problems in grants management. The OMB and EPA IG recommended as

recently as 2002 that the agency designate grants managements as a material

weakness, which is the most severe category of weakness under the Federal Managers Financial Integrity Act. For nearly the last 10 years, the EPA has even acknowledged that grants management has been a weakness which to me proves that

his should be a non-partisan issue. These problems have persisted regardless of

changes in Administration.

This committee has an obligation to ensure that the EPA budget is consistent

with its mission of protecting human health and the environment. One week from

today, EPA Administrator Mike Leavitt will testify before this committee concerning

the fiscal year 2005 EPA budget. Most importantly, however, the EPA has an obligation to ensure taxpayers that it is accomplishing its mission with the funds it

awards each year. However, for at least the last 10 years, the story of grants management is seemingly a revolving door of EPA IG audits and GAO reports, congressional hearings, and new EPA policies in response. Even with this constant cycle

of criticism, hearings, and new policies; the GAO reported late last year that the

EPA continues to demonstrate the same persistent problems in grants management.

These problems include a general lack of oversight of grantees, a lack of oversight

of agency personnel, a lack of any measurement of environmental results, and a lack

of competition in awarding grants. It is imperative that agency personnel are accountable for monitoring grants and that measurable environmental results are

clearly demonstrated. Interestingly, the GAO characterized changing part of the deficiencies in the last 10 years of grants management as requiring a ‘‘major cultural

shift’’ at the EPA. I realize GAO was specifically referring to implementing a new

competition policy in awarding grants. However, it appears that a major cultural

shift is only the beginning of a number of reforms needed to create the culture of

accountability to which you, Mr. O’Connor, refer in your testimony that is necessary

within the agency for new and effective grants management.

I want to announce to all of you today that this committee is going to take its

oversight responsibilities seriously in regards to grants management. We are going

to stay on top of this issue until real changes are made.

Senator INHOFE. Senator Jeffords.

OPENING STATEMENT OF HON. JAMES M. JEFFORDS,

U.S. SENATOR FROM THE STATE OF VERMONT

Senator JEFFORDS. Thank you, Mr. Chairman.

The Environmental Protection Agency is charged with a very important mission: to protect human health and safeguard the natural environment. I am pleased that the committee is engaged in

oversight of the EPA. However, I hope that in the near future this

committee will also hold hearings on important health issues, such

as lead levels in the water supply of the District of Columbia, and

mercury pollution from power plants, as well as hearings on new

source review, climate change, and water pollution.

Today we are looking at the ways EPA can improve its use of resources to protect the environment. These resources include a substantial amount of funding for grants. Last year, EPA grants funding amounted to over $4 billion. Much of this grant money has

been put in very good use. Notable examples include the highly

successful Clean Water and Drinking Water State Revolving Fund

Program.

EPA grant money is also used to support continuing programs,

such as the Clean Air Program for monitoring and enforcing clean

air regulations, and to fund environmental research and training.

In short, grants funding is a central means by which EPA can accomplish important environmental goals.
4

Unfortunately, for some time now, studies by the General Accounting Office and the EPA Office of Inspector General have documented persistent shortcomings in EPA’s grants management. EPA

continues to face several challenges in managing its grants. These

challenges include selecting the most qualified applicants, effectively overseeing grantees, measuring the results of grants, and effectively managing staff and resources.

Addressing these challenges should be a priority for EPA. I am

pleased to see that EPA recently has taken noteworthy steps to improve the grants management. EPA is moving in the right direction

by instituting competition and oversight policies, and by developing

a comprehensive 5-year grants management plan that is designed

to address many of the shortcomings that we have seen in the past.

EPA now must successfully carry out these plans for improvement. At the same time, there is still more that EPA can do to enhance the effectiveness and efficiency of the grants programs. I am

concerned about the Inspector General’s recent report that alleges

a group of illegally accepted Agency grant funds. However, I would

like to know whether EPA knowingly awarded funds to an ineligible organization and whether any funds were actually misused.

I look forward to hearing more about EPA’s progress and implementing the new policies and comprehensive plan, and also about

how EPA is responding to further suggestions for improvement.

Thank you, Mr. Chairman.

[The prepared statement of Senator Jeffords follows:]

STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM

THE STATE OF VERMONT

Thank you Senator Inhofe.

The Environmental Protection Agency is charged with a very important mission—

to protect human health and safeguard the natural environment.

I am pleased that this committee is engaged in oversight of the EPA. However,

I hope that in the near future this committee will also hold hearings on important

health issues such as lead levels in the water supply of the District of Columbia

and mercury pollution from power plants, as well as hearings on New Source Review, Climate Change, and water pollution.

Today we are looking at ways EPA can improve its use of resources to protect the

environment. These resources include a substantial amount of funding for grants.

Last year EPA grants funding amounted to over four billion dollars.

Much of this grant money has been put to very good use. Notable examples include the highly successful clean water and drinking water state revolving fund programs. EPA grants money is also used to support continuing programs, such as the

Clean Air Program for monitoring and enforcing clean air regulations, and to fund

environmental research and training. In short, grants funding is a central means

by which EPA can accomplish its important environmental goals.

Unfortunately, for some time now, studies by the General Accounting Office and

the EPA Office of the Inspector General have documented persistent shortcomings

in EPA’s grants management. EPA continues to face several challenges in managing

its grants. These challenges include selecting the most qualified applicants, effectively overseeing grantees, measuring the results of grants, and effectively managing staff and resources.

Addressing these challenges should be a priority for EPA, and I am pleased to

see that EPA recently has taken noteworthy steps to improve its grants management.

EPA is moving in the right direction by instituting competition and oversight policies and by developing a comprehensive 5-year grants management plan that is designed to address many of the shortcomings that have been identified.

EPA now must successfully carry out these plans for improvement.

At the same time, there is still more that EPA can do to enhance the effectiveness

and efficiency of its grants programs. I am concerned about the Inspector General’s

recent report that alleges a group illegally accepted agency grant funds. However,
5

I would like to know whether EPA knowingly awarded funds to an ineligible organization and whether any funds were actually mis-used.

I look forward to hearing more about EPA’s progress in implementing its new

policies and comprehensive plan, and also about how EPA is responding to further

suggestions for improvement.

Senator INHOFE. Thank you, Senator Jeffords.

We are going to go from left to right. We will first hear from Melissa Heist who is the Assistant Inspector General for Audits. Second, we will hear from Mr. John Stephenson, Director of Natural

Resources and Environment at the General Accounting Office.

Third will be David O’Connor, the Acting Assistant Administrator

for the Office of Administration and Resources Management, Environmental Protection Agency. Last, we will hear from Steve Ellis,

vice president for Programs, Taxpayers for Common Sense.

Without objection, your entire statements will be made a part of

the record. You may go ahead and abbreviate as you so desire.

Ms. Heist, would you begin?

STATEMENT OF MELISSA HEIST, ASSISTANT INSPECTOR GENERAL FOR AUDIT, ENVIRONMENTAL PROTECTION AGENCY

Ms. HEIST. Thank you. Good morning, Mr. Chairman, and members of the committee. I am Melissa Heist, the Assistant Inspector

General for Audit, at the Environmental Protection Agency. I am

pleased to be here today representing Nikki Tinsley, the Inspector

General.

Thank you for the invitation to inform you about the work we

have done reviewing EPA’s management of assistance agreements,

also known as grants. Our recent audit work has focused on crosscutting national issues and has included grants made to States,

local and tribal governments, and not-for-profit organizations. Our

audits have identified systemic problems in awarding and overseeing grants. These problems prevent EPA from achieving the

maximum results from the more than $4 billion awarded in assistance agreements every year.

Inadequate review and oversight has both financial and environmental consequences. I am going to talk briefly about our findings

in three areas: pre-award reviews, post-reward oversight, and staff

accountability.

Pre-award review ensure that grants are planned to deliver results at an acceptable cost. We reported on pre-awards in 1998,

2002, and most recently in March of last year. For this audit, we

selected a statistical sample of agreements awarded so that our

findings would address EPA-wide issues. The chart I have brought

along today summarizes what we have found. I will highlight a few

of these findings.

In 79 percent of grants over $100,000, project officers did not document cost reviews or proposed budgets. Statistically this equates

to over $500 million spent without a cost analysis. In 42 percent

of the grants, EPA did not negotiate environmental outcomes. We

saw a $200,000 grant proposal to regulate costs charged by power

companies that said specific projects would be established later.

The project officer wrote on the application, ‘‘Why this? Why now?’’,

yet still approved the work plan. We even found one agreement

where EPA awarded $700,000 without knowing specific objectives,

milestones, deliverables, or outcomes.
6

Post-award reviews ensure that grants stay on track to deliver

environmental results at a reasonable cost. We have reported on

EPA shortcomings in overseeing assistance agreements for over 10

years. A particularly relevant example is a recent report in which

we questioned $4.7 million because the work was performed by an

ineligible lobbying organization. EPA awarded the cooperative

agreements to an associated organization that did not have any

employees, space, or overhead expenses.

In addition, the ineligible organization’s financial management

practices did not comply with Federal regulations. The recipient

did not adequately identify and separate lobbying expenses in its

accounting records. As a result, lobbying costs may have been

charged to the Federal projects. The ineligible organization also

claimed that it had not always followed Federal regulations because EPA employees directed the recipient to use a particular contractor.

The deficiencies I have discussed were not due to the lack of policies or training. They were due to staff not following existing policies, and to staff not being held accountable. If EPA is to improve

its management of assistance agreements, it needs to ensure that

adequate resources are devoted to the function, and that management and staff are held accountable for adhering to Agency policies

that promote good management.

Let me conclude by saying that I believe that EPA takes its assistance agreement challenges seriously. However, after years of

policy and staff training, the problems remain. EPA recently issued

guidance requiring all employees involved with managing grants to

have performance standards that address these responsibilities.

EPA managers now need to carry through and hold staff accountable for managing EPA’s grant programs in a way that maximizes

results.

Thank you, Mr. Chairman and members of the committee, for

the opportunity to participate in the discussion of such an important topic. We are committed to working with Congress and EPA

to ensure that the money awarded through assistance agreements

every year is producing the intended environmental and public

health benefits.

This concludes my prepared remarks. I will be happy to respond

to questions. I would ask that my written statement be placed in

the record in its entirety.

Senator INHOFE. Thank you, Ms. Heist. You might instruct your

staff to leave that chart up. There are some things that I do not

understand about it. In the question and answer time, perhaps you

could elaborate on that.

Mr. Stephenson.

STATEMENT OF JOHN B. STEPHENSON, DIRECTOR, NATURAL

RESOURCES AND ENVIRONMENT, GENERAL ACCOUNTING

OFFICE

Mr. STEPHENSON. Thank you, Mr. Chairman, and Senator Jeffords.

We are also pleased to be here today to discuss the Environmental Protection Agency’s management of its grants. My testimony today is based primarily on our August report from last year.
7

As you have already stated, grants account for over half of EPA’s annual budget, or about $4.2 billion annually. EPA’s ability to accomplish its primary mission of protecting human health and the

environment depends largely on how well it selects, manages, and

optimizes the benefits of these grants. EPA has over 4,000 grant

recipients, including State and local governments, tribes, universities, and nonprofit organizations. So, effective management of

this broad portfolio is a daunting task.

Congressional hearings in 1996, 1999, and last year have highlighted EPA’s long-standing grants management problems. GAO

and EPA IG have chronicled them in numerous reports.

The bottom line is that EPA continues to face key grants management challenges despite its efforts to address them. These challenges, as you have mentioned, Senator Jeffords are, No. 1, selecting the most qualified grant applicants; No. 2, effectively overseeing grants; No. 3, measuring the results of grants; and No. 4,

effectively managing its own grants staff and resources.

EPA has and is taking a series of actions to address these challenges by, among other things, issuing policies on competition and

oversight, conducting training for project officers and nonprofit organizations, and developing a new data system for grants managements. However, these actions have had mixed results because of

the complexity of the problems, weaknesses in design and implementation, and insufficient management attention.

EPA’s new policies, and its 5-year grants management plan, requires strengthening, enhanced accountability, and sustained commitment to succeed. For example, EPA’s September 2002 policy on

competition should improve EPA’s ability to select the most qualified applicants by requiring competition for more grants. However,

effective implementation of the policy will require a major cultural

shift for EPA managers and staff because the competitive process

will require significant planning and take more time than awarding grants noncompetitively. Right now less than 15 percent of the

grants are awarded competitively.

Similarly, EPA’s December 2002 oversight policymakes important improvements in oversight, but it does not enable EPA to

identify systemic problems in grants management. For example,

the policy does not incorporate a statistical approach to selecting

grantees for review. As a result, EPA cannot effectively use the reviews to better target corrective actions, or to ensure expenditure

of its oversight resources.

Finally, while EPA’s 5-year grants management plan does offer

for the first time a comprehensive road map with objectives, goals,

and milestones for addressing grants management challenges, it

does not provide a mechanism for holding all managers and staff

accountable for successfully fulfilling their grants management responsibilities. For example, EPA relies on about 1,800 project officers to oversee grants. These project officers are spread over headquarters and the ten field regions for EPA.

But their grant responsibilities often fall into the category of

other duties as assigned. Without increased accountability for these

project officers, as well as other staff and managers, EPA cannot

ensure the sustained commitment needed for the planned success.

While EPA has begun implementation actions in the plan, GAO be-
8

lieves that given EPA’s historically uneven performance in addressing its grants challenges, continued congressional oversight will indeed be needed to ensure that EPA’s administrator, managers, and

staff remain firmly committed to implementing the 5-year plan’s

ambitious targets and timeframes.

In our report, we make specific recommendations to the EPA Administrator for addressing these weaknesses and strengthening

grants management. The EPA has agreed to implement most of

these recommendations as part of its 5-year plan. However, EPA

is just entering the second year of the 5-year plan, and it is really

too soon to tell whether its corrective actions will effectively address the problems.

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

take questions as well. I would ask that my written statement be

placed in the record in its entirety.

Senator INHOFE. Thank you, Mr. Stephenson.

Mr. O’Connor.

STATEMENT OF DAVID O’CONNOR, ACTING ASSISTANT ADMINISTRATOR FOR THE OFFICE OF ADMINISTRATION AND RESOURCES MANAGEMENT, ENVIRONMENTAL PROTECTION

AGENCY

Mr. O’CONNOR. Good morning, Mr. Chairman, and Senator Jeffords. It is a pleasure to be here this morning. As has been noted,

EPA awards some $4 billion in grants, representing about half of

the Agency’s budget each year. This is the key mechanism by

which EPA and its grant recipients deliver important environmental protection to the public.

Most of these grant funds, about 89 percent, go to States, tribes,

and local governments, with the remainder going primarily to nonprofit organizations and educational institutions. Some of this

funding is the result, as you know, of congressional earmarks. In

2003, about 13 percent of our grant dollars were earmarked and

about 51 percent of our total grant dollars to nonprofit organizations.

We at the EPA have an obligation to manage these grant dollars

effectively and to ensure that they are used to further the Agency’s

mission. However, for a number of years, our grant management

practices have been criticized by the General Accounting Office and

the Inspector General, and our credibility has suffered. Grants to

nonprofit organizations have been especially criticized for inadequate management and oversight.

Over the period of 1995 to 2001, EPA did take steps to respond

to grant management concerns. For example, we virtually eliminated a backlog of 20,000 grants awaiting grant closeout. We

trained over 4,000 project officers, and we issued a number of postaward monitoring policies.

While these steps resulted in some progress, it has been clear

that we continue to face significant challenges in grants management, especially in the area of grantee selection, oversight, accountability, and environmental results. In 2001, we recognized the need

to address grants management concerns in a much more comprehensive and strategic manner. In April 2003, as GAO just
9

noted, we did issue for the first time a long-term 5-year grants

management plan with associated performance measures.

The plan commits EPA to accomplishing five goals: No. 1, enhancing the skills of EPA personnel involved in grants management; No. 2, promoting competition in the awarding of grants; No.

3, leveraging technology to improve performance; No. 4, strengthening our oversight of grants; and No. 5, identifying and documenting environmental results.

I would like to touch on some of these very briefly. In goal one,

a key component of our strategy is ensuring that all of our project

officers are certified to manage grants. Project officers now must

complete a basic 3-day grants management training program and

take periodic refresher courses to maintain their certification. We

are improving our training program through the development of a

long-term training plan linked to EPA’s human capital strategy.

This long-term plan will establish an Agency-wide process for ensuring that grants managers are timely trained on new policies and

regulations and that we have measures for determining how our

training activities contribute to improved grants management.

In goal two, EPA is firmly committed to increasing competition

for grant awards. As was noted, our grants competition policy went

into effect in October 2002. In its first year of implementation, EPA

competed 75 percent of new awards that are covered under the policy. This means that over 900 grants were competed in 2003. This

accounted for 85 percent of the dollars awarded subject to the policy.

In goal three, we recently deployed an enhanced Integrated

Grants Management System which we consider essential to

strengthening grants management. This is a paperless system that

fully automates the grants process from cradle to grave. It provides

electronic tracking of milestones, products, post-award activities,

and other information vital to our project officers’ ability to manage

grants. We have now deployed this system across all 10 of our regions and are beginning to deploy it across our headquarters offices.

In goal four, in December 2002, we issued a comprehensive postaward monitoring policy that significantly expands our program for

monitoring grants after they have been awarded. It requires baseline monitoring of all active grants and advance monitoring on at

least 10 percent of active grantees. We focused our early attention

on nonprofit organizations where we know there have been poor

performing grant recipients. In 2003, we conducted 408 events

monitoring reviews. Where we found problems, we were largely

successful in having them corrected, or we placed controls on grantee expenditure pending resolution.

Mr. Chairman, in conclusion I would like to say that EPA has

set in motion a comprehensive plan to address grants management

weaknesses. It is a serious plan, and one that will require our full

effort and attention to implement, but we are determined to do it.

It will not be easy, and it will not happen overnight, but we have

the full support of EPA’s leadership as we implement this plan. I

am very encouraged by the genuine commitment of our regional

and program offices to work with us to make this plan a successful

one.
10

Last, let me say that I am very proud to have a grant office

under me that has the right leaders to make this plan successful

and a staff that is very committed to the task. They are determined, and they are working very hard to make this plan a success.

Thank you very much, Mr. Chairman. I would ask that my written statement be placed in the record in its entirety.

Senator INHOFE. Thank you, Mr. O’Connor.

Mr. Ellis.

STATEMENT OF STEVE ELLIS, VICE PRESIDENT FOR

PROGRAMS, TAXPAYERS FOR COMMON SENSE

Mr. ELLIS. Thank you very much, Chairman Inhofe. Good morning, Senator Jeffords. Thank you for inviting me to testify. Thank

you for holding this hearing. I am Steve Ellis, vice president for

programs at Taxpayers for Common Sense, a national nonpartisan

budget watchdog organization.

Rather than revisiting the comments that have already been

made, which we agree with, I would like to put some of this into

context and provide a few additional recommendations.

The EPA must clearly define missions and goals expected from

its grants program so that the taxpayer can be sure that every dollar is being spent wisely. After several false starts and criticism

from virtually everyone, EPA appears to have instituted reforms

that could lead the Agency toward responsible management of its

grants portfolio. But time will tell whether they have truly turned

the corner.

TCS recommends additional measures to help buttress EPA’s reform efforts, including development and implementation of grants

management, evaluation criteria for program officers, and other

grant management personnel, annual progress reporting to Congress, and rapid deployment in the centralizing of the proposed

grant database systems, which I understand is ongoing.

As has already been said, roughly half of the EPA budget is

awarded in the form of assistance agreements or grants, but breaking it down would be instructive. In fiscal year 2002, $3.5 billion

of this grant money was allocated in non-discretionary programs

such as drinking and clean water State resolving funds, and a few

other programs that are typically formula grants and earmarks.

The remaining amount, $719 million, was awarded in discretionary grants to State and local governments, tribes, non-profits,

and universities. We applaud the committee for its role in reviewing these programs, and urge the committee to look more closely

at the non-discretionary programs to ensure that they are properly

structured and meeting the Nation’s goals at appropriate costs.

The four key areas the EPA has to improve—and these parallel

the GAO’s—are competitive grant awards, effective grantee oversight, ensuring grants help achieve Agency goals, and supporting

and holding staff accountable for performance.

EPA seems to be responding. In September 2002, EPA issued the

first policy to govern the competitive awarded grants. In 2002, a

new grant oversight policy was issued. Finally, in April 2003, the

Agency issued its grants management plan for 2003 to 2008. This

plan touched on all four of our key areas for improvement.
11

However, any EPA plan must be evaluated based on both the

fine print and the follow through. The grants management plan

outlines several objectives for training grants personnel. One of

these is to increase the percentage of grants managed by certified

project officers from the 2003 baseline of 85 percent to 100 percent

in 2004. But considering that, as Ms. Heist indicated earlier, the

IG identified glaring shortcomings in a large number of randomly

sampled EPA assistance agreements shortly before the grants management plan was released. The certification process itself may be

flawed.

Promoting competition for grant awards clearly comes down to

Agency commitment. Plain and simple, if EPA cracks down on allowing sole source and similar type grants, competition will flourish. If the Integrated Grants Management System, IGMS, is fully

deployed, it could significantly help in grant tracking. Strengthening oversight on achieving outcomes requires a commitment by

EPA at both the national and regional level to look over grantee

shoulders and demand basic information grantees are supposed to

supply.

While we support the reforms that EPA has proposed, there are

some additional improvements that must be made. To inject responsible grant management throughout the Agency, the EPA

must develop performance standards for EPA grant management

staff at all levels. Reform will only be effective if program officers

and all staff charged with grant management embrace these efforts. If personnel are not evaluated on grant management performance, it will be perceived as a lower priority and we will be

back discussing grant management failures at EPA every few

years.

Similarly, EPA officials have to commit to making reforms stick.

To concentrate their attention, we believe it is vital that EPA report to Congress annually on its progress and that this committee,

the GAO, and the EPA IG exercise the vigorous oversight that has

gotten us this far in the reform process.

Finally, we strongly believe that centrally and publicly available

grant and tracking data will make reform efforts more enforceable

and efficient. We urge the EPA to deploy the IGMS system as

quickly as possible, but again, any system will only be as effective

as the people inputting the data. To that end, we urge the EPA to

investigate centralizing and streamlining grant management to

fewer, more highly trained, individuals.

Although it is apparent that there has been much done to increase accountability in the EPA grants system, there is much

more to do. However, we believe that with vigilant oversight, EPA

has turned the corner on reforms. We are in difficult budget times,

as you well know. With a $521 billion deficit, we have to be sure

that every dollar we spend is being spent cost effectively to further

our Nation’s goals.

Thank you for the opportunity to testify. I would be happy to answer any questions you might have. I would ask that my written

statement be placed in the record in its entirety.

Senator INHOFE. Thank you, Mr. Ellis, for an excellent opening

statement. I thank all of you.
12

We are going to go ahead, if it is all right, Senator Jeffords, and

do ours in a series of 5-minute questions. Other Senators will come

and I would like to have them fall in line as they come in, if that

is acceptable with you.

I would start off by saying in your one, two, three, four, you

might add a fifth one and that is that those who are involved, obey

both the intent and the letter of the law. It appears to me that

there are many of them that are just being very nonchalant about

the work that they are doing. That is what we anticipate should

change.

Ms. Heist, you have your chart up there. I do not understand it.

Ms. HEIST. Let me explain. On mission relevance, this would be

looking at whether or not the project officer, in reviewing the grant

application, documented that there was some connection between

the work that was to be performed and the Agency’s strategic

goals. We found in the end that there were 19 percent of the cases

that we looked at, where that was not the case.

In 19 percent of the cases, we found that there was not a link

between the work that was to be performed and a strategic goal of

the Agency. On probable success, we found that there was 31 percent of the cases where the project officer did not look at whether

or not the grantee was technically competent, and what their past

performance was like for the Agency.

Senator INHOFE. On those two, how does that relate to $42 million and $88 million?

Ms. HEIST. We projected the results to the $1 billion universe we looked at. So, of the $1 billion, there would be $42 million where

there was not a link to mission relevance, and there would be $88

million where there would not be a link or there was not an indicator that the grantee would be successful.

Senator INHOFE. Now, reasonable costs?

Ms. HEIST. Reasonable costs would be about half the dollars that

we looked at in the universe. The person reviewing the grant application did not document that they had reviewed the costs and the

costs seemed reasonable for the work that was being proposed.

Senator INHOFE. That is pretty shocking. Do all the costs on your

chart from deficiencies in the pre-award process only relate to discretionary grant recipients?

Ms. HEIST. No, it goes beyond discretionary grants. We also

looked at some continuing environmental programs which would be

grants to States. These are air and water grants that we looked at

as a part of this sample.

Senator INHOFE. Is the major problem in the discretionary

grants?

Ms. HEIST. We found that there were problems with discretionary grants. We also found some instances where in the grants

to States there was not a clear link, and there was not a clear

statement of what environmental results should be happening.

Senator INHOFE. On your grants to States, and your grants to cities, having been a mayor, I am familiar with that. Is not part of

that that they are given to the States to, say, upgrade a water purification system or something, and they make those determinations as to how that is being spent at the State level? Is that correct?
13

Ms. HEIST. That is correct. Although what we would like to see

is some mutual agreement about what is going to happen. Now, the

actual water project that you are talking about, we did exclude

those from our samples.

Senator INHOFE. I see. You are testifying that the EPA mismanagement of only discretionary grants costs the taxpayers hundreds of millions of dollars each year?

Ms. HEIST. Of predominately discretionary funds; yes.

Senator INHOFE. Why do you focus on discretionary recipients in

particular?

Ms. HEIST. In the past we found the most problems was with discretionary grants. We found problems with, as has been mentioned

here today, competition. We found Agency managers continued to

use the same grantees year-after-year and there has not been a lot

of competition. Predominantly, that is where we found the problems, so we continue to focus in that area.

Senator INHOFE. Mr. Stephenson, the EPA largely awards either

discretionary grants or non-discretionary grants. What is the average amount awarded in each category? Can you break that down

in percentages?

Mr. STEPHENSON. Of the $4.2 billion—I do not know if I can do

the percentages in my head—but there is about $719 million that

are, in fact, discretionary. The majority, $1.2 billion, is like clean

water revolving that goes primarily to the States on the basis of

a formula. There is $0.8 billion in drinking water revolving funds.

Then there is about another $1 billion in what is called continuing

environmental programs. All those are what we would call formula

grants or non-discretionary grants that go to the States primarily.

Senator INHOFE. OK; that is fine. Where does that leave discretionary grants?

Mr. STEPHENSON. $719 million of the $4 billion. So whatever percentage that is.

Senator INHOFE. Your testimony references grant recipients

sometimes being subject to the Single Audit Act. But with the comparatively low average of a discretionary grant, would not recipients rarely be subject to a $500,000 a year expenditure threshold

of the Act?

Mr. STEPHENSON. Yes, the Single Audit Act, of course, looks from

a grantee perspective on how many total Federal grants they have,

regardless of the Agency that it comes from. Therefore, EPA

awards many small grants that fall below the threshold for audit.

So it would not be picked up in that form of oversight. EPA, of

course, does its own oversight. That is just another Federal requirement for grantees.

Senator INHOFE. All right.

Senator Jeffords.

Senator JEFFORDS. Ms. Heist, in your written testimony you report that senior resource officials at EPA cited the limited availability of resources for staffing, travel, and training as a factor that

contributes to EPA’s difficulties with oversight. Would you elaborate on that?

Ms. HEIST. We did a review. This is based on interviews of these

officials. That is what they told us, that they did lack funding to

do some of the oversight that they were being asked to do.
14

Senator JEFFORDS. Did the senior resource officials consider this

a very serious problem, a limiting factor?

Ms. HEIST. I cannot really comment on that. They did believe

that it was necessary to do this work, so they did consider it to be

serious work. This is the reason they gave us for not doing it.

Senator JEFFORDS. What kinds of projects were supposed to be

carried out using the grant money awarded to the Consumer Federation of American Foundation? Is there any evidence that the

grant money was not used for these projects, or that the goals of

the projects were not accomplished?

Ms. HEIST. The projects were for various indoor air projects.

They were for educating the public about various indoor air issues.

The work that we did was a financial audit. We focused on how the

money was spent. We have been told by the recipient in responding

to the report that EPA was satisfied with the work that was performed.

Senator JEFFORDS. Did you find that any of the EPA funding

awarded to the Foundation was spent on lobbying?

Ms. HEIST. We were not able to determine that because of the

way the accounting records were maintained by the recipients. So

we could not determine that.

Senator JEFFORDS. Mr. O’Connor’s written testimony indicates

that 51 percent of the nonprofit grant dollars in fiscal year 2003

came from earmarks. Nonprofit organizations have been a focus of

the concern about the use of EPA grants funding. Have you found

that problem with nonprofit grant recipients are equally pervasive

among earmarked and non-earmarked?

Ms. HEIST. We have not done a study that would specially address that. I cannot comment on that.

Senator JEFFORDS. Are there other groups besides non-profits

that have been found to have problems managing their EPA grants

funding?

Ms. HEIST. A few years ago we did a series of studies on tribal

grants. We also found issues in that area. Many of these issues

dealt with the need to have better accounting records.

Senator JEFFORDS. What kinds of problems are common and

what kinds are most worrying?

Ms. HEIST. When we go out and do financial audits of grantees,

the problems we typically find are inadequate support for labor

costs, or the grantee is not competitively acquiring contracts. Those

would be the predominant areas that we focus on or see when we

go out and audit the actual grantees.

Senator JEFFORDS. Thank you.

Mr. Stephenson, EPA has a history of issuing policies to help

remedy to grants management shortcomings. But problems have

nevertheless persisted. Do you think that EPA’s latest policies and

plan are likely to change that pattern?

Mr. STEPHENSON. They have potential, but again it is important

how effectively they are implemented. That is why we put so much

stock in individual staff accountability. The 1,800 project officers

are key in effectively overseeing grants, but it is not their primary

function. They work in the Office of Water, the Office of Air, and

the like. We think that individual accountability and even reducing

the number of total project officers that are involved in grants over-
15

sight needs to happen to effect that cultural change that we talk

about. So no, I do not think it will be effective unless there is that

cultural change.

Senator JEFFORDS. In your written testimony you suggest that

the decentralization of grants management staff—some working at

EPA headquarters and others working at regional offices—presented a challenge to holding staff accountable and improvement of

grant management. Do you think that this decentralization contributes significantly to EPA’s grants management problem? How do

you think the challenge can be best overcome?

Mr. STEPHENSON. Yes, that is the 1,800 project officers that I just

mentioned. I think as a first step you need to build into their own

performance statements and their job descriptions grants management as one of their key functions. Unless you do that, they are

going to accept these as other duties as assigned and not as important as their primary duties. It seems like a simple step, but we

think that would go a long way toward changing their behavior.

Senator JEFFORDS. In their new comprehensive grants management plan, EPA sets a number of goals for improving grants management. Which one of these goals, if achieved, would bring about

the biggest improvement? Do you think the plan adequately outlines a path for achieving that goal?

Mr. STEPHENSON. I do. As I mentioned they are in the first year

of the 5-year plan right now. What is missing is that individual accountability that we were looking for and how it is going to be built

into performance evaluations of the individual staff responsible for

grants oversight.

Senator JEFFORDS. Thank you. Thank you, Mr. Chairman.

Senator INHOFE. Mr. Stephenson, if we are relying solely on the

EPA for monitoring to ensure proper use of grant funding, would

not the discretionary grant recipients be the most difficult? It is my

understanding that they would average around $150,000 of the discretionary grants; is that a ballpark figure?

Mr. STEPHENSON. I am not sure. They range all over the place.

Senator INHOFE. OK. Let us assume it is because I think it is.

Would they be the most difficult to monitor?

Mr. STEPHENSON. I would think so. The non-discretionary grants

go by formula to the States based on the need. There is a little

more specificity in place as to how you oversee that category of

grants. So I would agree that the non-discretionary grants are

probably more problematic.

Senator INHOFE. Ms. Heist, you responded to a question from

Senator Jeffords concerning money that might be going for illegal

uses, such as lobbying. In your audit you said, ‘‘I am especially interested in your March 1, 2004 audit of the Consumer Federation

of America Foundation.’’

How often does the IG review audit grantees?

Ms. HEIST. Often we will do these types of audits when the Agency has, in fact, gone out and done a review and believes that there

are problems that need further audit work on investigation.

Senator INHOFE. Fifty percent?

Ms. HEIST. We do not know. Since they are covered by Single

Audit, we will typically focus on ones perhaps were there is a prob-
16

lem in a Single Audit report, or one that the Agency brings to our

attention. We probably do 20 of these a year ourselves.

Senator INHOFE. What type of recipient was the Consumer Federation of America Foundation?

Ms. HEIST. By type do you mean competitive, noncompetitive,

discretionary?

Senator INHOFE. No, I mean, what do they do for a living?

Ms. HEIST. As far as I know they are an advocacy group.

Senator INHOFE. It is a lobbying group; is it not?

Ms. HEIST. I do not know that.

Senator INHOFE. You do not know?

Ms. HEIST. I know they do some lobbying because they are registered that way.

Senator INHOFE. OK. Then they are a lobbying group.

How much has this Foundation received from the EPA in grants?

Ms. HEIST. We looked at $5 million which I understand were the

costs from 1996 to 2002.

Senator INHOFE. Yes, I think that is consistent with my informa- tion. I have $4.6 million since July 1997 to September 2003; do you

think that is accurate?

Ms. HEIST. It should be fairly accurate.

Senator INHOFE. Your audit revealed that EPA was providing

millions to nonprofit recipients that was simply a front for a lobbying organization. I understand that there is a subsidiary and

they are a chain to someone else who receives grants.

Ms. HEIST. The grant was made to a foundation.

Senator INHOFE. Consumer Federation of America Foundation?

Ms. HEIST. Yes; that is correct.

Senator INHOFE. But then you said in answer to my question

that the Foundation received this amount of money. However, the

Consumer Federation of America is a lobbying group. Let me just

ask you the question this way. Do you have any reason to believe

that they are not recipients of grants; this lobbying group?

Ms. HEIST. Directly recipients?

Senator INHOFE. Either directly or indirectly. It makes no difference to me.

Ms. HEIST. We know that they indirectly receive money because

the money went to the Foundation and the Foundation did not——

Senator INHOFE. Is this legal?

Ms. HEIST. It will be the Agency’s final determination, but we do

not believe it was legal.

Senator INHOFE. The EPA referred this group to the IG for an

audit. At what point did this happen?

Ms. HEIST. In 2002.

Senator INHOFE. I would assume, then, that this recipient has

been disbarred from receiving grant funding?

Ms. HEIST. That would not be correct. The group continues to receive funding. However, they have reorganized so that they are

now an eligible recipient.

Senator INHOFE. Who has reorganized? Consumer Federation of

America?

Ms. HEIST. Consumer Federation of America.

Senator INHOFE. And you are saying to this committee here that

they are a lobbying group anymore; is that right?
17

Ms. HEIST. No, I am not saying that.

Senator INHOFE. Well, if you are trying to get over an act that

is illegal, and you say that you are pinning your case on the fact

that they have reorganized, you know, they can reorganize and still

use Federal funds for lobbying; is that not correct?

Ms. HEIST. I believe that is correct.

Senator INHOFE. Senator Jeffords.

Senator JEFFORDS. To followup on that, is there any evidence

that the CFA or CFA Foundation did not follow the law on EPA’s

instructions at any time regarding the separation between the organizations that was necessary for the Foundation to receive cooperative agreement funds?

Ms. HEIST. I do not know that we specifically looked at that. We

looked at what happened when they received the grant and how

the application was made. We looked at how the money was spent.

I really cannot comment on that.

Senator JEFFORDS. Mr. Chairman, I would ask unanimous consent that a letter that I have here from the Consumer Federation

of America be submitted for the record.

Senator INHOFE. Without objection, so ordered.

[The referenced document follows:]

CONSUMER FEDERATION OF AMERICA,

March 2, 2004.

Hon. JAMES M. INHOFE,

Chair, Senate Environment and Public Works Committee,

Washington, DC.

Hon. JAMES M. JEFFORDS,

Ranking Member, Senate Environment and Public Works Committee,

Washington, DC.

DEAR CHAIRMAN INHOFE AND RANKING MEMBER JEFFORDS: We understand that

you will hear testimony tomorrow at your hearing on grants management by the

U.S. Environmental Protection Agency (EPA) about a series of cooperative agreements the Consumer Federation of America Foundation (CFAF) has received from

EPA since 1996. A representative of the EPA Office of Inspector General apparently

will discuss an audit report they just issued, which contends that $4.7 million in

cooperative agreements received by CFAF should be disallowed.

The Office of Inspector General (OIG) bases its conclusion on the allegation that

CFAF is an ‘‘ineligible lobbying organization’’ that was not entitled to receive funds

under Section 18 of the Lobbying Disclosure Act (LDA). The OIG contends that

there was no discernible separation between CFA and its Foundation, ensuring that

EPA funds received by the Foundation actually went to CFA, which was a lobbying

501(c)(4) organization ineligible to receive Federal funds. (CFA has since been approved by the IRS to be a 501(c)(3) organization.)

The OIG’s conclusions are entirely without legal justification, not to mention unfair and unreasonable. The OIG report also completely ignores the high-quality,

award winning work completed by CFAF for the EPA on important public health

issues, like radon awareness and indoor air quality. (For more information on our

concerns, please see the attached letter and CFA’s complete rebuttal to the OIG,

which is listed as Appendix B in the Audit Report the Committee has received.)

We urge you to question the OIG’s conclusions for several reasons:

1. OIG’s interpretation of Section 18 has no basis in the statutory text of legislative

history, nor any support in case law. On the contrary, the legislative history, including a floor statement by Senator Simpson, clearly demonstrates that a close affiliation between a non-lobbying organization (such as the CFA Foundation) and a lobbying 501 (c)(4) (such as CFA) does not make the non-lobbying organization ineligible to receive Federal funds, directly contradicting the OIG interpretation. The

OIG interpretation is also inconsistent with the purposes of Lobbying Disclosure Act

Section 18, and raises serious First Amendment issues—issues that Congress recognized and tried to avoid. Finally, the OIG interpretation would reverse EPA’s apparently established interpretation of Section 18, on which the CFA Foundation relied

when it accepted EPA cooperative agreements between 1997 and 2002. Thus, OIG’s
18

interpretation, even if permissible, cannot be applied to the CFA Foundation retroactively.

2. CFAF’s work for EPA was of high-quality and widely praised—even by the OIG.

In 1991, EPA solicited CFA to manage a program on indoor air quality; 2 years

later, EPA asked CFA to manage a national public service campaign to educate consumers about the health risks of radon. Both awards were initiated by EPA. As a

result of EPA awards received by the CFA Foundation just since 1996, over $100

million dollars in media was donated to air five public service advertising campaigns

on radon dangers, as well as three environmental tobacco public service advertising

campaigns. These advertisements reached millions of consumers who tested their

homes for radon or who pledged to make their homes smoke-free. More than 40,000

consumers were counseled on how to rid their homes of high levels of radon. One

of CFAF’s radon campaigns received the 2000 National PSA Emmy Award from the

National Academy of Television Arts and Sciences. The OIG has praised CFAF’s

work with EPA as well. Its website highlights EPA’s work with CFAF on radon public services announcements as an example of good EPA management practices.

3. CFAF’s cooperative agreements were initiated, encouraged and closely supervised

by EPA, which was well aware of the relationship between the CFA Foundation and

CFA. The CFA Foundation closely cooperated with EPA and followed its directions

explicitly. In 1996 and 1997, when CFA—at that time a 501(c)(4) organization—became ineligible to receive Federal funds, EPA arranged for CFA’s programs to be

transferred from CFA to the CFA Foundation. In fact, EPA relied on the CFA/Foundation relationship to assure that the transferred programs would continue to be

managed by the same personnel. On each program undertaken at EPA’s request,

the Foundation worked closely with EPA on a weekly and often daily basis. In fact,

EPA was involved in all important program decisions, including the selection of subrecipients and contractors. EPA, was, without question, extremely satisfied with the

Foundation’s work, and made two additional sole source awards to the Foundation

in 2001.

4. The OIG conclusions focus on technical defects in documentation and lack of sophistication of CFAF’s financial management system, ignoring the fact that the underlying transactions were sound and adequately documented. The issues raised by

the OIG relate almost exclusively to compliance with documentation requirements

(such as procurement procedures, cost/price analysis, written procedures, and standard contract clauses) rather than with violation of substantive rules and regulations.

These documentation issues were first called to CFAF’s attention in March 2002 by

EPA and were immediately corrected.

We appreciate your attention to these concerns.

Sincerely,

TRAVIS B. PLUNKETT,

Legislative Director.

CONSUMER FEDERATION OF AMERICA,

January 20, 2004

Michael A. Rickey, Director,

Assistance Agreement Audits,

Office of Inspector General,

Environment and Public Works Committee,

Washington, DC.

Subject: Draft Audit Report of ‘‘Costs Claimed under EPA Cooperative Agreements

CX825612–01, CX825837–01, X–828814–01, CX 824939–01 and X 829178–

01’’; Comments of Consumer Federation of America

DEAR MR. RICKEY: This letter, and the Response and legal memorandum attached

hereto, set forth the written comments of the Consumer Federation of America

(‘‘CFA’’) on the draft audit report (‘‘DAR’’) on costs claimed by the Consumer Federation of America Foundation (the ‘‘Foundation’’) under the above-referenced EPA cooperative agreements (‘‘CAs’’). The Response proceeds through the DAR point-bypoint, presenting CFA’s detailed response to questions in the report regarding the

Foundation’s compliance with EPA regulations and OMB Circulars. The legal memorandum analyzes OIG’s claim that the Foundation was not eligible to receive Federal funds under Section 18 of the Lobbying Disclosure Act of 1995, that each CA

awarded to the Foundation was therefore illegal, and that the Foundation must

therefore refund every penny of the $4.7 million it received under the CAs. This letter sets forth a brief overview of CFA’s comments.
19

1 Response, Parts 1, 3[A] and 3[B], and 4.

2 Response, Part 2.

3 Response, Parts 7[A], 7[C] and 7[D].

4 Response, Parts 7[B], 7[C] and 7[E].

5 Response, Part 6.

The DAR’s analysis and recommendations are neither fair nor reasonable, for

three reasons: First, the DAR is based on a fundamental misunderstanding of the

circumstances under which the CAs were awarded and implemented. Second, it focuses on technical defects in documentation and lack of sophistication of CFA’s financial management system, ignoring the fact that the underlying transactions

were sound and adequately documented. Third, it proposes a $4.7 million disallowance based on a legal interpretation of LDA Section 18 that is untenable on its face,

and whose retroactive application to the Foundation is prohibited by law.

[1] In 1991, EPA asked CFA to manage a program on indoor air quality; 2 years

later, EPA asked CFA to manage a national public service campaign to educate consumers about the health risks of radon. Both awards were initiated by EPA—that

is, EPA determined the need for Federal action, defined the scope of the program,

established the amount of available funding, and only then approached CFA to implement the program on its behalf. Each CA was awarded to CFA without competition. In 1996 and 1997, when CFA, a 501(c)(4) organization, became ineligible to receive Federal funds, EPA arranged for CFA’s programs to be transferred from CFA

to the Foundation under new CAs. At the time, EPA was well aware of the CFA/

Foundation relationship—and, in fact, relied on that relationship to assure that the

transferred programs would continue to be managed by the same CFA personnel.

In 1997, EPA asked the Foundation to undertake a public service campaign to alert

consumers to the health effects of secondary smoke on children. This third CA was

also awarded without competition.

On each program undertaken at EPA’s request, the Foundation worked closely

with EPA on a weekly and often daily basis. Indeed, EPA was involved in all important program decisions, including the selection of sub-recipients and contractors.

EPA was, without question, extremely satisfied with the Foundation’s stewardship

of the CA programs. It expressed that satisfaction by repeatedly praising the programs to the Foundation’s staff, consultants, and contractors; by providing substantial additional funding to the programs each year; and by making two additional

sole-source awards to the Foundation in 2001.

[2] For each of its CAs, the Foundation kept detailed and accurate financial

records, including job cost activity reports for each CA, that show the receipt and

expenditure of the EPA funds disbursed under the CAs, and support the costs

claimed under those awards.1 Its employees prepared personal activity reports and

other timekeeping records sufficient to support all (or substantially all) of the labor

hours charged to the CAs.2 Each of its procurement contracts was awarded on the

basis of a competitive solicitation or, if awarded with less than ‘‘open and free competition,’’ on the basis of specific instructions from EPA (‘‘directed contract’’) or another well-recognized sole-source justification.3 For each of those contract awards,

it conducted a detailed price analysis, as required by EPA regulations.4 Finally, it

complied with its contractual obligations regarding submission of indirect cost proposals.5 Moreover, final cost data for 1997 to 2002 show that the Foundation recovered significantly less in indirect costs than it was entitled to recover: the Foundation has under-recovered approximately $600,000 in indirect costs from EPA.

The issues raised in the DAR relate almost exclusively to compliance with documentation requirements (e.g., procurement procedures, cost/price analysis, written

procedures, standard contract clauses) rather than compliance with substantive

rules and regulations. These documentation issues were first called to our attention

in March 2002 by the EPA Grants and Management Office. At that time, we took

immediate steps to address EPA’s concerns; by May 2002, EPA had approved our

proposed plan of action, which we then implemented. Consequently, we do not believe that any of these documentation issues can reasonably support a disallowance

of costs.

[3] Finally, with respect to the Foundation’s eligibility to receive Federal funds:

According to the DAR, the Foundation, a 501(c)(3) organization, was not sufficiently

separated from CFA, then a 501(c)(4) organization, to be treated as a separate organization for purposes of LDA Section 18. In addition, at the time CFA engaged in

a small amount of lobbying. On that basis, the DAR concludes that the Foundation

was not a 501(c)(3) organization, but was instead a 501(c)(4) organization that engaged in lobbying, and it was therefore not eligible to receive Federal funds. Accordingly, every penny of the $4.7 million received by the Foundation must be refunded.
20

As explained in detail in the legal memorandum, the DAR’s interpretation of Section 18 is based on factual misrepresentations and flawed legal analysis.

• The DAR misrepresents the Foundation’s history and corporate purpose. The

Foundation was not, as the DAR suggests, established ‘‘to receive the Federal funds’’

that CFA, a 501(c)(4) organization that engaged in lobbying, was no longer eligible

to receive. In fact, the Foundation was established in 1972, more than 20 years before the enactment of the LDA, and in 1996, was a fully functioning 501(c)(3) organization. It was not a sham designed to mislead EPA

• The DAR understates the degree of separation between the Foundation and

CFA. The organizations had separate Boards of Directors (including, in the Foundation’s case, outside directors unconnected to CFA), separate financial accounts and

separate funding.

• The DAR misreads the text of the LDA Section 18, where eligibility for Federal

funds turns on the IRS classifications alone, and its legislative history, which suggests that separate incorporation and IRS recognition is sufficient to avoid the Section prohibition.

• EPA has no authority to adopt an expansive interpretation of Section 18. It is

not the agency charged with enforcement of the statute, and it has no particular

expertise in the issues arising thereunder, Furthermore, an expansive interpretation

would raise difficult First Amendment issues, a situation that Congress anticipated

when it passed Section 18, and attempted to avoid by making the statute clear and

unambiguous.

• Even if the OIG interpretation were plausible, and EPA had the authority to

adopt that interpretation and apply it to recipients, EPA could not apply that interpretation retroactively to the Foundation.

In fact, it appears that EPA already considered and rejected the OIG interpretation of LDA Section 18 [i] in 1996 and 1997, when it transferred CFA’s radon programs to the Foundation under new CAs even though EPA officials were aware of

the very facts and circumstances which, according to OIG, made the Foundation ineligible to receive Federal funds, and [ii] in May 2002, when, after considering, once

again, the relationship between the Foundation and CFA, it continued disbursing

Federal funds to the Foundation under five separate cooperative agreements

through the end of 2002.

In light of the foregoing, OIG’s proposed $4.7 million disallowance is entirely without legal justification. It is based on an interpretation of LDA Section 18 that is untenable and, indeed, has already been considered and rejected by EPA; and retroactive application of that interpretation to the Foundation would be arbitrary, capricious and a denial of due process of law.

The proposed disallowance is also patently unfair and reasonable. It ignores the

fact that the programs were undertaken by CFA at EPA’s specific request, and were

later transferred intact from CFA to the Foundation at EPA’s specific request. It ignores 5 years of successful program performance by the Foundation, and the considerable benefits for public health and education that flowed from those programs. Finally, it ignores the fact that Foundation acted, at all times and in all matters, in

the utmost good faith.

Sincerely,

STEPHEN BROBECK,

Executive Director.

Senator JEFFORDS. Mr. O’Connor, does EPA have adequate resources, including staff, to successfully implement its new grants

management plan? If not, what further resources does EPA need

for this purpose?

Mr. O’CONNOR. Well, Senator, the plan we have laid out, and

some of the components in particular, such as oversight of the

grants once they are awarded, there is no way around the fact that

they do require resources. The Agency in its budgeting this year,

and I think it was acknowledged earlier, that this is a tight year,

did provide some million dollars for us to use toward post-award

management. Some small number of FTE have also been provided.

Yes, we could use more and yes, we could do more monitoring

with more resources. But I have to say that resources is pretty far

down the list of things that I would highlight right now. There are
21

a lot of things that are in our control with the resources that we

have that we need to do before I would use resources as an excuse.

Senator JEFFORDS. Cases have been reported of grantees who

mismanage funds but are nevertheless allowed to continue to apply

for, and in some cases receive, further grant money. Why does not

the EPA respond more severely when grantees violate policies and

management funds?

Mr. O’CONNOR. Well, it is a matter of the nature of the violations

and whether there is a persistent record. I do not know that we

have had a system in the past to really track those as effectively

as we should to know whether we have such track records. The

new system that you heard discussed during our opening comments

will give us that ability. But I think if we find that there have been

willful violations of laws, that we are prepared to take such actions.

On many of our reviews, as I mentioned earlier, where we have

found problems, we prefer to work those out with the grantees so

that the important work that we are both engaged in can continue.

But in some cases we are not satisfied and we do put controls on

the expenditure of those grant funds until we are satisfied that

they have been corrected.

Senator JEFFORDS. What kinds of policies does EPA have in place

for responding when EPA staff fail to adequate perform their oversight duties?

Mr. O’CONNOR. Well, I think as Mr. Stephenson might have mentioned, that is probably the million dollar question. We have taken

a number of steps. Perhaps one of the most important first steps

this year is putting language in the performance agreements of all

of the 1,800 project officers who are engaged in grants management, as well as all of the supervisors and managers across the

Agency. We do require now that in our annual process that offices

and regions certify to how they have conducted those performance

appraisals to assure us that they are, in fact, assessing performance against the standards.

This is, by the way, an issue that goes far beyond grants management. The Agency right now is revising the performance agreement of all of its managers and by April to link our performance

standards much more directly to the Agency’s strategic plan and

annual goals and crosscutting strategies. One of the most important of those crosscutting strategies is grants management.

So the mechanism to do this is coming in to place right now. The

very difficult question that I think everyone has acknowledged is

how do we make sure that for every one of these 1,800 individuals,

it really happens. That is going to be our challenge. We are putting

a lot of management attention on that issue. But I would not be

truthful if I said that it is going to be easy and it is not going to

take much of our attention.

Senator JEFFORDS. Thank you, Mr. Chairman.

Senator INHOFE. Thank you, Senator Jeffords.

First of all, Ms. Heist, I want to assure that I do not hold you

responsible or certainly the IG responsible for the Consumer Federation grant. I just want to try to understand the facts in this

case. This is something that we have the responsibility to do some-
22

thing about and we are going to. Your report, which could not be

more current—it is March 1, 2004—says:

‘‘The Federation was a 501(c)(4), that, is a lobbying organization that was prohibited from receiving Federal funds under the Lobbying Disclosure Act and the

arrangement between the Foundation and the Federation violated the Lobbying

Disclosure Act prohibition.’’

To me that sounds like the EPA is giving money to groups who

are lobbying. Again, I do not mean to single out this one Federation

because I regretfully suspect that there are many others where this

has taken place, too.

We do not want to overlook you, Mr. Ellis. We will be right with

you in a minute. But let me finish up something with Mr. O’Connor. You said these things are not going to happen overnight. I understand that. But in competition, the EPA’s new competition policy requires that all grants recipients over $75,000 be competitively

bid but references a ‘‘managed competition.’’

How would this be any better than the previous policy that was

supposed to ensure competition in this grants? Maybe you can define for us what ‘‘managed competition’’ is?

Mr. O’CONNOR. Sir, unlike in the world of direct Federal procurement where the regulations that govern competition have been set

in stone for a long time and are very clear, there are not such regulatory provisions for grants competition. So we provide for the ability to conduct a competitive process in different ways.

To some extent it is driven by the size of the grant and the nature of the grant. For example, if it is a $75,000 grant, I am not

so sure I want to spend a half million dollars doing a formal rigid

competition, the type of which would be required if it were direct

procurement. So we allow for there to be different ways to compete

the grant. Of course, that is a complicating factor in trying to ensure that we are managing these competitions in a way that we are

comfortable with.

Senator INHOFE. The IG reported in 2001 in their report that the

EPA practice on soliciting grant recipients was ‘‘word gets out.’’

What part of your 5-year management plan even addresses soliciting recipients?

Mr. O’CONNOR. ‘‘Word gets out,’’ I am assuming meaning that

people have their favorites. Obviously a principle way of addressing

that is to the competition policy. As I mentioned, I think we have

a pretty successful percentage of competitions in our first year

under the policy. We are not necessary satisfied with how well

those were done or documented, but nonetheless we did move significantly to competing grants. I think that first step is the most

important step.

Senator INHOFE. What would be wrong with putting all of these

on a website where the public and anyone interested would have

access to them?

Mr. O’CONNOR. Well, we are actually moving toward that with

our automated system—to be able to put all grant actions and announcements out electronically. That is something that we are participating in with much of the rest of the Government under an EGovernment initiative.

Senator INHOFE. Good. All right.
23

Mr. Ellis, I appreciate very much your mission and what you are

doing. I think you are trying to do the same thing that we are trying to do up here. Being a group that describes itself as environmentally conscious, has your organization done any publications

documenting wasteful spending with EPA financial assistance?

Mr. ELLIS. I am not sure. You said something about environmentally conscious. I am not aware of that description of our organization.

Senator INHOFE. That is fine. I appreciate that clarification.

Mr. ELLIS. Right. But your question, Senator, was have we done

work looking into this before?

Senator INHOFE. Has your organization done any publications

documenting wasteful spending with reference to EPA financial assistance or grants?

Mr. ELLIS. Not prior to this actual hearing when we were publishing this information. This is something that we have followed.

I know that we have talked with the Heritage Foundation on some

of their analysis on grants governmentwide. They have documented

$325 billion worth of Government grants that go out there and concerns about competition. I think this falls within that category. It

is something that is of concern to us.

Senator INHOFE. Then you would say that working then with

groups like the Heritage Foundation, you both would have that

common goal in disclosure, openness, and so forth?

Mr. ELLIS. Absolutely. I think the real goal in any kind of grants

is that they actually further the mission and the goals of both the

Agency, the Government, and the Nation.

Senator INHOFE. All right. One last question. You identified discretionary grants as receiving ‘‘well-earned criticism.’’ Have you

found any particular problematic grant recipients?

Mr. ELLIS. We have not really looked particularly at the grant

recipients. We have looked more at the process. We think that if

you have a bad process, you are going to have a bad result, regardless of who the recipient is. If people have laudable goals, if we are

not really making sure that we are spending the money wisely,

then we are not really doing them a favor and we are certainly not

doing the taxpayer or the EPA a favor.

Senator INHOFE. I would certainly agree with that. I might suggest that you consider expanding your realm into identifying some

of these problematic areas. It makes it easier for others to go in

to try to correct the problems.

Senator Jeffords.

Senator JEFFORDS. Mr. O’Connor, the August 2003 GAO report

stated that effective implementation of EPA’s competition policy

would require a major cultural shift at EPA. In your written testimony you suggest that a cultural shift is now occurring at the EPA.

What leads you to say this? What has changed EPA to bring about

a cultural shift toward accountability in grants management?

Mr. O’CONNOR. Senator Jeffords, with respect to the competition

as was noted, for years and years, our project officers were accustomed to just selecting their grantee which led to at least the appearance that we had favorites and that we were not necessarily

going out there sure that we were getting the best value for the

Government.
24

That policy, quite frankly, did not go over very well initially, with

our 1,800 project officers because it does require quite a bit of additional work. This was something that they had to adjust to. Frankly, we set a goal of competing, I believe it was 30 percent of the

covered grants in our first year. I was very pleased with achieving

the 75 percent.

But that is one of a number of major mindsets that we are trying

to change, and will change, over the next couple of years in how

we manage our grants.

Senator JEFFORDS. In GAO’s August 2003 report, the data seems

to show that during 2002, no incidences of lobbying problems were

found among over 1,200 in-depth reviews of grantees, including

over 200 reviews of nonprofit organizations. Can you confirm that

this is correct?

Mr. O’CONNOR. To the best of my knowledge, that is correct, sir.

Senator JEFFORDS. Mr. Ellis, in your written testimony, you recommended EPA investigate centralizing and streamlining grant

management to fewer, more highly trained individuals. Can you

elaborate on that recommendation?

Mr. ELLIS. Certainly. Much has been talked about with the 1,800

project officers. There is going to be a balancing act, as I think was

mentioned. These project officers are in other areas of EPA such as

the Office of Water, or Office of Air. So you want to have some of

the subject matter expertise still housed with these people, but you

also want them to feel that they are properly trained and are being

watched also for their grant management expertise.

I think when you start looking at an Agency with a $8 billion

budget, and they have 1,800 different project officers that are managing all these different grants, I think you need to start looking

at ways to consolidate the functions in some respects. Also, if you

can consolidate, then you can make training and grant management more of that person’s job. In my mind, that also professionalizes that particular part of that person’s activities to a greater extent. Then you are going to get a better performance and better

product.

Senator JEFFORDS. The EPA Inspector General has found that

EPA’s problems with grants oversight can, in part, be attributed to

its failure to sufficiently prioritize the activity. Do you think that

the EPA’s new grant management plan goes far enough in

prioritizing oversight? What further steps, if any, do you think

ought to be taken?

Mr. ELLIS. Well, before I got into this line of work, I was an officer in the military. I was an officer in the Coast Guard. I have to

say that I did my job very well, thank you, but what I paid most

attention to was what I was evaluated on and what I was going

to have to respond to. I think that whatever you put together as

far as words on paper and rules and guidelines are only going to

be effective as the people who are implementing them, stick to

them, and really require people to adopt those measures.

Part of that, as has been mentioned by Mr. Stephenson, is making people recognize that they are going to be evaluated on these

particular areas. They are going to be evaluated on their grants

management. So, to me, that is going to be the key of really making any of these reforms, whether it be competitive grants, over-
25

sight, or any of these other areas stick. The fact is that EPA, from

the bottom to the top, demands that people perform and manage

these contracts efficiently and effectively.

Senator JEFFORDS. Are you indicating that is not being done?

Mr. ELLIS. Well, I think that in the end it has not been done to

date because that is why we are all sitting here. I think if this had

been going on in the years past, then we would not have to be here.

I am not going to pre-suppose a plan that just came out in April

of last year, but I think the proof will be in the pudding as far as

how we go forward from that date.

Senator JEFFORDS. Thank you.

That is all I have, Mr. Chairman.

Senator INHOFE. Thank you, Senator Jeffords.

Mr. Stephenson, there has been talk about the EPA needs more

resources when they testified only a few months ago, that the EPA

had too many working in grants. The GAO reports that 35 percent

of project officers oversee only one grant. Would you not draw the

conclusion here that they do not need more resources for that?

Mr. STEPHENSON. Our first step always is to spend the resources

you get more efficiently. There are several ways we think they can

more efficiently oversee grants. That is the statistical approach I

mentioned that they are not doing a job with the resources that

they have in targeting grants and finding where the systemic problems are. That is one step.

One project officer per grant is probably not an efficient way to

oversee grants, but again there has to be this balance between

technical expertise and air programs and water programs, and

what the grantee and the grant are trying to accomplish. It just

seems to me that 1,800 is too many.

Senator INHOFE. If 35 percent are only overseeing one project,

what types of projects would those be that would require 100 percent of a person’s time?

Mr. STEPHENSON. Remember, there is a grants management staff

whose only function is to set policy and to provide guidance to the

staff who are overseeing grants.

Senator INHOFE. That is much smaller than your project officers?

Mr. STEPHENSON. Right, much smaller.

Senator INHOFE. It is 1,800 versus 100?

Mr. STEPHENSON. Yes, the 1,800 are the ones with the technical

expertise that are needed to effectively oversee grants. We have not

done a specific analysis in that area, but one-per-one does not seem

to be a good ratio.

Senator INHOFE. All right; fine.

Mr. O’Connor, it appears that you have a big job ahead of you.

It concerns me that GAO identified a lack of management accountability and environmental results in competition and grant awards

in its most recent report. More concerning is that GAO in that report identified a lack of methodology to identify systemic problems,

lack of environmental results, and lack of accountability in grants

management, even after reviewing the new EPA policies.

I understand your testimony today addresses some of the GAO’s

conclusions. However, audits such as the one of the Consumer Federation of America cannot go unnoticed. We cannot simply trust in

the promise of new policies to remedy this type of a problem. The
26

witnesses have testified that particularly problematic are discretionary grants which compromise about one-quarter of grant

awards each year. I would like to see who are receiving these

grants and what they are producing.

Accordingly, I have an information request of the Agency for fiscal year 2002. I would like a listing of the discretionary grants

awarded. My staff will provide you with office correspondence immediately following the hearing detailing the information I would

like to have included. I would like to have this prior to our budget

hearing where we will have the Administrator before this committee a week from today.

I like the idea of doing something, of opening the doors, and not

just having a website where you show the various competitions

coming up, but also where you show the grants that are issued. I

think you will get a lot of help, Mr. Ellis, from the public if the

questions are answered concerning the grants that go to various organizations.

I look forward to that.

I would say that I know that we have had initial hearings on this

problem before, but the revolving door, as I said in my opening

statement, just keeps revolving. I would like to tell you and look

you in the eyes that the revolving door is going to stop.

Senator Jeffords, do you have any concluding remarks?

Senator JEFFORDS. I think you did a good job.

Senator INHOFE. Thank you very much.

We are adjourned.

[Whereupon, at 10:37 a.m., the committee was adjourned, to reconvene at the call of the chair.]

[Additional statements submitted for the record follow:]

STATEMENT OF HON. MICHAEL D. CRAPO, U.S. SENATOR FROM THE STATE OF IDAHO

Thank you, Chairman Inhofe, Senator Jeffords. Let me begin by saying that I appreciate your hard work and the work of the committee in addressing the issue of

grants management within the U.S. Environmental Protection Agency (EPA).

Given the considerable amount of taxpayer dollars appropriated every year for

EPA grants and the breadth of the agency’s responsibility for assisting with environmental efforts, oversight of how this money is being spent is important.

As a member of the Senate Budget Committee, we have been working to produce

a budget resolution, and as we all know it will be an extremely tough budget year.

With the current economic climate and our need to use the utmost discretion to

ensure that hardworking Americans’ dollars are wisely spent, it is now more timely

than ever to address this issue.

One of the issues I would like to raise today is the distribution of Brownfields program grants. Let me begin by saying, I support the Brownfields Program.

Assistance through this program can go a long way toward assisting communities

that contain property that is unavailable for development due to environmental contamination.

Many communities that are dealing with the rehabilitation of Brownfield properties lack the funding necessary to revitalize the properties. These grants are vital

sources of assistance, and are good for local economies, local communities, and the

environment.

However, it is essential that the EPA give all communities access to the program

and make it truly a national program.

I was alarmed to discover that Brownfields funds are not distributed equitably between the eastern and western United States and among urban and rural communities. Furthermore, only 10 of these grants were awarded in the intermountain

West.

This is an issue I have raised in the past with EPA. I have asked EPA to consider

developing a specific ‘‘rural’’ component to the Brownfields program.
27

Unemployment rates are often as high in many small rural communities as they

are in inner cities, and rural communities are no less impacted by contamination,

or the possibility of contamination which has hindered the re-development of these

properties in rural towns—a key objective of the Brownfields program.

I plan to ask the panel some questions regarding this important issue, but I will

defer further discussion of this issue until later.

Again, I thank the committee and the witnesses here with us today for your hard

work in addressing the oversight of EPA grants. I look forward to continuing to

work to ensure our limited resources are well spent. Thank you, Mr. Chairman.

STATEMENT OF MELISSA HEIST, ASSISTANT INSPECTOR GENERAL FOR AUDIT,

U.S. ENVIRONMENTAL PROTECTION AGENCY

Good morning, Mr. Chairman and members of the committee. I am Melissa Heist,

Assistant Inspector General for Audit for the United States Environmental Protection Agency. I am pleased to be here today representing Nikki Tinsley, the Inspector

General. Thank you for the invitation to inform you about the work we have done

reviewing EPA’s administration of assistance agreements, also known as grants.

Assistance agreements are a primary means EPA uses to carry out its mission

of protecting human health and the environment. More than half of EPA’s fiscal

2003 budget was awarded to organizations outside the Agency through assistance

agreements. EPA primarily awards assistance agreements to State, local, and tribal

governments; universities; and nonprofit organizations. Because the amount is

large, approximately $4.4 billion dollars, and it is the primary mechanism EPA uses

to fulfill its mission, it is imperative that the Agency use good management practices in awarding and overseeing these agreements to ensure that they effectively

contribute to attaining environmental goals.

EPA’s management of assistance agreements has been an area of emphasis for the

Inspector General’s office for many years. In fact, we have been issuing audit reports and raising concerns about EPA’s management of assistance agreements for

over 10 years. In addition to our audit work, we have also conducted a number of

investigations related to the improper and illegal activities of some EPA grantees.

Our grants management work has focused on cross-cutting national issues and

has included grants made to States, local and tribal governments, and nonprofit organizations. We have looked at major program areas in EPA headquarters and regions. We designed our work to identify systemic problems preventing the Agency

from achieving the maximum results from the billions of dollars awarded in assistance agreements every year. In my testimony I will include examples from our work

that illustrate the types of problems we have found in EPA’s grants management

activities. The entire reports for these examples can be found on the OIG web page

at www.epa.gov/oig.

On Monday, March 1, 2004, we issued an audit report on an EPA grantee that

we initiated at the Agency’s request. We found an ineligible lobbying organization

was performing work under cooperative agreements and the procurement process

was circumvented. We questioned $4.7 million because the work was performed by

an ineligible lobbying organization. EPA awarded the cooperative agreements to an

associated organization that did not have any employees, space or overhead expenses. In addition, the ineligible organization’s financial management practices did

not comply with Federal regulations. For example, the ineligible organization did

not adequately identify and separate lobbying expenses in its accounting records. As

a result, lobbying costs may have been charged to the Federal projects. The ineligible organization also claimed that it had not always followed Federal regulations

because EPA directed the recipient to use a particular contractor.

PRE-AWARD ACTIVITIES

In May 2001, the OIG reported that EPA did not have a policy requiring program

officials to competitively award discretionary assistance funds. EPA had done little

to promote competition, and often did not provide adequate justification for not

using competition to award grants. Assistance agreements were awarded without

competition based on the project officer’s opinion that the recipient was uniquely

qualified. There was no documented evidence that no other organizations existed

that could perform the desired work. We also found that EPA was not performing

a widespread solicitation for assistance agreements. Without widespread solicitation,

EPA limited the potential applicants and created the appearance of preferential

treatment. Without competition, EPA cannot be sure that it is funding the best

projects based on merit and cost-effectiveness to achieve environmental objectives,
28

and accomplishing its mission with a reasonable return on the taxpayer’s investment.

Before EPA awards an assistance agreement, the EPA project officer must conduct a programmatic and technical review of the application package in order to select those applications that will most effectively contribute to EPA program objectives and priorities. A main focus of the project officer’s review is the work plan,

which should describe what will be done, when it will be accomplished, and the estimated costs. The pre-award review is critical to ensure that the results of the assistance agreement will contribute to protecting human health and the environment.

In 1998, the OIG issued a report stating that project officers were not always negotiating work plans with well-defined commitments or adequately determining and

documenting that costs for the assistance agreement were reasonable. In March

2002, the OIG reported that EPA was awarding assistance agreements without

identifying expected outcomes, quantifying outputs, linking outputs to funding, or

identifying milestone dates for completing work products.

In a report issued in March 2003, we reported that project officers did not perform

all the necessary steps when conducting pre-award reviews. For this audit, we selected a statistical sample of 116 assistance agreements awarded by the Office of

Air and Radiation, the Office of Water, and related regional offices. We found:

• EPA awarded $700,000 without knowledge of the work the recipient was going

to perform. The work plan did not have clear objectives, milestones, deliverables, or

outcomes.

The recipient stated in the work plan: ‘‘Because of the exploratory nature of these

activities and the need to bring together various market players, exact deliverables

and schedule will be determined based on what participants tell us they want from

our project.’’

• In 79 percent of the sampled assistance agreements over $100,000, project officers did not document cost reviews of proposed budgets. For example, a recipient

was awarded $1.3 million to operate its air pollution control program without determining the reasonableness of the proposed costs to the expected benefits of the

projects.

• In 42 percent of the sampled assistance agreements, EPA did not negotiate environmental outcomes. For example, EPA awarded a recipient $200,000 to regulate

costs charged by power companies. The work plan contained no environmental outcomes, and stated that specific projects would be identified at a later date. In fact,

the work plan itself only provided possible activities, and stated specific projects

would be established later. The project officer wrote on the application, ‘‘why this,

why now?’’ yet still approved the work plan.

Without complete pre-award reviews of proposed projects, there was insufficient

assurance that the funded projects would accomplish program objectives or desired

environmental results. There was also insufficient assurance that proposed costs

were reasonable, and that recipients were technically capable of performing the

work. EPA may also have lost the opportunity to fund other projects that would

have better achieved its mission.

POST-AWARD GRANTS MANAGEMENT

OIG reports continue to find that improvements are needed in EPA oversight of

assistance agreements after they are awarded. In 1995, we found that EPA staff

were not (1) making site visits, (2) timely processing financial status reports, (3) obtaining or reviewing required audit reports, and (4) ensuring that final reports were

completed. In 2002, we followed up on EPA’s progress in improving oversight and

found that weaknesses continued to exist. While EPA had developed policies and

training to improve the oversight of assistance agreements, it did not ensure that

the policies were followed consistently.

OIG reports continue to identify examples of EPA staff not adequately overseeing

awards to States for environmental programs and nonprofit organizations for specific projects.

• A February 2003 report found that EPA Region 6’s oversight of Louisiana was

insufficient and could not assure the public that Louisiana was protecting the environment. We initiated this review because EPA had received petitions from citizen

groups to withdraw Louisiana’s National Pollutant Discharge Elimination System,

a water program; the Resource Conservation and Recovery Act, a hazardous waste

program; and the Title V air permit program.

Region 6 leadership (1) did not develop and clearly communicate a vision and

measurable goals for its oversight of the State or emphasize the importance of consistently conducting oversight, (2) did not hold Louisiana accountable for meeting

goals and commitments, and (3) did not ensure that data of poor quality was cor-
29

rected so that it could be relied upon to make sound decisions. As a result, EPA

was unable to assure the public that Louisiana was operating programs in a way

that effectively protected human health and the environment. In its response, EPA’s

Region 6 said it would implement its new oversight protocol for use beginning in

fiscal year 2005. • A March 2002 report found that EPA had no assurance that as much as $187

million spent on procurements by assistance recipients was used to obtain the best

products, at the best prices, from the most qualified firms. Recipients were not competing contract awards or performing cost or price analysis as required by the regulations. For example, a nonprofit recipient awarded two sole source contracts to its

for-profit subsidiary. The recipient also awarded sole source contracts to three forprofit companies created by its for-profit subsidiary. The recipient entered into 23

contracts, 20 of which were awarded sole source. As a result, we questioned $1.3

million of costs claimed.

INSUFFICIENT EPA REVIEW AND OVERSIGHT CONTRIBUTED TO RECIPIENT’S PROBLEMS

Recent audits of grant recipients show how EPA’s lack of review and oversight

can contribute to problems for the grantee. • We questioned $1.7 million in costs claimed because a recipient did not have

an adequate time distribution system and an indirect cost rate, as required by EPA

regulations. The EPA project officer focused his oversight on the technical performance of the recipient, with little emphasis on business and administrative aspects

of the recipient’s performance. The grants specialist did not respond to repeated requests from the recipient for assistance in developing the indirect cost rate. Further,

the project officer did not conduct an onsite review of the recipient until almost 6

years after the first award. • We questioned $1.6 million in costs claimed by another recipient for, among

other things, improper procurement. The recipient did not competitively procure

equipment and services, and did not perform cost or price analysis for the purchases. Furthermore, procuring goods and services for State agencies is not an authorized use of the funds provided under Section 103 of the Clean Air Act. EPA staff

contributed to the problem when it wrote the sole source justification and scope of

work for the contract. The justification for the sole source procurement was the EPA

staff’s familiarity with the contractor and the work that needed to be performed.

EPA policy specifically prohibits employees from directing a recipient to award a

contract to a specific individual or firm or participate in the negotiation of an award

of a contract under an assistance agreement.

IMPROVED ACCOUNTABILITY NEEDED

The deficiencies in EPA’s pre-award reviews and post-award oversight were not

due to the lack of policies, but rather existing policies and guidance were not always

followed. EPA policies and guidance identify the reviews EPA staff are to perform

prior to and after assistance agreements are awarded. However, EPA staff did not

always follow the policies and were not held accountable when they did not do so. • The project officer function is often a collateral duty for EPA staff. In some instances, the performance agreements and position descriptions did not identify

project officer responsibilities. Even when the performance agreement identified the

individual as a project officer, the agreement did not reference specific project officer

duties such as determining the programmatic and technical merit of a project or

conducting cost reviews. • Senior Resource Officials did not emphasize the importance of post award monitoring. Senior Resource Officials are charged with strengthening Agency-wide fiscal

resources management. They are typically Deputy Assistant Administrators or Assistant Regional Administrators. These officials stated that the level of post award

monitoring was affected by the limited availability of resources for staffing, travel,

and training.

EPA’S ACTIONS TO ADDRESS WEAKNESSES

EPA has taken some corrective actions to address our recommendations to better

manage assistance agreements.

• During 2002, the Administrator issued two orders to implement new changes—

the Policy on Competition in Assistance Agreements and the Policy on Compliance,

Review, and Monitoring. Through enhanced monitoring required by the new policy,

EPA has increased the number of requests to the OIG for audit.

• During 2003, EPA issued its Grants Management Plan, a 5-year strategy designed to ensure that grant programs meet the highest management and fiduciary

standards.
30

• EPA initiated a review of performance standards for all employees involved

with grants management and required new standards to be in place by January

2004.

• EPA has drafted a Long-term Grants Management Training Plan designed to

improve the skills of those responsible for grants management activities.

The challenge for EPA now will be to ensure that staff implement, and are held

accountable for, following the new policies and for implementing the new grants

management and training plans. Many of the deficiencies we found were due to EPA

staff not following existing policies and not being held accountable.

In issuing its Grants Management Plan, EPA stated its vision was to ensure that

its grants programs meet the highest management and fiduciary standards and further the Agency’s mission of protecting human health and the environment. The

OIG will monitor the Agency’s progress in implementing the Plan, and we will

evaluate whether the actions are effective in improving the accountability of recipients.

We are proud of the efforts the OIG staff have made in bringing these issues to

light, and I thank you, Mr. Chairman and members of the committee, for the opportunity to participate in a discussion of such an important topic. We are committed

to working with you and EPA to ensure that the money awarded every year through

assistance agreements is producing the intended environmental and public health

benefits.

This concludes my prepared remarks, and I will be happy to respond to questions.
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RESPONSES BY NIKKI TINSLEY TO ADDITIONAL QUESTIONS FROM SENATOR INHOFE

Question 1. The Inspector General has compiled numerous reports and audits concerning EPA grants management over the past several years identifying many criticisms of grants management. In questioning before the House Subcommittee on

Water Resources and Environment on June 11, 2003, Inspector General Tinsley responded, ‘‘I am afraid hope is our strategy here,’’ in [response] to a question concerning whether accountability will result from the new EPA policies in grants management. The General Accounting Office reported in a report titled Grants Management—EPA Needs to Strengthen Efforts to Address Persistent Challenges (GAO–

03–846) that EPA’s new grants policies and Five Year Grants Management Plan

continues to not address issues of gathering adequate information to evaluate proper grants management, the need to demonstrate environmental outcomes, and personnel accountability. What continuing deficiencies does the Inspector General believe continue to exist in EPA grants management policies?

Answer. At this time, we are not aware of any other deficiencies in EPA grants

management policies. As Ms. Heist stated in her testimony, the deficiencies in

EPA’s management of grants were not due to the lack of policies, but rather existing

policies and guidance were not always followed.

Question 2. Much of the testimony in the hearing focused on the March 1, 2004,

OIG Audit Report concluding, ‘‘The [Consumer Federation of America] Federation

was a 501(c)(4) lobbying organization that was prohibited from receiving Federal

funds under the Lobbying Disclosure Act, and the arrangement between the [Consumer Federation of America] Foundation and the Federation violated the Lobbying

Disclosure Act prohibition.’’ In part, the OIG recommended recovery of all grants

under each cooperative agreement with the Consumer Federation of America Foundation. Is the OIG recommendation and particular treatment of the Consumer Federation of America Foundation a new policy based on a new reading of the Lobbying

Disclosure Act?

Answer. No. Our recommendation as to the recovery of grant funds is based on

Comptroller General decisions holding that grant funds erroneously awarded to an

ineligible grantee must be recovered by the Government. 51 Comp. Gen. 162 (1971);

B–146285/B–164031, April 19, 1972. Further, we do not believe we have adopted a

‘‘new policy’’ based on a ‘‘new reading’’ of the Lobbying Disclosure Act. The Lobbying

Disclosure Act, and legislative history, recognize that a 501(c)(4) lobbying organization, which is ineligible from receiving Federal funds, can form or be affiliated with,

an organization that does not engage in lobbying, and which, therefore, is eligible

to receive Federal funds. As our report found, however, the arrangement and operations between the Consumer Federation of America Foundation and the Federation

were, in fact, indistinguishable, and that the Foundation existed only on paper.

Based on this, we believe our conclusion does not represent a new interpretation of

the Lobbying Disclosure Act, but rather an interpretation that is consistent with the

express language and intent of the Lobbying Disclosure Act.
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STATEMENT OF DAVID J. O’CONNOR, ACTING ASSISTANT ADMINISTRATOR FOR THE OF- FICE OF ADMINISTRATION AND RESOURCES MANAGEMENT, U.S. ENVIRONMENTAL

PROTECTION AGENCY

Mr. Chairman, thank you for the opportunity to appear before the committee to

address the subject of today’s hearing—Grants Management Practices within the

Environmental Protection Agency (EPA). Each fiscal year (FY), EPA awards an average of $4 billion in grants, approximately half of the Agency’s budget. This funding is a key mechanism by which

EPA’s national media program managers, in partnership with grant recipients, deliver environmental protection to the public. Most of the grant funds—about 89 percent—go to States, Tribes and local governments. The remaining dollars are divided

between non-profit organizations (6.6 percent), educational institutions (4.2 percent)

and individuals, foreign recipients and profit-making organizations (.2 percent).

Some of EPA’s funding is the result of congressional earmarks. For example, in fiscal year 2003, funding for earmarks comprised approximately 13 percent of EPA’s

total grant dollars and 51 percent of the total grant dollars to non-profit organizations.

EPA has an obligation to the taxpayer to manage its grant dollars effectively and

ensure they further the Agency’s mission. However, since 1995, EPA’s grants management practices have been criticized by Congress, the General Accounting Office

(GAO) and EPA’s Office of the Inspector General (OIG). Before discussing in more

detail the problems EPA faces in grants management, and the Agency’s progress in

solving those problems, it is important to recognize the contributions that EPA’s

grants to our governmental partners have made to environmental protection over

the past three decades. For example, in the 1970’s and 1980’s, working with this

Committee, EPA administered the multi-billion dollar wastewater treatment works

construction grant program under Title II of the Clean Water Act. This program,

the second largest public works program in the nation’s history, resulted in significant water quality improvements for thousands of municipalities.

Further, the Agency continues to provide critically needed infrastructure funding

through its two State Revolving Fund (SRF) programs, the Clean Water SRF

(CWSRF) and Drinking Water SRF (DWSRF). These two programs comprise nearly

half of the Agency’s grant dollars. Through fiscal year 2003, the CWSRF program

has supported over 14,000 projects totaling $43.5 billion for secondary treatment,

advanced treatment, combined sewer overflow correction, stormwater treatment and

nonpoint source needs. Similarly, through fiscal year 2003, the newer DWSRF program has provided $6.4 billion which has resulted in more than 3,000 loans for

drinking infrastructure needs to protect public health and ensure compliance with

the Safe Drinking Water Act.

Moreover, EPA’s grants for State and Tribal environmental programs have been

a key factor in allowing States and Tribes to administer delegated or authorized regulatory programs across all environmental media. In fiscal year 2003, EPA awarded

over $1 billion for these grants. This included $193.6 million under section 106 of

the Clean Water Act to support water quality planning, water quality monitoring,

the development of water quality standards and Total Maximum Daily Loads, the

issuance of National Pollution Discharge Elimination System permits, compliance

and enforcement activities, and groundwater protection.

EPA is also a recognized innovator in the State funding area as evidenced by its

highly successful Performance Partnership Grant (PPG) program. PPGs provide

States with the flexibility to combine funds from various EPA categorical grant programs into one grant. This allows States to streamline grant paperwork, adopt

multi-media approaches, and better address national and State environmental priorities. In fiscal year 2003, EPA awarded over $300 million in PPGs to States and

Tribes.

Additionally, as part of the fiscal year 2005 budget, the Administration is proposing a new $23 million State and Tribal Performance Fund that will award grants

on a competitive basis for environmental programs. These funds will allow States

and Tribes that can link their proposed activities to public health and environmental outcomes to receive additional assistance. EPA is pleased to be able to provide States and Tribes with another tool to protect and restore the environment.

Despite these success stories, EPA’s credibility in grants management has been

jeopardized by its inability to resolve longstanding concerns expressed by Congress,

GAO and the OIG. These concerns have largely centered on non-State grants, particularly grants to non-profit organizations, with an emphasis on grant competition,

pre-award review, oversight, environmental results and accountability. Over the period 1995 to 2001, the Agency did take steps to respond to these concerns. EPA

issued formal post-award monitoring policies, virtually eliminated a grant closeout
52

backlog of some 20,000 grants, provided grants management training to over 4000

project officers, encouraged grant competition, and initiated development of an automated Integrated Grants Management System.

As evidenced by an OIG audit report entitled ‘‘Review of Assistance Agreements

Awarded to Nonprofit Organizations’’ (Report No. 2001–P–00005, dated March 29,

2001), these actions produced improvements in some areas. In that audit, the OIG

examined a sample of grants to nonprofit organizations awarded by EPA Headquarters and EPA’s Atlanta Regional Office (Region 4). The report noted that EPA

Headquarters and Region 4 had undertaken initiatives to improve the grants administration process. These included training of grants specialists and project officers, issuance of new or revised policy guidance, selective onsite reviews of recipient

organizations to assess their performance, and implementation of an internal review

process that analyzed specific aspects of grant programs on an ongoing basis. The

report found that EPA maintained appropriate relationships with recipient organizations, avoided conflicts of interest, and that the specific grants reviewed complied

with the Federal Grant and Cooperative Agreement Act, which prohibits the use of

assistance agreements for acquisition activities. Based on these findings, the report

concluded that a review of additional grant agreements based on the same objectives

was not warranted.

These findings, however, are not representative of the total universe of EPA

grants. As noted in GAO’s August 2003 report, the Agency continues to face key

grants management challenges in the areas of grantee selection, oversight, resources and environmental results. To address these challenges, EPA issued its

first-ever long-term Grants Management Plan, with associated performance measures, in April 2003. GAO has described the Plan in positive terms, characterizing

it as coordinated, integrated approach to improving grants management. As discussed below, the Agency is moving aggressively to implement the Plan, refining our

corrective actions as necessary to incorporate recommendations for improvement

contained in the GAO and OIG reports.

I am pleased to report that EPA has made significant progress in carrying out

our long-term Plan. To date, we have met almost all of our performance measure

targets and have completed more than 60 actions items in support of the Plan.

The Plan commits EPA to accomplishing five goals, namely: (1) Enhance the

Skills of EPA Personnel Involved in Grants Management; (2) Promote Competition

in the Award of Grants; (3) Leverage Technology to Improve Program Performance;

(4) Strengthen EPA Oversight of Grants; and (5) Support Identifying and Achieving

Environmental Outcomes.

Enhancing EPA Grants Management Skills—Goal 1: A key component of our

strategy to enhance skills is to ensure that all project officers are certified to manage grants. Project officers must complete the basic grants management training

program and take a refresher course every 3 years to maintain their certification.

As of December 31, 2003, nearly 100 percent of our grants are being managed by

certified project officers. We expect the mandatory certification program to equip

project officers with the skills needed for proper grants oversight and will assess the

effectiveness of the program in achieving that result.

We are also taking a systematic approach to improving our training programs

through the development of a long-term training plan that is linked to EPA’s Strategy for Human Capital. As suggested by GAO, the long-term plan will establish an

Agency-wide process for ensuring that grant specialists, project officers and managers are timely trained on new policies and regulations and contain measures for

determining how our training activities contribute to improved grants management.

Building upon ongoing efforts to emphasize core competencies, the plan will require

expanded training in areas identified in OIG audit reports, such as application,

budget, and procurement review, conducting competitions, environmental outcomes,

and prohibitions on the use of grant funds for lobbying or suing the Government.

EPA recently updated its Project Officers Training Manual to address these issues

and anticipates issuing a final version of the training plan later this year.

Promoting Competition—Goal 2: EPA is committed to increasing competition for

grant awards under its new Competition Policy, which went into effect on October

1, 2002. In concurring in the Policy, the Office of Management and Budget (OMB)

described it as ‘‘. . . a strong step in the right direction that should increase competition.’’ The Policy is designed to promote fairness in the grant award process and

help ensure that EPA funds high priority projects at the least cost to the taxpayer.

While the Policy contains a number of exemptions, such as State and Tribal program grants and congressional earmarks, it covers a wide range of EPA grant activities, including many grants to non-profit organizations. It also created a Grants

Competition Advocate (GCA) position within the Office of Grants and Debarment.

The GCA has broad authority to administer the Order, including issuing interpre-
53

tive guidance, approving specified exemptions and resolving disagreements between

program and grants management offices.

In the first year of implementation, the Agency competed 75 percent of new

awards to non-profit organizations covered by the Policy. This exceeded the Agency’s

performance target of 30 percent. The GCA is currently conducting an independent

review of the Policy’s effectiveness, and in June of this year will be making recommendations for strengthening the Policy to the Assistant Administrator for Administration and Resources Management (OARM).

Given the Agency’s limited experience with grant competition, we agree with GAO

that the Policy represents a ‘‘major cultural shift’’ for EPA managers and staff and

expect that the GCA’s review will identify areas for improvement. Nevertheless, we

are encouraged by the first year’s statistics and are confident that as the Policy is

revised to incorporate the GCA’s recommendations, the Agency will achieve even

higher levels of competition.

Leveraging Technology—Goal 3: EPA believes that the deployment and enhancement of the Integrated Grants Management System (IGMS) is essential to strengthening grants management. IGMS is a paperless, programmatic and administrative

system which fully automates the grant process from cradle to grave. It provides

a structured format for reviewing the key factors that must be considered and documented in awarding a grant, including competition and environmental results. It

also provides electronic tracking of grant milestones, products and post-award activities, thereby strengthening project officers’ oversight capabilities, and will accept

applications and reports from Grants.gov, the Federal electronic portal for grant application and reporting. IGMS is now deployed in all ten EPA Regions, which in fiscal year 2003 submitted 80 percent of grant funding packages electronically. This

exceeded our performance target of 65 percent. Over the next 2 years, IGMS will

be fully deployed at EPA Headquarters.

In addition, EPA continues to participate in the interagency Grants.gov initiative

under Public Law 106–107. This initiative is designed to streamline and simplify

the award and administration of Federal grants by creating a simple, unified source

to electronically find, apply and report on Federal grants. EPA is posting synopses

on Fedgrants.gov (E-Find) and complying with the OMB mandate to begin providing

electronic applications (E-Apply) through Grants.gov for selected grant programs. I

am pleased to announce that the Office of Grants and Debarment and the Office

of Research and Development recently posted an electronic application for the

Science to Achieve Results (STAR) program. Other programs will be posted later

this year. The STAR program pilot will provide valuable experience as we prepare

to make all EPA-competitive grant programs available for electronic application on

Grants.gov.

Strengthening Oversight—Goal 4: On December 31, 2002, OARM issued a comprehensive post-award monitoring policy, EPA Order 5700.6, that significantly expands the Agency’s post-award monitoring program. It requires baseline monitoring

for all active awards on an ongoing basis. It also provides for advanced monitoring

(i.e., onsite reviews and desk reviews) on a minimum of 10 percent of EPA’s active

grantees and mandatory reporting of these activities in a Grantee Compliance Data

base.

The new Order is a substantial improvement over previous post-award monitoring

policies, which required baseline monitoring only once during the lifetime of an

award, established a minimum 5 percent advanced monitoring goal, and did not

mandate uniform compliance reporting. Program offices have responded positively

to the new policy by submitting to OARM timely and comprehensive post-award

monitoring plans that emphasize advanced monitoring of active grantees.

Under the new policy, the Agency completed over 1000 advanced monitoring reviews in 2003 or 18 percent of its recipients. This exceeded our performance target

of 10 percent of recipients. Moreover, we have implemented, or are in the process

of implementing, major GAO recommendations for strengthening post-award monitoring. In this regard, effective for calendar year 2004, we have required EPA staff

to use a standard reporting format when entering advanced monitoring reviews in

the Grantee Compliance Data base and have included in the Data base information

on OIG and GAO reports, Agency advanced monitoring reviews, significant compliance actions taken by the Agency and A–133 audits. This will make it easier for

EPA to identify systemic issues early on and take appropriate corrective action.

Moreover, after consulting with statisticians, the Agency will pilot test in 2005 a

statistical approach to selecting grantees for advanced monitoring. Based on the results of the pilot, we will implement a statistical approach Agency-wide.

In implementing its post-award monitoring program, EPA has increasingly focused on taking actions against non-profit recipients that are poorly performing

from either an administrative or programmatic standpoint. While non-profit recipi-
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ents have played a vital role in disseminating information to communities on EPA’s

voluntary programs, it is true that some of these recipients have not properly managed their grants. In calendar year 2003 alone, EPA conducted 408 advanced monitoring reviews of non-profit recipients, or 37 percent of the total 1093 advanced

monitoring reviews conducted. Where noncompliance by non-profit recipients is

identified, EPA has successfully, in many cases, required recipients to correct their

financial management systems, or placed controls on recipient expenditures pending

resolution of audit issues.

We have continued to take significant actions against specific non-profit grant recipients to address grants management performance problems. In 2003, our advanced monitoring reviews revealed that about 22 percent of our non-profit recipients had one or more grants management problems. In these cases, under EPA’s

new post-award monitoring policy, we require recipients to develop corrective action

plans to address the deficiencies. If the grant management weaknesses are not addressed in the specified timeframes through corrective action plans, we take more

significant action. This includes placing recipients on reimbursement payment,

issuing stop work orders, imposing special terms and conditions, terminating

awards, and making referrals to the OIG to initiate comprehensive audits. For example, the Agency recently placed two large non-profit recipients on reimbursement

payment while we conduct further investigations into apparent financial irregularities involving commingling of Federal grant funds, statutory consultant cap violations, and violations of the Federal Cash Management Act. We are currently in the

process of modifying our Grantee Compliance Data base to track the number of significant actions that we have taken, so that starting in 2004, we will be able to provide the Congress with a statistical summary of our actions.

While post-award monitoring is an important objective under Goal 4, the Plan

also commits the Agency to take a variety of ‘‘early warning’’ approaches to prevent

problems from occurring. This includes revamping EPA’s internal grants management reviews, increasing technical assistance and training to recipients and developing a pre-award review program.

EPA is making substantial progress in all of these areas. For example,

• In 2003, the Agency instituted a new approach to internal reviews that provides

EPA with an early warning system to detect emerging grant weaknesses. The approach consists of three types of reviews: Comprehensive Grants Management Reviews performed by the Office of Grants and Debarment (OGD); Grants Management Self-Assessments performed by headquarters and regional offices based on

OGD guidance; and Grants Performance Measure Reviews conducted by OGD,

which use information in Agency data bases to assess progress against Grants Management Plan performance measures. OGD completed seven comprehensive reviews

in 2003 and is requiring offices with identified problems to submit and carry out

corrective action plans.

• To educate recipients about their grants management responsibilities, OGD: (1)

conducted several classroom training sessions for non-profit and Tribal recipients in

2003, (2) in partnership with the OIG, distributed an instructional video to non-profit grantees in January of this year, and (3) recently issued guidance to non-profit

recipients on how to purchase supplies, equipment, and services under EPA grants.

• The Agency is developing a pre-award policy to help ensure that grants are not

awarded to non-profit organizations that have weaknesses in their administrative

capability to manage grant funds or the programmatic capability to carry out a

project. The policy will focus on requiring non-profit applicants with identified weaknesses to correct them before receiving an award. Further, applicants that repeatedly refuse to take appropriate corrective action will be referred to EPA’s Suspension and Debarment program for consideration. The Agency expects to have the new

policy in place in 2005.

A major objective under Goal 4 is to strengthen accountability for quality grants

management. Historically, the Agency has not always managed its grants in accordance with sound business principles, which has contributed to accountability problems. However, as evidenced by our work in the following areas, EPA is beginning

to create a culture of accountable grants management.

First, in 2002, then Deputy Administrator Linda Fisher issued two directives requiring senior managers to hold employees accountable for effective grants management and to include compliance with grants management policies as part of midyear performance discussions, which occurred in July 2003.

Second, as a supplement to these directives, EPA reviewed the performance standards of employees involved in grants management. The review found that the performance standards of Senior Executive Service (SES) employees adequately addressed grants management while the standards of non-SES employees did not.

Based on the results of the review, the Assistant Administrator for OARM directed
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EPA’s Assistant Administrators (AAs) and Regional Administrators (RAs) to revise

the performance standards of their non-SES employees to properly reflect grants

management responsibilities. In accordance with this directive, the Agency is putting revised standards in place and will use them to evaluate employee performance

during calendar year 2004.

Third, in fiscal year 2003, the Agency required the AAs and RAs, for the first

time, to outline in their assurance letters under the Federal Managers’ Financial

Integrity Act (FMFIA) the steps they are taking to address the grants management

weakness. In these letters, the AAs and RAs commit to the Administrator of EPA

that they will ensure effective grants management in their offices. This requirement

will be carried forward into the fiscal year 2004 FMFIA process.

Fourth, the Agency created in April 2003 an Excellence in Grants Management

Program that will recognize and reward EPA offices that substantially exceed the

performance targets in the Grants Management Plan. The AA for OARM and the

Chief Financial Officer will announce the first winners of this competition in May

2004.

Fifth, EPA’s new Strategic Plan includes language emphasizing the importance of

grants management and links the activities in the Grants Management Plan with

the attainment of the Agency’s strategic goals. The need for this linkage is reinforced by the Agency’s fiscal year 2003 Annual Report, which, as recommended by

GAO, outlines performance targets and results achieved under the Grants Management Plan.

Sixth, to ensure senior management attention to grants issues, EPA established

in 2003 the Grants Management Council, composed of the Agency’s Senior Resource

Officials. The Council has held two meetings to date, and under its charter, will provide coordination and leadership as the Agency implements the Grants Management

Plan.

Seventh, we have developed a Tactical Action Plan, which outlines commitments

and milestone dates under the Grants Management Plan and identifies who is responsible for completing these commitments. OGD reviews this Tactical Plan on a

quarterly basis to ensure that actions are completed on a timely basis.

Finally, the Agency is addressing resource issues for accountable grants management on two fronts. To determine the most efficient use of existing resources, EPA

initiated in 2003 an analysis of grant specialist and project officer workloads. The

Agency expects to complete the analysis in 2004 and based on the results, will make

appropriate changes to the structure of its grants work force. Additionally, as part

of the President’s fiscal year 2005 budget, we plan to invest an additional $1 million

to further strengthen grants management. These resources will assist Regional

Grants Management Offices by providing funding for an additional 60 onsite reviews, an on-line training program for at-risk recipients, and critical indirect cost

rate negotiations for non-profit recipients. This investment will also enhance accountability by supporting mandatory, Agency-wide training for managers on their

grants management responsibilities.

Achieving Environmental Results—Goal 5: Goal 5 is a recognition that EPA must

improve its ability to plan, measure, and report the results of its grants and align

them with the achievement of goals and objectives in the Agency’s Strategic Plan.

This is a subset of the larger issue faced by EPA under the Government Performance and Results Act (GPRA) in assessing how its programs contribute to realizing

environmental outcomes. Goal 5 commits the Agency to incorporating outcome

measures in grant work plans and strengthening performance reporting by grantees.

In support of Goal 5, EPA recently issued an interim policy on environmental results. The interim policy applies to grant funding packages submitted by the Agency’s program offices to the Grants Management Offices (GMOs) on or after February

9, 2004. Under the interim policy, GMOs may not act on proposed funding packages

unless the packages include a description of how a project or program will further

the goals of EPA’s Strategic Plan. As a followup to the interim policy, an Agencywide work group is developing an EPA Order that will require program offices to

consider environmental results in funding packages, competitive solicitations, grant

work plans, and grant performance reports. The Agency expects to issue this Order

in 2004. As a part of these efforts, and in response to a recommendation from GAO,

EPA will be working to revise its advanced monitoring protocols to include questions

on measuring and achieving environmental outcomes.

In conclusion, under the long-term Grants Management Plan, EPA has put in

place a comprehensive system of management controls and initiatives to address the

grants management weakness. We have been careful to make adjustments in the

design and implementation of the system to incorporate GAO and OIG recommendations. Given EPA’s past uneven performance in reforming grants management, it is
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fair to ask whether this system will be any more successful than previous efforts.

The answer, I believe, lies in the cultural shift within EPA toward accountable

grants management. While the Agency cannot solve all of the challenges identified

by GAO overnight, this emerging culture of accountability will allow EPA, over

time, to become a ‘‘best practices’’ agency for grants management. As we continue

to implement our long-term Plan, we remain committed to working with Congress,

GAO, the OIG, and our partners, including States, Tribes, local governments, nonprofit organizations and educational institutions, to eliminate the grants management weakness.

Thank you for providing me the opportunity to discuss these important issues

with you today. I would be happy to respond to any questions you that may have.

RESPONSES BY DAVID O’CONNOR TO ADDITIONAL QUESTIONS

FROM SENATOR INHOFE

Question 1a. The General Accounting Office has reported and testified that most

EPA discretionary grants have been awarded without competition. In response to

Senator Jeffords’ and my request for information concerning discretionary grants

awarded in fiscal year 2003, a number of discretionary grants awarded were designated as ‘‘exempt from competition’’ or ‘‘justified non-competitive.’’ How can EPA

make a comprehensive analysis of the new competition policy with continued exemptions?

Answer. EPA’s Policy for Competition in Assistance Agreements, which went into

effect on October 1, 2002, created the position of Grants Competition Advocate

(GCA). The GCA is responsible for overseeing implementation of the policy and is

currently conducting a comprehensive evaluation of the Agency’s competition performance during fiscal year 2003. The evaluation will include an analysis of whether

the current exemptions and exceptions have been properly used. The GCA’s review

is also focusing on ways to enhance the policy and foster more effective competitions. As a result of this review, the GCA will likely recommend certain revisions

to the competition policy, including a lower dollar value threshold for competition,

more stringent requirements for certain non-competitive exceptions, and additional

documentation requirements. In addition, the GCA intends to provide additional

training to EPA programs on how to conduct effective grants competitions. The

GCA’s review will result in a revised policy to strengthen competition which the

Agency expects to issue later this year.

Question 1b. What criteria is used to determine if a grant will be: (i) exempt from

competition; (ii) justified non-competitive; (iii) subject to managed competition?

Answer. The grants competition policy includes program exemptions from competition, exceptions to competition for individual grants, and circumstances justifying managed competition.

Section 6 of the policy contains a list of programs which EPA determined should

not be subject to the policy, including, for example, State and Tribal continuing environmental program grants and Congressional earmarks. Section 8 of the policy

contains exceptions from competition for individual grants. These exceptions (e.g.,

unusual and compelling urgency and one responsible source) are largely modeled on

the exceptions from competition that apply to direct Federal procurement, which are

contained in the Federal Acquisition Regulations and the Competition in Contracting Act. Section 10(d) of the policy authorizes managed competition (i.e., competition among a subset of potential applicants) in cases where, with the concurrence of the GCA, full and open competition is determined to be impracticable. It

should be noted that as part of the GCA’s review of the policy, EPA is considering

whether it should retain specific managed competition procedures.

Question 2. The EPA’s competition policy has now been in place for a little over

1 year. Does the Agency plan to provide a written evaluation of the new competition

policy?

Answer. As stated in the response to question 1, the GCA is conducting a comprehensive review of the effectiveness of the competition policy. This review will result in the issuance of a revised competition policy later this year designed to improve the Agency’s ability to conduct effective grants competitions.

Question 3. How can the EPA ensure that the new competition policy will not be

abused when it contains exceptions for such reasons as unique or innovative proposals or simply that competition is not in the public interest?

Answer. EPA does not believe that having appropriate exceptions to competition

will lead to abuse or circumvention of the competition policy. Such exceptions are

necessary, for example, where unusual and compelling circumstances make a com-
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petitive award impracticable. As mentioned above, the section 8 exceptions to competition, including the unsolicited proposal and public interest exceptions, are largely based on exceptions to competition allowed for direct Federal procurement. Moreover, in fiscal year 2003, the non-competitive exceptions for unsolicited proposals

and public interest were not frequently used to justify non-competitive grants. However, to address Congressional concern over the use of the unsolicited proposal exception, EPA is considering making changes to it, including requiring approval by

the GCA in all cases.

Question 4. Please provide the number of personnel in fiscal year 2003 that had

responsibility for awarding and monitoring grants in headquarters and regional offices.

Answer. In fiscal year 2003, there were 109 grant specialists and 1851 project officers (with active grants) that were responsible for awarding and monitoring grants

in headquarters and regional offices.

Question 5. Please provide a description of all training and/or certification for

grant officers, awarding officers, and any other EPA personnel responsible for

awarding and monitoring grants. Please identify what training requirements are

newly imposed and how the agency plans to enforce these training requirements.

Answer. As a pre-requisite to managing a grant, cooperative agreement or interagency agreement, project officers must complete the basic 3 day classroom training

course entitled ‘‘Managing Your Financial Assistance Agreement—Project Officer

Responsibilities.’’ This is a national course offered primarily at Headquarters but is

also offered in some Regional offices. Within 3 years of completing the basic course,

project officers are required to complete a 1-day refresher course to recertify. Project

officers have the option of completing the 1-day refresher via the class room or an

on-line self-certification course. The Office of Grants and Debarment tracks Project

Officer Certification status through the ‘‘National Project Officer Data base’’. This

data base has safeguards built in to notify project officers within 60 days and again

within 30 days to alert them that their certification is about to expire. Project officers that fail to recertify are prohibited from managing a grant, cooperative agreement or interagency agreement until they have retaken the basic 3-day course. If

project officers fail to maintain their certification, the program must replace them

on the assistance agreement with a certified individual.

The Grants Specialist Training program represents a joint effort between the

headquarters Grants Administration Division and the Regional Grants Management

Offices for grant and interagency agreement specialists. Comprised of three phases,

this program focuses on the ‘‘Core Competencies’’ specialists need to perform their

position. Phase One addresses key national issues, such as the Federal Grants and

Cooperative Agreement Act, Office of Management and Budget (OMB) Circulars,

EPA’s Delegations of Authority, General Grant Regulations, cost reviews of budgets,

and transaction testing for unallowable costs. Phase Two provides training on the

individual implementation procedures governing each of the eleven national Grants

Management Offices (including headquarters). Phase Three focuses on the specialist’s individual career development plan, which includes taking external training

courses on grants management. In many cases, specialists take courses from Management Concepts, Incorporated (MCI), which offers a Certified Grants Management

Curriculum. The Curriculum contains the following recommended courses: (1) Introduction to Grants and Cooperative Agreements for Federal Personnel, (2) Cost Principles: OMB Circulars A–21, A–122 and A–87, (3) Grants and GPRA: A Performance-Based Approach to Federal Assistance, (4) Essential Skills for Grants Professionals, and (5) Appropriations Law.

EPA Regions also provide supplemental grant-related training to project officers

and grant specialists. Supervisors, managers, and funds certifiers occasionally participate in this training, which covers areas such as (1) training on the Integrated

Grants Management System (IGMS), EPA’s electronic system for automating the

grants process; (2) grant competition training; (3) post-award management training;

(4) Tribal or State Performance Partnership Grant training; (5) mentor training for

new grant specialists and grant assistants; (6) Interagency Agreement (IAG) training for project officers; (7) quality assurance principles and implementation; (8) National Environmental Policy Act compliance training; (9) Working Effectively with

Tribal Governments; (10) Regulation Development Training; (11) Grantee Compliance Tracking Data base Training; (12) training to address Minority Business Enterprise/Women Business Enterprise requirements; and (13) training on pre-award

cost review and procurement.

In addition to these training efforts, the Office of Grants and Debarment currently

offers grants management training to supervisors and managers on an as-requested

basis. As part of the President’s fiscal year 2005 budget, the Agency is seeking fund-
58

ing to institute a mandatory grants management online training program for managers and supervisors.

Question 6a. The most recent edition of the EPA grants training manual (Project

Officer Training Manual, 5th Edition) lists statutory references detailing the prohibitions of grantees using Federal grants for lobbying and litigation against the Federal Government. It also directs a project officer to notify their award official if they

believe that a grant recipient has used or may have used grants for unallowable expenditures. How will this training assist personnel to know what to report?

Answer. Using the 5th edition, project officer training instructors cover in detail

all of the statutory and regulatory prohibitions against using grant funds to lobby

or sue the Federal Government. Project officers then participate in exercises involving budgets that contain unallowable costs. These exercises require them to identify

those costs and explain why they are unallowable.

Question 6b. How does the EPA plan to train personnel to identify unallowable

costs?

Answer. EPA currently trains both grant specialists and project officers in how

to identify unallowable costs in the Grant Specialist Core Competency Class and the

Basic Project Officer training course. Additionally, the Office of Grants and Debarment offers individual instruction to any project officer who needs training on allowable costs when the project officer has a recipient that has been placed on reimbursement payments. EPA Grants Management Offices have also offered basic

transaction testing classes to grant specialists and plan to offer an additional halfday class this spring.

Question 6c. What does the EPA Five Year Grants Management Plan or other

oversight policies do to incorporate transaction testing?

Answer. The Agency issued EPA Order 5700.6, ‘‘Policy on Compliance, Review and

Monitoring,’’ in December 2002, to consolidate existing post-award management

policies. One component of the Order requires Grants Management Offices (GMO)

to review the administrative and financial systems of a grant recipient. These reviews may be conducted either at the recipient’s location (onsite) or through telephone conference calls (offsite). Both reviews require the use of the appropriate protocol.

The Order requires that onsite evaluations conducted by the GMO include transaction testing. Further, the required protocol contains a series of questions concerning transaction testing and guidance attached to the Order discusses how to

conduct transaction testing. In addition, the required reporting format for on- or offsite evaluations includes a specific item for transaction testing results.

In November 2003, the Grants Administration Division (GAD) issued guidance on

preparing Post-Award Management Plans for 2004. In this guidance, GAD restated

the need for transaction testing in GMO on-site evaluations and noted that the requirement should be addressed in the 2004 Post-Award Management Plans.

Question 7. What indicators or standards are established in the EPA Five Year

Grants Management Plan that will measure specific environmental outcomes?

Please describe the milestones for each year toward the goal of demonstrating environmental outcomes from grant funding.

Answer. In the EPA Five Year Grants Management Plan, EPA will track its

progress in supporting grantee identification and realization of environmental outcomes with the following performance measures:

• Percentage of grant workplans, decision memoranda, and terms of condition

that include a discussion of how grantees plan to measure and report on environmental progress.

• Target for 2004: 70 percent

• Target for 2005: 80 percent

• Target for 2006: 100 percent

These performance measures are supplemented by the following milestones:

FOR 2004

• Issue an interim policy on environmental results under EPA grants programs.

This policy requires funding packages submitted to Grants Management Offices by

Headquarters or Regional Program Offices on or after February 9, 2004, to document how proposed EPA assistance agreements will further the Agency’s strategic

goals.
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FOR 2005

• Issue EPA Order (anticipated effective date, January 2005) requiring that all

grant workplans, decision memoranda, and/or terms of condition include outcome

measures to the maximum extent practicable. The goals of the Order are to: (1) link

proposed assistance agreements to the Agency’s Strategic Plan/Government Performance And Results Act architecture; (2) ensure that not only outputs, but also

outcomes, are appropriately addressed in assistance agreement workplans, competitive solicitations, advanced monitoring and performance reports; and (3) consider

how the results from completed assistance agreement projects contribute to the

Agency’s programmatic goals and objectives.

• As part of the roll-out of the Order, provide training to project officers and recipients on outcome measures.

• Include a discussion of expected environmental outcomes and performance

measures in grant solicitations.

• Require recipient performance reports to address progress in achieving agreedupon outcomes.

FOR 2006

• Beginning January 2006, incorporate past performance in reporting on environmental outcomes as a significant ranking criteria in competitive grant solicitations.

Question 8. Please provide a listing of grantees that have been disbarred over the

last 10 years. Please provide the reasoning for that disbarment, the process used

in the disbarment, and time required for that process. Please provide whether those

grantees continued to receive grant funding during the debarment investigation.

Answer. Over the past 10 years, EPA took twenty-nine actions involving grantee

organizations or their principals. Principals include officers, directors, managers or

key employees. EPA debarred one grantee organization and fifteen individuals who

served as principals for grantees; suspended two grantee organizations and one

principal; entered into eight settlement agreements; and currently has one grantee

organization and principal proposed for debarment.

The process: Suspension and debarment authority is delegated directly from the

Administrator to the Suspending and Debarring Official (the Debarring Official).

Debarment actions are initiated by the Suspension and Debarment Division (SDD),

Office of Grants and Debarment (OGD). A suspension action is a temporary action

that prohibits new awards pending the outcome of legal or debarment proceedings.

A debarment action is a final Agency determination after an investigation is completed which prohibits an entity/individual from receiving Federal funding (e.g.,

Federal grants or contracts) for a specified period of time. SDD makes recommendations to the Debarring Official that specific grantees or principals be suspended or

debarred. The Debarring Official makes all decisions based on the administrative

record. The Debarring Official’s final decisions may be appealed to the Director,

OGD. Material questions of fact are referred to an independent fact finder. Underlying investigations are conducted by the Office of Inspector General, the Criminal

Investigations Division of the Office of Enforcement and Compliance Assurance, and

SDD.

The procedural requirements for bringing discretionary debarment actions are set

forth at 40 C.F.R. Part 32 (for grants) and Subpart 9.4 of the Federal Acquisition

Regulation (for contracts). The elements of a statutory debarment are described in

33 U.S.C. Section 1368 for the Clean Water Act and 42 U.S.C Section 7606 for the

Clean Air Act. Debarment and suspension is a prospective remedy. It prohibits a

new grant or contract award after the date of the suspension or debarment determination.

Each year, EPA initiates over a hundred potential suspension and debarment

cases. Most of these cases involve commercial entities that could perform work

under Federal grants or contracts.

ONE EPA GRANTEE DEBARRED DURING THE LAST 10 YEARS

Liberty Family Learning Center.—Debarred for submitting false certification on

an EPA grant; Processing time 2 months.

TWO EPA GRANTEES AND ONE PRINCIPAL SUSPENDED DURING THE LAST 10 YEARS

Environmental Compliance Organization.—Suspended for submitting false credentials; Processing time 1 month.

ECO Foundation.—Suspended for submitting false credentials; Processing time 1

month.
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Patricia Ewald, Director.—Suspended for submitting false credentials; Processing

time 1 month.

EPA DEBARRED FIFTEEN INDIVIDUALS WHO SERVED AS PRINCIPALS TO EPA GRANTEES

Onyundo Amram, Director of Liberty Family Learning Center.—Debarred for submitting false certification on an EPA Grant; Processing time 2 months.

Carol Vitales, Payroll Technician.—Debarred for embezzlement of funds from the

Oglala Sioux Tribe; Processing time 4 months.

Estelle Goings, Director.—Debarred for embezzlement of funds from the Oglala

Sioux Tribe; Processing time 4 months.

Vonnie Goings, Payroll Technician.—Debarred for embezzlement of funds from the

Oglala Sioux Tribe; Processing time 4 months.

Wallace Jorgensen, Office Manager.—Debarred for embezzling grant funds from

National Asian Pacific Center for the Aging; Processing time 4 months.

Debra O’Neil, Office Manager.—Debarred for embezzling grant funds from the Nevada Indian Environmental Coalition; Processing time 4 months.

Anita Collins, Executive Director.—Debarred for embezzling grants funds from the

Nevada Indian Environmental Coalition; Processing time 4 months.

Dennis Arnold.—Facility specific statutory debarment under the Clean Water Act;

Processing time 6 months.

Syed Hug, Environmental Manager.—Proposed for debarment for embezzlement of

funds from the Rosebud Indian Tribe; Resolved through a compliance agreement;

Processing time 2 years and 3 months.

Richard Moffet, President of Peoples Rights to a Clean Environment.—Debarred

for convictions for hashish possession and tax evasions; Processing time 3 months.

Joseph Frazier, Treasurer of Pfohl Area Homeowners Association.—Debarred for

a burglary conviction; Processing time 1 year and 4 months.

Day Niederhauser, Inspector of The Virginia Department of Environmental Quality.—Debarred for filing false reports while working on an EPA grant; Processing

time 3 months.

Raymond Sinnamon, Jr., Plant Manager of City of Dalton, Georgia.—Debarred for

civil and administrative violations, water permits and restrictions; Processing time

1 year and 2 months.

DeForrest Parrott, General Manager & CEO of City of Dalton, Georgia.—Debarred

for civil and administrative violations, water permits and restrictions; Processing

time 1 year and 2 months.

Carleen Murphy Moran, Executive Director of Hancock County Chamber of Commerce.—Debarred for embezzling EPA grant money; Processing time 1 month.

SETTLEMENTS WITH FIVE LOCAL GOVERNMENTS THAT PREVIOUSLY RECEIVED

EPA GRANTS

City of New Haven, Markings Unit.—Facility debarred by statute under the Clean

Water Act; Resolved through a compliance agreement; Processing time 10 months.

City of Waldport, Oregon.—Facility debarred by statute under the Clean Water

Act; Resolved through a compliance agreement; Processing time 2 months.

City of Post Fall, Idaho.—Facility debarred by statute under the Clean Water Act;

Processing time 9 months.

Northeast Public Sewer District.—Facility debarred by statute under the Clean

Water Act; Resolved through a compliance agreement; Processing time 6 months.

Southwest Florida Water Management District.—Drug-Free Workplace violation;

Recipient of Federal assistance from EPA in support of the Sarasota Bay Estuary

Program; Processing time 9 months.

SETTLEMENTS WITH ONE EPA GRANTEE AND TWO PRINCIPALS

Global Rivers Environmental Education Network.—Use of grant funds for personal use; Processing time 8 months.

Mark Patrick, Financial Manager, Global Rivers Environmental Education Network.—Use of grant funds for personal use; Processing time 8 months.

David Schmidt, Financial Manager, Global Rivers Environmental Education Network.—Use of grant funds for personal use; Processing time 8 months.

ONE GRANTEE AND ONE PRINCIPAL CURRENTLY PROPOSED FOR DEBARMENT

Lower Mississippi River Conservation.—Proposed for debarment for embezzlement

of grant funds; Processing time 3 months.

Debra Strickland, Finance Director.—Proposed for debarment for embezzlement of

grant funds; Processing time 3 months.
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Question 9. Please provide a listing of grantees that have been subject to disciplinary action by EPA over the last 10 years. Please provide the reasoning for that

discipline, the process used in the discipline, and time required for that process.

Please provide whether those grantees continued to receive grant funding during

the disciplinary investigation.

Answer. Based on discussions with your staff, we are providing a list of EPA

grantees that were subject to disciplinary actions during 2002 and 2003:

1.Iowa Rural Water Association

2. Haskell Indian Nations University

3. St. Vincent Home School

4. University of Missouri—Columbia

5. St. Louis Medical Waste Incinerator Group

6. Kickapoo Tribe in Kansas

7. Santee Sioux Tribe of Nebraska

8. Virgin Island Department of Planning and Natural Resources

9. University of the Virgin Islands

10. Puerto Rico Environmental Quality Board

11. New Jersey Department of Environmental Protection

12. New York State Department of Environmental Conservation

13. Rutgers University

14. Passaic Valley Sewerage Commissioners

15. City of Johnstown

16. Systema Universitario Ana G. Mendez

17. City of Schenectady

18. Burlington County

19. Virgin Islands Department of Public Works

20. Cornell University

21. Rockland County

22. City of Syracuse

23. Township of Pennsauken

24. Association of State Wetland Managers Inc

25. City of Newark

26. Universidad Metropolitiana

27. Hudson River—Hudson River Foundation

28. Borough of Carteret

29. Musconetcong Sewerage Authority

30. New Jersey Department of Health and Human Services

31. County Essex—County of Essex

32. Atlantic States Legal Foundation

33. Scenic Hudson Inc.

34. City of Rorchester New York

35. City of Buffalo New York

36. Perth Amboy

37. City of Elmira

38. Puerto Rico Industrial Development Co.

39. City of Ogdensburg New York

40. City of Atlantic City

41. Middlesex County Improvement Authority

42. California Department of Toxic Substances Control

43. Big Sandy Rancheria

44. Bridgeport

45. CA Air Resources Board

46. Cahto Tribe of Laytonville Rancheria

47. Cahuilla

48. Campo Band of Mission Ind

49. City of Pomona

50. Colorado River Indian Tribes

51. Confederated Tribes of Goshute

52. County of Sacto

53. Cuyapaipe Band of Mission Indians

54. C.Y.C.L.E.

55. Del Amo Action Committee—Montrose

56. Dry Creek Rancheria

57. Enterprise Rancheria

58. Ft. McDowell Yavapai Nation

59. Ft. Mojave

60. Grindstone Rancheria

61. HI Dept of Health
62

62. Hoopa Valley Tribal Council

63. La Jolla Band of Mission Ind

64. La Posta Band of Mission Ind

65. Manchester Pt Arena Band of Pomo Indians

66. Mesa Grande Band of Mission Ind

67. Navajo Nation

68. Pauma Band of Mission Indians

69. Pinoleville Rancheria

70. Pyramid Lake Paiute Tribe

71. Quartz Valley Indian Reservation

72. Ramona Band of Cahuilla Mission Indians

73. Rincon Luiseno Indians

74. Round Valley Indian Tribes

75. Salt River Pima—Maricopa Indian Community

76. San Manuel Band of Mission Indians

77. San Mateo County RCD

78. San Pasqual Band of Mission Indians

79. Santa Rosa Band of Mission Indians

80. South Fork Band Council

81. Te-Moak Tribe of Western Shoshone

82. Tohono O’Odham Nation

83. Washoe Tribe of NV & CA

84. Yomba Shoshone Tribe

85. Shoshone and Arapaho Tribes

86. Crow Tribe

87. Rosebud Sioux Tribe

88. District of Columbia Department of Health

89. Lake Wallenpaupack Watershed Management District

90. Future Harvest, Incorporated

91. Chehalis

92. Chickaloon Native Village

93. Circle Village Council

94. Emmonak Village

95. Healy Lake Village

96. Inupiat Community of the Arctic Slope

97. Mentasta Trad Council

98. Muckleshoot Tribe

99. Native Village of Deering

100. Native Village of Elim

101. Native Village of Nelson Lagoon

102. Nez Perce

103. Nooksack

104. Northway Village Council

105. Quinault Indian Nation

106. Stevens Village Council

107. St. George Traditional Council

108. Village of Iliamna

109. Wrangell Coop Association

110. ADEC

111. Allakaket Traditional Council

112. Asa’carsarmiut Tribal Council

113. Association of Village Council Presidents

114. Beaver Village Council

115. Chilkoot Indian Assoc

116. Chitina Traditional Indian Village

117. Huslia Tribal Council

118. Hughes Village Council

119. Muckleshoot

120. Native Village of Nuiqsut

121. Native Village of Point Hope

122. Native Village of Point Lay

123. Puyallup Tribe

124. AK Dept. of Health & Soc. Serv

125. Concilio for the Spanish Speaking

126. University of Idaho

127. Washington State University

128. Norton Sound Health Corp.

129. City of Blackfoot
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130. City of Kake

131. Hoonah

132. Ivanhof

133. Kuigpugmuit

134. The All Indian Pueblo Council, Inc.

135. Central States Air Resource Agencies Association

136. Coordinating Committee for Automotive Repair

137. Haskell Indian Nations University

138. Association of State and Interstate Water Pollution Control Administrators

139. Michigan Biotechnology Institute International

140. National Council on Aging

141. Climate Neutral Network

142. Self Reliance Foundation

143. Tribal Association for Solid Waste and Emergency Response

144. Geothermal Heat Pump Consortium

145. National Asian Pacific Center on Aging

146. Consumer Federation of America

147. City of Atlanta

148. Hancock County Chamber of Commerce

149. Lower Mississippi River Conservation Commission

150. National Academy of Natural Sciences

The recipients listed above were subject to disciplinary actions for the one or more

of the following reasons:

• Audits performed by the Office of Inspector General (OIG) and advanced monitoring performed by EPA staff identified financial management problems, including

embezzlement of grant funds, duplicative payments, unsupported direct costs, failure to account for program income, missing documentation, failure to provide an indirect cost rate proposal and/or agreement, commingling of funds, unallowable costs,

payroll problems, no travel policy, undocumented cost share and inadequate labor

distribution systems.

• Procurement problems, including failure to perform cost or price analysis, conflicts of interest violations, and lack of written procurement procedures.

• Delinquent, incomplete or incorrect reports and deliverables.

• A–133 single audit findings involving unaccounted funds, incorrect financial

status reports, missing Minority Business Enterprise/Women Business Enterprise

(MBE/WBE) reports, noncompliance with terms and conditions, and property management findings.

The types of disciplinary actions for the above-listed recipients included: (1) stop

work orders; (2) recipients placed on payment reimbursement; (3) termination of

grant(s); (4) high risk designation which imposed special award terms and conditions; (5) warning/enforcement action letters; and (6) referral to the OIG for an

audit.

The length of time for disciplinary actions varies depending on the nature of the

problem and how quickly the recipient is able to address the deficiencies. In general,

the disciplinary action continues until the recipient has completed all corrective actions. EPA monitors the status and if the grantee is not making significant progress

without a justifiable reason, the Agency will initiate additional enforcement actions.

In general, recipients whose payments are specifically suspended or limited by a

term and condition are not paid until they have satisfied the condition. With respect

to the high risk grantees, some recipients continue to receive payments in accordance with the high risk condition for only those costs that: (1) are adequately supported with appropriate documentation required by the high risk condition; (2) have

been reviewed and certified by its CPA firm prior to submission to EPA, if necessary; and (3) have been reviewed and approved by the EPA Grant Specialist and

Project Officer.

Question 10a. The March 3, 2004, hearing raised two issues relating to disclosure:

available grants and awarded grants. What steps is the EPA taking toward providing more public information on available EPA grants? Will the EPA post such

information on the agency website?

Answer. EPA currently provides information to the public on grants through different websites. We provide general information on EPA assistance programs and

the types of grants we award through www.cfda.gov. We provide information on active grants through EPA’s Envirofacts warehouse at http://www.epa.gov/enviro/

html/gics/gics—query.html. Some EPA program offices provide information on the

projects they fund on their program web sites.

EPA also posts synopses of competitive grant opportunities on the grants.gov

website as directed by the Office of Federal Financial Management in the Office of
64

Management and Budget. The purpose of doing so is to provide potential applicants

with information about funding opportunities so they can decide whether they are

interested in applying for them. In addition, the Agency’s Office of Grants and Debarment website has a Grants Competition section which includes information on

competitive grant opportunities, including a list of available competitive grants

[http://www.epa.gov/ogd/competition/index.htm].

Question 10b. What steps is the EPA taking toward publicly disclosing all annual

recipients of grants, the amounts of those grants, and the purpose for which the

grant was awarded? Will the EPA post such information on the agency website?

Answer. EPA currently provides information on active grants through EPA’s

Envirofacts warehouse at http://www.epa.gov/enviro/html/gics/gics—query.html.

Beginning April 30, 2004, EPA will be posting information on new grant awards,

including the purpose and amount of each award, at the following web site: http:/

/www.epa.gov/ogd/grants/award.htm. The Agency will update this information on

a quarterly basis.

RESPONSES BY DAVID O’CONNOR TO ADDITIONAL QUESTIONS FROM

SENATOR JEFFORDS

Question 1. Your written testimony indicates that a mandatory certification program for project officers is in place. You also report that the Agency will assess

whether the program adequately equips project officers with the skills needed for

proper grants oversight. When and how will this assessment be carried out? Is there

an assessment protocol already in place?

Answer. As addressed in the Agency’s ‘‘Long Term Grants Management Training

Plan’’ EPA will be issuing the 6th edition of ‘‘Managing Your Financial Assistance

Agreement—Project Officer Responsibilities.’’ In offering training courses based on

the 6th edition, we will begin pre- and post-testing of all trainees. This will allow

us to demonstrate the basic knowledge of the project officers prior to taking the

class and after completing the class. The pre-test will be administered online as part

of the registration process for the class. Post-tests will be administered at the end

of day three. We are in the process of developing the 6th edition training class and

will pilot the pre- and post-testing concept this fall.

Question 2. According to the grants management plan, EPA set the following goal

for 2003: to award competitively 30 percent of new grants that are subject to the

competition policy. The same 30 percent target was set for new grants to non-profit

organizations. Were those 30 percent targets met? What plans are in place to ensure

that the 2004 and 2005 goals, which call for significant increases, are met?

Answer. EPA exceeded the 2003 goals to competitively award 30 percent of new

grants subject to the competition policy and 30 percent of new grants to non-profit

organizations that were subject to the competition policy. In the first year of implementation, the Agency competed 75 percent of new awards to non-profit organizations covered by the policy and over 85 percent of all new awards covered by the

policy. The Agency is encouraged by the first year statistics. However, it also recognizes, given EPA’s limited experience with grants competition, that the competition

policy needs to be strengthened to ensure that the Agency conducts effective grant

competitions. To that end, EPA’s Grants Competition Advocate (GCA) is in the process of performing a comprehensive review of the policy. The results of the GCA’s

review will be incorporated in a revised policy, which the Agency expects to issue

later this year. Possible changes to the policy include a reduction in the competition

threshold to open up more grant opportunities to competition.

EPA believes that a revised, strengthened competition policy, coupled with continued vigorous oversight by the GCA, should enable the Agency to achieve the 2004

and 2005 goals. EPA will be reporting on its success in meeting these goals in its

Annual Report to Congress.

Question 3. I understand that in fiscal year 2003 EPA provided a $55,000 grant

to a researcher at the University of Georgia. The purpose of the grant was to bioengineer poplar trees to absorb mercury from contaminated soils and materials and

transpire it into the air. This was done under contract or agreement number

68D02008. Why is EPA spending money developing or supporting technologies to

move mercury from the soil into the air?

Answer. EPA has been asked about funding research that used phytoremediation

to uptake mercury into the roots of trees and then to volatilize the mercury into

the atmosphere. EPA has opposed the volatilization of mercury into the atmosphere

from the beginning and EPA National Center for Environmental Research (NCER)
65

has not provided financial support for research supporting releases of mercury into

the atmosphere.

About 10 years ago, Dr. Richard Meager of the University of Georgia initiated a

research program to investigate the potential for using biotechnology to detoxify

mercury in the environment (research not funded by EPA). He found that one bacterial gene, MerB, has the capability to break the environmentally toxic methyl-mercury with the release of ionic mercury which is subsequently taken up by the bacteria. He also found that a second bacterial gene, MerA, has the capability to reduce

ionic mercury (potentially toxic to cells) to elemental mercury, a significantly less

toxic chemical form. Elemental mercury tends to vaporize at the normal atmospheric pressure. Dr. Meager proceeded to isolate these two bacterial genes and,

using biotechnology, he expressed them in plants. He subsequently proposed to use

these transgenic plants to phytoremediate methyl-mercury via compound breakdown, ionic mercury uptake into roots, reduction of ionic mercury to elemental mercury, and subsequent volatilization (transpiration) of elemental mercury in the atmosphere.

From early beginnings EPA, has opposed this approach with the objection that

elemental mercury transpired into the atmosphere will precipitate and will be

washed down by rain in the very same geographical proximity. EPA has never endorsed this approach, and NCER has never provided financial support (in the form

of a grant) for this research. Recently, NCER funded a phase 1 SBIR contract,

which is proposing to use plants transformed with MerB gene but not MerAgene.

In this project Dr. Laura Carreira, Applied PhytoGenetics, Inc., proposes to select

mercury-tolerant cottonwood transformed with MerB. These trees will have the capability to break down methyl-mercury, absorb ionic mercury and sequester the

ionic form in the above ground plant tissues without its release in the atmosphere

as elemental mercury. Because of his expertise in biotechnology, Dr. Meager was

chosen as a subcontractor in this research.

In summary: NCER has never provided financial support to Dr. Meager’s work

to release elemental mercury in the atmosphere. NCER has only supported a SBIR

phase1 contract to support the removal of toxic mercury stored in plant tissue.

RESPONSES BY DAVID O’CONNOR TO ADDITIONAL QUESTIONS FROM

SENATOR CRAPO

Question 1. The closure of mines and mills and consolidation of agri-business have

been as devastating to rural western economies as the abandonment of industrial

plants has been in the nation’s cities. Contamination, or the possibility of contamination, has hindered the re-development of these properties in rural towns—an objective of the Brownfields program. This past fall, EPA informed me that guidelines

for the fiscal year 2004 grant competition were being revised. How have the guidelines changed to better address the needs of small rural communities?

Answer. Based on feedback from the fiscal year 2003 competition, in the fiscal

year 2004 guidelines, we took out the specific reference to ‘‘populations under

100,000’’ in the applicant information section of the guidelines. We made the special

considerations more prominent in the fiscal year 2004 guidelines by having a section

entitled, ‘‘What are the statutory and policy considerations that EPA may take into

account?’’ and referenced urban and nonurban and other geographic factors. This

change allows us to consider balance between large populations and smaller rural

areas.

The distribution of Brownfields grants selected in fiscal year 2003 closely followed

the national distribution of grant requests received. Out of the 214 grants announced for fiscal year 2003, 116 represented non-urban areas with populations of

100,000 or less. In fiscal year 2003 we received 465 requests from the Western Regions (6–10) which represent 35 percent of the total number of requests received.

Of those 71 (33 percent of the national total of 214) were selected. This represents

a success award rate of 15 percent of total applications submitted for Western Regions which is commensurate with the national success rate of 16 percent. For fiscal

year 2004, proposals received from the Western Regions represent totaled 250 (33

percent of the total number of proposals received). Seven proposals have been received from the state of Idaho.

In addition to assessment, revolving loan fund and cleanup grants, EPA supports

small rural communities brownfields efforts through a cooperative agreement with

the National Association of Development Organizations (NADO). Over the past several years, NADO has issued a number of reports on improving support for small

rural communities including their Brownfields Resource Guide for Rural and Small

Communities which has gone through several reprintings due to popular demand.
66

NADO also holds brownfields workshops for small rural communities, with upcoming workshops scheduled in Idaho on June 17 and Montana on July 14.

Question 2. The fiscal year 2005 budget proposal would transfer the Brownfields

Economic Development Initiative, currently managed by the Department of Housing

and Urban Development, to EPA. Will EPA provide a similar program, with a bulk

of those funds earmarked for state grants?

Will the program be a revised program to equitably distribute funds between the

eastern and western United Sates and among urban and rural communities?

What are EPA’s plans in this regard?

Answer. No, the fiscal year 2005 budget proposal does not transfer the HUD

Brownfields Economic Development Initiative to EPA and EPA has no plans to manage the program.

The Department of Housing and Urban Development in fiscal year 2005 will continue to support the redevelopment of brownfields through its Community Development Block Grant (CDBG) program. EPA will continue to work collaboratively with

HUD on brownfield sites. HUD’s program has funded brownfield redevelopment activities (e.g., acquisition, demolition, and infrastructure redevelopment) which are

not authorized uses of EPA’s brownfield funds.

STATEMENT OF STEVE ELLIS, VICE PRESIDENT FOR PROGRAMS, TAXPAYERS FOR

COMMON SENSE

Good morning. Thank you for inviting me to testify and thank you for holding this

hearing on EPA grants management. I am Steve Ellis, Vice President of Programs

at Taxpayers for Common Sense (TCS), a national, non-partisan budget watchdog

organization. Our country is facing enormous budget deficits, and we must be sure

that every dollar spent is spent wisely and advances the nation’s goals.

I would also like to make it clear that TCS does not solicit or accept Federal

grants. Obviously, however, a lot of other organizations do. According to the Heritage Foundation, in fiscal year 2001, the Federal Government distributed more than

$325 billion in grants.1 As you know, roughly half—$4.2 billion in fiscal year 02—

of the Environmental Protection Agency’s (EPA) more than $8 billion budget is

awarded in the form of assistance agreements or grants. The agency awards grants

to more than 3,300 recipients including tribes, non-profits, State and local governments and universities to implement programs and projects intended to further

EPA’s goals. Given the size of the program, EPA’s success depends significantly on

how well it manages these grants. Unfortunately, for the last decade EPA’s grants

program has perhaps been best known for mismanagement or simply failure to

manage.

The EPA Inspector General (IG), the General Accounting Office (GAO), the Office

of Management and Budget (OMB), this committee and it’s parallel in the House

of Representatives have all pointed out for years that the grants program was failing the agency and Federal taxpayers. After several false starts under consecutive

administrations, EPA appears to have instituted reforms that could lead the agency

toward responsible management of its grant portfolio. But, time will tell whether

the agency has truly turned the corner. TCS recommends that additional measures

to help buttress EPA’s reform efforts, including development of grants management

evaluation criteria for program officers, annual progress reporting to Congress, and

rapid deployment and centralizing of proposed grant data base systems.

THE PROGRAM

Of the $4.2 billion in grants the EPA awarded in fiscal year 2002, $3.5 billion,

or 85 percent, was allocated to non-discretionary programs such as the drinking and

wastewater State revolving funds and a few other programs that are typically formula grants and earmarks. The remaining amount, $719 million, was awarded in

discretionary grants to State and local governments, tribes, non-profits, and universities.

The Catalog of Federal Domestic Assistance (CFDA), administered by the General

Services Administration, lists more than 70 different EPA assistance programs both

discretionary and non-discretionary. However, the bulk of these are program grants

or discretionary.2 Discretionary grant programs have received a great deal of scrutiny and well-earned criticism over the past few years. We applaud the committee

for its role in reviewing these programs, and urge the committee to look more closely at the non-discretionary programs to ensure that they are meeting the nation’s

goals at an appropriate cost.
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PROGRAM PROBLEMS

In his June 2003 testimony, Mr. John Stephenson of the GAO clearly articulated

four major areas EPA’s grants program needs to address.3 TCS strongly agrees with

these comments. The four key areas EPA has to improve are:

• Award discretionary grants competitively and solicit from a large pool of applicants.—Sole source or directed grants fail to ensure that the taxpayer is receiving

the best available product at the best price. If EPA deviates from competition, it

should be the exception, not the rule, and the rationale must be fully documented.

According to the GAO, although required, these decision memorandums are not always completed.4 Additionally, if grant opportunities are more broadly published,

we are more likely to receive competitive terms.

• Effectively oversee grantees’ progress and compliance with terms.—The EPA does

not require enough financial and progress information from grantees and does not

consistently ensure that grantees comply with regulations; the EPA either does not

conduct enough monitoring of contracts, or, if it does, the monitoring is not documented.

• Manage grants so they are effective in achieving desired results.—In some cases,

the agency does not have a clear vision of either the goals of particular programs

or how to measure results against its goals; either case significantly reduces the

possibility of a grant helping the agency meet overall goals.

• Hold staff accountable for performing duties, ensure staff are properly trained

and have the right information.—It is simple. EPA’s grants program is only going

to be as successful as its grant administrators and program officers. Adequate resources, training and accountability need to be directed at frontline grant personnel

if EPA grants programs are to be successful.

The EPA IGs’ March 2003 analysis of pre-award reviews, summed up the last

point very clearly:

Project officers are responsible for ensuring Federal funds are protected and

prudently awarded. However, Agency leadership had not always emphasized

the importance of project officer duties, nor held project officers accountable for

conducting complete pre-award reviews. It is crucial that management create an

environment that considers the management of assistance agreements and the

project officer function vital to the Agency’s mission.5

A key message from this EPA IG report is that the agency must clearly define

missions and goals expected from its grant program so that the taxpayer can be

sure that every dollar spent is helping EPA realize its goals and mission.

In the IG’s random sample of 116 EPA assistance agreements, it found that in

19 percent program officers had not determined the link between the grant work

plan and agency objectives. In 31 percent, program officers had not determined the

technical feasibility of the grant applicant completing the work. In 79 percent of the

applicable agreements, required cost reviews of whether costs are eligible and reasonable were not completed. In 42 percent, there were no environmental outcomes

negotiated. In 24 percent, milestones or deliverables were not included.6

Rather than simply laying these failures at the feet of program officers, higher

leadership at the EPA must address these training, incentive, and accountability

needs. Staff will only be able to perform what they are trained to do, is demanded

of them and they are evaluated on. It is incumbent on senior EPA officials to retrain

agency norms if their reform approaches are to succeed.

EPA’S RECENT REFORM EFFORTS

After constant criticism from the EPA IG, GAO, and OMB, EPA issued the first

policy to govern the competitive award of grants in September 2002.7 This established several criteria governing competition: a $75,000 threshold; detailed justification for noncompetitive awards; standard procedures for steps in the application

process; and a new Grants Competition Advocate to oversee the program.8 However,

there are exceptions for unsolicited grants and ‘‘managed competition’’. Clearly, a

shift to a competitive grant process represents a significant change in agency culture. To be effective, active measurement and oversight of these new objectives will

be essential.

In December 2002, EPA issued a new grant oversight policy,9 intended to increase

in-depth monitoring of grantees, in part by requiring all compliance activities be entered into a data base; and requiring all transactions be tested for unallowable expenditures during onsite reviews.10

Finally, the agency issued its Grants Management Plan for 2003–2008 in April

2003. This plan outlined five goals in response to much of the criticism EPA had

received. These goals are:
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1. Enhance the Skills of EPA Personnel Involved in Grants Management

2. Promote Competition in the Award of Grants

3. Leverage Technology to Improve Program Performance

4. Strengthen EPA Oversight of Grants

5. Support Identifying and Achieving Environmental Outcomes.

These reforms appear to be on the mark. However, any EPA plan must be evaluated based on both the fine print and the follow through. The Grants Management

Plan outlines several objectives for training grants personnel, and requires that 100

percent of grants be managed by certified project officers. However, the 2003 baseline is 85 percent. Considering the problems documented by the EPA IG shortly before this plan was released, the certification process itself may be flawed. Promoting

competition for grant awards clearly comes down to agency commitment. If EPA

cracks down on allowing sole source and similar grants, competition will flourish,

plain and simple. If the Integrated Grants Management System (IGMS) is fully deployed it could significantly help in grant tracking. Strengthening oversight on

achieving outcomes requires a commitment by EPA at both the national and regional level to look over grantees shoulders and demand the basic information

grantees are supposed to supply.

ADDITIONAL REFORMS AND CONSTANT VIGILANCE

We support the reforms the EPA has proposed, but there are some additional improvements that can be made. To truly inculcate responsible grant management

throughout the agency, EPA must develop performance standards for EPA grant

management staff. Reform will only be effective if program officers and grant management personnel embrace these efforts. If personnel are not evaluated on grant

management performance, it will be perceived as a lower priority and we will be

back discussing grant management failures at EPA every few years.

Similarly, senior EPA officials have to commit to making reforms stick. To concentrate their attention, we believe it is vital that the EPA report to Congress annually on its progress and that this committee, the GAO, and the EPA IG exercise the

vigorous oversight that has gotten us this far in the reform process.

Finally, we strongly believe that centrally and publicly available grant and tracking data will make reform efforts more enforceable and efficient. We urge the EPA

to deploy the IGMS system as quickly as possible, but again, any system will only

be as effective as the people inputting the data. To that end, we urge the EPA to

investigate centralizing and streamlining grant management to fewer, more highly

trained individuals.

Although it is apparent that there has been much done to increase accountability

in the EPA grants system, there is much more to do. However, we do believe that

with vigilant oversight, EPA has turned the corner on reforms. We are in difficult

budget times. With a $521 billion deficit, we have to be sure that every dollar we

spend is being spent cost-effectively to further our nation’s goals.

Thank you for the opportunity to testify and I would be happy to answer any

questions you might have.

REFERENCES

1. Yablonski, Christopher, Heritage Foundation Backgrounder No. 1615: Expanding Competition for Federal Grants. November 25, 2002.

2. Catalog of Federal Domestic Assistance, available at http://www.cfda.gov/public/browse—agy.asp?agy—id=66&st=1. Last visited February 28, 2004.

3. Testimony of John B. Stephenson, Director, Natural Resources and Environment, General Accounting Office before the Subcommitte on Water Resources and

Environment Committee on Transportation and Infrastructure. June 11, 2003.

4. Ibid. p. 4.

5. U.S. Environmental Protection Agency Inspector General Audit Report: EPA

Must Emphasize Importance of Pre-Award Reviews for Assistance Agreements (Report No. 2003–P–00007). March 31, 2003. p. i.

6. Ibid. pp. 4–9.

7. EPA Order on Grants Competition (EPA Order 5700.5).

8. U.S. Environmental Protection Agency Grants Management Plan 2003–2008

(EPA–216–R–03–001). April 2003.

9. EPA Order on Compliance, Review and Monitoring (EPA Order 5700.6).

10. Testimony of John B. Stephenson, Director, Natural Resources and Environment, General Acounting Office before the Subcommittee on Water Resources and

Environment Committee on Transportation and Infrastructure, June 11, 2003.

11. U.S. Environmental Protection Agency Grants Management Plan 2003–2008

(EPA–216–R–03–001). April 2003.
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