United States Government Accountability Office

GAO Report to the Chairman, Subcommittee 

on Government Management, Finance 

and Accountability, Committee on 

Government Reform, House of 

Representatives 

GRANTS 

MANAGEMENT 

Enhancing 

Performance 

Accountability 

Provisions Could Lead 

to Better Results 

September 2006 

 

GAO-06-1046 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2006

GRANTS MANAGEMENT 

Enhancing Performance Accountability 

Highlights of GAO-06-1046, a report to the Provisions Could Lead to Better Results 

Chairman, Subcommittee on Government 

Management, Finance and Accountability,

Committee on Government Reform, 

House of Representatives

Maximizing the extent to which

grants achieve their long-term 

performance goals is critical to 

successfully addressing the

challenges of the 21st century.

While performance accountability

mechanisms are fairly new to

federal grants, they have been used 

in contracts for some time and

lessons learned have begun to 

inform federal grant design. Given 

this, GAO was asked to examine

(1) challenges to performance 

accountability in federal grants, 

(2) mechanisms being used to 

improve grant performance, and 

(3) strategies the federal 

government can use to encourage 

the use of these mechanisms. GAO 

performed a content analysis of 

relevant literature and interviewed 

experts. To illustrate the

mechanisms and strategies found

in the literature, GAO used

examples from the literature and 

selected additional case 

illustrations—two federal grant 

programs (vocational education

and child support enforcement) 

and two nonfederal contracts—for 

further study.

What GAO Recommends

GAO recommends that the Director 

of OMB work with agencies and 

Congress to encourage the use of 

performance accountability

mechanisms in grant design and 

implementation by promoting the 

practices in this report and

encouraging knowledge transfer

among agencies and grantees. OMB 

generally agreed with our findings

and recommendation. 

Accountability provisions in federal grants can vary widely. They can be 

financial (e.g., bonus payments) or nonfinancial (e.g., altered oversight or 

flexibility), and can be employed by various actors at different stages in the 

grant life cycle (see figure below). Mechanisms need to be tailored to 

specific situations since there is no “one-size-fits-all” solution. Collectively, 

five key strategies appear to facilitate the effective design and 

implementation of performance accountability mechanisms. They are as 

follows: 

1. ensure mechanisms are of sufficient value to motivate desired 

behaviors, 

2. periodically renegotiate and revise mechanisms and measures, 

3. ensure appropriate measurement selection, 

4. ensure grantor and grantee technical capacity, and 

5. allow for phased implementation. 

In addition to these strategies, collaboration, oversight, and feedback also 

appear critical to the success of performance accountability mechanisms. 

Opportunities exist to improve the design and implementation of federal 

grants. A results-focused design can enable and facilitate the use of 

accountability provisions. National program evaluation studies and 

demonstration grants can provide valuable information to support oversight 

of and knowledge about accountability mechanisms. Finally, the Office of 

Management and Budget (OMB), agencies, and grantees can benefit from 

sharing good practices and lessons learned regarding performance 

accountability provisions. OMB recognized the value in sharing information 

on performance accountability mechanisms, but has not yet focused on this 

issue. 

Accountability Provisions Can Be Used by Various Actors throughout the Grant Life Cycle 

www.gao.gov/cgi-bin/getrpt?GAO-06-1046.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Bernice 

Steinhardt at (202) 512-6543 or 

steinhardtb@gao.gov. 
Contents 

Letter 1

Results in Brief 4

Background 7

Trade-offs and Challenges Exist in Ensuring Performance 

Accountability in Federal Grants 11 

Accountability Mechanisms Can Improve Performance and 

Performance Accountability 15 

Strategies Support Successful Selection, Design, and 

Implementation of Performance Accountability Mechanisms 22 

Various Opportunities Exist at the Federal Level to Enhance 

Performance Accountability in Grants 34 

Conclusions 39

Recommendation for Executive Action 41 

Agency Comments 41 

Appendix I Objectives, Scope, and Methodology 42 

Appendix II GAO Contact and Staff Acknowledgments 44 

Bibliography 45 

Tables 

Table 1: Examples of Accountability Provisions 16 

Table 2: Sources and Types of Authorization and Guidance for 

Performance Accountability Mechanisms 20 

Table 3: Examples of Ways to Tailor Performance Measures and 

Mechanisms 21

Figure 

Figure 1: Accountability Provisions Can Be Used at Different 

Points in the Grant Life Cycle by Various Users 18 

Page i GAO-06-1046 Grants Management
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Page ii GAO-06-1046 Grants Management
United States Government Accountability Office

Washington, DC 20548 

September 29, 2006 

The Honorable Todd Platts 

Chairman, Subcommittee on Government Management, 

 Finance and Accountability 

Committee on Government Reform 

House of Representatives 

Dear Mr. Chairman: 

The federal government faces an array of challenges and opportunities to 

enhance performance, ensure accountability, and position the nation for 

the future. A number of overarching trends—including the nation’s longterm fiscal imbalance—drive the need to reexamine what the federal

government does, how it does it, who does it, and how it gets financed.

Because grants to state and local governments constituted nearly 20 

percent of total federal outlays in fiscal year 2005, maximizing the extent 

to which grants achieve their long-term performance goals and objectives 

is critical to successfully addressing the challenges of the 21st century. 

In recent years, interest in federal grant performance accountability has 

grown. For the purposes of this report, performance accountability is 

defined as the mechanisms by which individuals or organizations are held

accountable for meeting specified performance-related expectations. 

Consistent with the decade-long trend toward an increased results 

orientation and expectation for performance accountability as evidenced 

by the Government Performance and Results Act of 1993 (GPRA),1

performance accountability mechanisms in federal grants have become 

more common. For example, performance assessment mechanisms are 

present in grants authorized by both the Job Training Partnership Act and

its successor program, the Workforce Investment Act of 1988 (WIA) and 

the No Child Left Behind Act.2

 More recently, the Office of Management 

and Budget (OMB) developed the Program Assessment Rating Tool 

(PART), which, among other things, holds federal programs and their 

partners accountable for performance. Simply monitoring and reporting 

performance can also encourage performance accountability and 

 1

Pub. L. No. 103-62, 107 Stat. 285 (1993). 

2

Pub. L. No. 105-220, Pub. L. No. 107-110. 

Page 1 GAO-06-1046 Grants Management
performance improvements. In this report, we have focused on specific 

mechanisms that are meant to encourage performance incentives—such 

as rewards given or penalties imposed—when performance exceeds or 

fails to meet specified levels. 

While performance accountability mechanisms are fairly new to some 

federal grants, they have been used in contracts and loans for some time. 

Moreover, lessons learned from performance-based contracting have 

begun to inform federal grant design, for example, in the case of WIA 

grants requirements. In addition, some states award their federal passthrough grants to subgrantees as contracts with performance 

accountability requirements.3

Given this growing body of experience, you asked us to examine ways to 

infuse effective performance accountability mechanisms and practices 

into the federal grant process. Specifically, our objectives were to identify

(1) What kinds of challenges to performance accountability exist in federal

grants? (2) What kinds of mechanisms are being used to improve grant 

performance, and how? and (3) Given the findings of questions 1 and 2,

what strategies can the federal government use to encourage the use of 

these mechanisms, as appropriate? For the purposes of this report, we 

were interested specifically in the mechanisms by which individuals or 

organizations are held accountable for meeting specified performancerelated expectations that are directly tied to a grant. 

To address our objectives, we conducted a literature review that included

our prior reports, and interviewed experts in the area of federal grant and

contract performance accountability to identify the: (1) challenges to 

performance accountability that exist in federal grants, (2) types of 

performance accountability mechanisms—defined as rewards and 

penalties—used, and (3) key strategies that appear to encourage the 

successful implementation of performance accountability mechanisms. 

Our identification of types of mechanisms and strategies was developed by 

conducting a content analysis of selected literature from our review that 

met our criteria for addressing the issue of accountability. Recognizing 

that grants have increasingly assumed features traditionally associated 

with contracts, we drew on experiences from both performance-based 

contracting and grants to help identify valuable lessons learned that could 

 3

Pass-through grants are federal grants given to state governments that are subsequently 

distributed to county, municipal, or township governments. 

Page 2 GAO-06-1046 Grants Management
inform efforts to improve performance accountability in federal grants. To

illustrate these mechanisms and strategies, and to supplement our findings 

and the many case examples identified by our content analysis, we use 

relevant case examples found in the literature. We also selected four 

additional cases for further in-depth illustrations. These four cases were 

selected based on our literature review, interviews with experts, and 

reviews of prior GAO work because they are good examples of where (1) a 

performance mechanism was present and (2) there is reason to believe 

that performance improved. We selected two federal grant programs and 

two nonfederal contracts: (1) the federal vocational education grants 

authorized by the Carl D. Perkins Vocational and Technical Education Act 

of 1998 (Perkins III), which are passed through states to secondary and 

postsecondary schools for career and technical education; (2) the federal

Child Support Enforcement (CSE) program, authorized by the Social

Security Act, Title IV, part D, which ensures that children are financially 

supported by both parents; (3) the real property management contract 

between the Ontario Provincial Government’s Ontario Realty Corporation 

(ORC) and SNC-Lavalin ProFac, Inc. (ProFac), a private property 

management company; and (4) the contract between the Massachusetts 

Division of Medical Assistance (DMA) and the Massachusetts Behavioral 

Health Partnership (MBHP) for the provision of mental health and 

substance abuse services for residents covered by the MassHealth 

Medicaid program. 

To develop the federal grant case illustrations and obtain perspectives on

the strategies we identified, we interviewed federal headquarters and 

regional program and finance officials from the federal agencies that 

administer the grant programs—the Departments of Education and Health

and Human Services. In addition, we visited selected grantees and 

subgrantees from among these programs that federal and state officials 

identified as being particularly successful—or as facing particular 

challenges—with performance accountability. To develop the contracting 

case illustrations, we interviewed, conducted site visits, or both with both 

contractors and contracting agencies. For both the grant and contract 

cases, we reviewed the authorizing legislation or contract, guidance, 

documentation, and prior studies, and interviewed relevant officials to 

obtain perspectives on the strategies we identified. 

See appendix I for a more detailed discussion of our scope and 

methodology. 

We conducted our work from December 2005 through August 2006 in

offices in Washington, D.C.; Harrisburg, Lancaster, Norristown, and 

Page 3 GAO-06-1046 Grants Management
Philadelphia, Pennsylvania; Eloy, Glendale, and Phoenix, Arizona; and 

Boston, Massachusetts, in accordance with generally accepted 

government auditing standards. 

Although there are various ways to design grants to encourage 

performance accountability, in general, there are three factors that 

particularly affect the degree of performance accountability that can be 

achieved, including whether a grant (1) includes performance-oriented 

objectives in addition to fiscally oriented objectives, (2) operates as a 

distinct program or as a funding stream, and (3) supports a limited or 

diverse array of objectives. Because design features that encourage 

performance accountability can limit state and local grantee flexibility, 

achieving these twin goals can be a delicate balancing act, and has 

implications for the accountability relationship between levels of 

government and the information needed to support accountability. Even in

federal grants with designs that favor performance accountability, grant 

implementation challenges related to developing performance goals and 

measures as well as collecting and reporting performance data can 

influence the extent of performance accountability achieved.

Results in Brief 

Accountability mechanisms available for use in grants vary widely and can

be financial or nonfinancial in nature. A financial mechanism could reward 

performance with increased funding or a onetime bonus payment; 

nonfinancial mechanisms include such things as altered oversight or 

flexibility. Financial mechanisms also vary the degree of risk sharing 

between the grantor and the grantee. Many mechanisms can be employed

by Congress, agencies, or grant recipients at different points throughout 

the grant life cycle. Mechanisms are flexible and need to be tailored to 

specific situations since not all mechanisms are appropriate to all 

situations, and there is no “one-size-fits-all” or “magic bullet” solution to 

performance accountability. 

Collectively, five key strategies appear to facilitate the effective design and 

implementation of performance accountability mechanisms. They are as 

follows: 

• Ensure mechanisms are of sufficient value. The value of the rewards and 

penalties—whether financial or nonfinancial—and the cost of improved 

performance are adequate to motivate desired behaviors and provide a 

meaningful return to both the grantor and the grantee. 

• Periodically renegotiate and revise mechanisms and measures. Provide for

and use the flexibility to reevaluate performance accountability 

Page 4 GAO-06-1046 Grants Management
mechanisms and associated performance measures at regular, scheduled 

intervals and allow time to learn from each cycle to improve performance. 

• Ensure appropriate measurement selection. Measures should represent 

performance that is within the grantee’s sphere of influence, and can 

reasonably be achieved and evaluated within the specified time frame, and 

should be tested over time to minimize the potential for unintended 

consequences and perverse incentives. 

• Ensure grantor and grantee technical capacity. Grantors and grantees 

should have the necessary knowledge about performance accountability 

mechanisms and the ability to effectively implement them. 

• Ensure phased implementation. Allow time to design, test, and revise 

measurement systems before linking them to accountability mechanisms. 

In addition to these strategies, we noted extensive use of partnerships and 

collaborations and regular and effective oversight and feedback, which 

appeared critical to the success of accountability provisions in a thirdparty environment. We have previously reported that these practices are

often associated with both high- performing organizations4

 and 

organizations that effectively used performance information to manage.5

The experiences with and strategies related to federal grant accountability 

provisions described in this report suggest a number of opportunities for 

Congress and the executive branch to improve the design and

implementation of performance accountability mechanisms. First, a 

results-focused design can help encourage performance accountability in 

general and specifically provide for—or at least not prohibit—the use of 

accountability mechanisms to encourage desired behavior. In addition, the 

use of national program evaluation studies and research and

demonstration grants can provide valuable information to assist in agency

and congressional oversight of and knowledge about accountability 

mechanisms. Because credible performance information and performance 

measures form the basis for well-functioning accountability provisions, it 

remains critical for Congress and the executive branch to continue to 

 4

The other attributes of high-performing organizations are a clear, well-articulated, and 

compelling mission; a focus on the needs of the clients and customers; and the strategic 

management of people. 

5

GAO, Comptroller General’s Forum: High-Performing Organizations: Metrics, Means,

and Mechanisms for Achieving High Performance in the 21st Century Public 

Management Environment, GAO-04-343SP (Washington, D.C.: Feb. 13, 2004), and 

Managing for Results: Enhancing Agency Use of Performance Information for 

Management Decision Making, GAO-05-927 (Washington, D.C.: Sept. 9, 2005). 

Page 5 GAO-06-1046 Grants Management
encourage the development and use of such measures. Finally, OMB and 

agencies—as well as grantees—can benefit from sharing good practices 

and lessons learned about experiences with performance accountability 

provisions in federal grants, as this is an efficient and effective way to 

increase grantor and grantee knowledge, understanding, and use of these 

provisions. 

OMB, as the focal point for overall management in the executive branch, 

plays a key role in improving the performance of federal programs. It uses 

a number of vehicles, such as Web sites with information about 

performance measures and grants targeted to federal agencies and 

informal workshops and seminars, to encourage general performance 

improvement in federal programs. OMB staff told us that focusing 

specifically on performance accountability provisions in grants is 

necessary and useful, but that to date, they have focused their efforts on 

encouraging and enhancing agency capacity to develop high-quality, 

results-based program performance measures since improving the quality 

of measures and data necessarily precedes tying them to accountability 

provisions. 

We are therefore recommending that the Director of OMB encourage and

assist federal agencies in working with the Congress to expand the 

effective use of performance accountability mechanisms, focusing on the 

practices in this report, when federal grant programs are being created or 

reauthorized. We further recommend that OMB offer opportunities for 

knowledge transfer among federal agencies and encourage agencies to 

share leading practices and lessons learned in implementing grant 

accountability mechanisms. Possible vehicles for the collection and 

dissemination of this information include good practices guides and 

workshops and Web sites such as results.gov, grants.gov, and 

expectmore.gov. 

On August 22, 2006, we provided a draft of this report to the Director of 

OMB and the Secretaries of Education and Health and Human Services. 

We also provided relevant sections of a draft of this report to the grantees 

and contractors highlighted in this report. We received technical 

comments from all three agencies, which were incorporated as 

appropriate. In addition, OMB agreed with our recommendation but 

suggested we broaden it to address the role of federal agencies and 

Congress in the grant redesign and reauthorization process. We agree, and 

have amended our recommendation accordingly.

Page 6 GAO-06-1046 Grants Management
Grants, along with contracts and cooperative agreements, are tools used 

by the federal government to achieve national priorities via nonfederal 

parties, including state and local governments, educational institutions, 

and nonprofit organizations. Diverse in structure and purpose, grants can

be generally classified as either categorical or block, with categorical 

grants allowing less recipient discretion than block grants. For example, 

the Community Services Block Grant provides funds to states and is 

sometimes passed to local agencies to support a variety of efforts that 

reduce poverty, revitalize low-income communities, and lead to selfsufficiency among low-income families and individuals, while giving the 

agencies broad discretion in how the funds can be spent. In practice, the 

“categorical” and “block” grant labels represent the ends of a continuum 

and overlap considerably in its middle range. 

Grant funds may also be grouped by their method of allocating funds. 

Formula grants allocate funds based on distribution formulas prescribed 

by legislation or administrative regulation and often narrowly define the 

eligible recipients as state agencies. On the other hand, categorical grants

are generally awarded on a competitive basis to applicants meeting 

broader eligibility requirements. 

Despite substantial variation among grants, grants generally follow a 

similar life cycle and include announcement, application, award, 

postaward, and closeout phases. Once established through legislation, 

which may specify particular objectives and eligibility and other 

requirements, a grant program may be further defined by grantor agency

requirements. For competitive grant programs, the public is notified of the 

grant opportunity announcement, and potential grantees must submit their 

applications for agency review. In the awards stage, the agency identifies 

successful applicants or legislatively defined grant recipients and awards 

funding. The postaward stage includes payment processing, agency 

monitoring, and grantee reporting, which may include financial and 

performance information. The closeout phase includes preparation of final 

reports, financial reconciliation, and any required accounting for property. 

Traditionally, grant accountability has referred to legal or financial 

compliance. The Single Audit Act,6

 for example, requires grantees to 

conduct an overall financial compliance audit to promote accountability. 

As such, at a minimum all grantees are held accountable for sound 

Background 

 6

Pub. L. No. 98-502. 

Page 7 GAO-06-1046 Grants Management
financial management and use of federal funds to support allowable 

activities. Beyond that, however, accountability for performance varies 

from grant to grant. As discussed earlier, this historical focus on financial 

accountability has expanded in response to increasing expectations of 

demonstrable performance and performance accountability for all 

government programs. For example, the Comptroller General’s Domestic 

Working Group issued its Guide to Opportunities for Improving Grant 

Accountability, highlighting innovative approaches and promising 

practices in grants management—focused both on ensuring grant funds 

are spent properly as well as achieving their desired results.7

While performance accountability in grants is a relatively new pursuit, it 

has been used in contracts for a number of years. To illustrate 

performance accountability mechanisms and the strategies that contribute 

to their successful design and implementation, we examined four cases:

(1) the federal CSE program, (2) the federal Perkins III Career and 

Technical Education Program, (3) a performance-based contract between 

the Massachusetts DMA and MBHP, and (4) a performance-based contract 

between the Canadian Ontario Realty Corporation (ORC) and ProFac. 

The CSE program was established in 1975 by Title IV-D of the Social 

Security Act (Pub. L. No. 93-647). CSE functions in all states and territories 

through state or local social services departments, attorneys general 

offices, or departments of revenue in order to ensure that children are 

financially supported by both of their parents. State programs work 

toward establishing paternity, locating parents, establishing and enforcing 

support orders, and collecting and distributing child support payments. 

The federal Office of Child Support Enforcement (OCSE), an office of the 

Department of Health and Human Services’ Administration for Children 

and Families, oversees the development, management, and operation of

state CSE programs and provides financial support (66 percent of total 

operating costs) to states. In fiscal year 2005 federal expenditures on CSE 

were $3.5 billion, with states spending $1.8 billion. Total collections in 

fiscal year 2005 were more than $23 billion. The total legally owed support 

for fiscal year 2005 was $29 billion, with $17.4 billion of that collected. 

Child Support 

Enforcement 

 7

Domestic Working Group, Grant Accountability Project, Guide to Opportunities for 

Improving Grant Accountability. October 2005. This guide states that it is designed to 

provide government executives at the federal, state and local levels with ideas for better 

managing grants. The guide focuses on specific steps taken by various agencies. The intent

is to share useful and innovative approaches taken, so that others can consider using them. 

Page 8 GAO-06-1046 Grants Management
Total arrears (past due payments) for all previous years combined was 

$107 billion. Over $7 billion of those past due payments were collected and 

distributed in fiscal year 2005. 

The Child Support Performance and Incentive Act of 1998 (Pub. L. No. 105-

200) linked incentive payments to performance, and in fiscal year 2005, 

OCSE made over $450 million in incentive payments to states. This act 

changed the original CSE incentive program from awarding incentives 

based solely on cost-effectiveness to awards based on meeting specific 

performance targets in five outcome areas: paternity establishment, order 

establishment, current collections, past due collections, and costeffectiveness. The performance measures and targets are defined in the 

text of the act, which also provides a formula for determining the amount 

of each incentive payment. Additionally, the act established an alternative 

penalty system for those states not yet in compliance with the statewide 

automated data processing system required by Title IV-D Sec. 454(A) of 

the Social Security Act. The new incentive program was phased in from 

2000 through 2002. 

Effective July 1, 1999, the Carl D. Perkins Vocational and Technical 

Education Act of 1998 (Perkins III, Pub. L. No. 105-332) amends earlier 

legislation to evaluate and improve vocational and technical education.

8

Each year under Perkins III, Congress has appropriated more than 

$1.1 billion in grants to states for career and technical education. The 

Office of Vocational and Adult Education (OVAE), an office of the 

Department of Education, administers the grants established in Perkins III, 

a pass-through grant to states, which administer the distribution of the 

funds to local school districts. 

Perkins III defines major roles for OVAE and states in establishing 

performance accountability systems for vocational and technical 

education. States are given the responsibility for developing performance 

measures and data collection systems related to four required core 

performance indicators: academic and technical skill attainment, 

completion, placement and retention, and nontraditional participation and 

completion. OVAE negotiates these performance measures with states to 

Carl D. Perkins Career and 

Technical Education 

 8

On August 12, 2006, the Carl D. Perkins Career and Technical Education Improvement Act 

of 2006 (Perkins IV) became Pub. L. No. 109-270. Perkins IV includes some revisions to the

performance and accountability provisions. 

Page 9 GAO-06-1046 Grants Management
ensure that they are sufficiently rigorous. States not meeting their 

performance levels for 1 year are required to complete a program 

improvement plan. States not meeting their performance levels for 2 years

are subject to financial sanctions, although no state has failed to meet its 

overall levels for 2 consecutive years. States have also been eligible to 

receive incentive funds if they exceeded performance goals for the Perkins 

III grant as well as targets established by Title I and Title II of WIA. Title I 

of WIA supports workforce investment programs. Title II, also known as 

the Adult Education and Family Literacy Act, provides adult education 

funds to states. Governors have the authority to allocate the incentive 

funds for use in any of the three program areas. 

Beginning in 1996, the Massachusetts DMA entered into a 5-year contract, 

which was renewed in 2001, with MBHP to manage mental health and

substance abuse services for roughly 300,000 people covered by the 

MassHealth Primary Care Clinician Plan—part of the Massachusetts 

Medicaid program. Of the individuals covered by the plan, more than half 

are children 18 or younger, including 20,000 children in the custody of the 

commonwealth’s Departments of Social Services and Youth Services. 

The structure of the contract between DMA and MBHP involves a base 

contract, which governs requirements related to administrative and 

medical operations. These requirements continue through the life of the 

contract, or until they are modified through amendments. In addition to 

the base contract, there are performance incentive projects that focus on 

research and development projects. The majority of earnings available to

MBHP come from the organization’s successful completion of these 

contractually defined incentive projects, which are renegotiated annually. 

Earnings are achieved only after the successful completion of specified 

goals and objectives, as documented and reviewed by the state. 

ProFac, a facilities management company, was awarded a 5-year contract 

in 1999 (since renewed) by ORC to provide facilities management services 

for approximately 30 million square feet of space in 2,100 building sites 

owned by the Ontario government. About 280 ProFac managers, 

engineers, technicians, and support staff provide these services. 

The contract between ORC and ProFac links performance to a 10 percent 

quarterly management fee holdback: on a monthly basis, ORC only 

reimburses ProFac for 90 percent of its administrative costs, retaining the 

other 10 percent, a “holdback,” which ORC returns to ProFac on a 

Massachusetts Division of 

Medical Assistance 

Contract with the 

Massachusetts Behavioral 

Health Partnership 

Ontario Realty 

Corporation’s Contract 

with ProFac 

Page 10 GAO-06-1046 Grants Management
quarterly basis only if ProFac obtains a sufficient level of performance. 

This contract also links performance to an annual share-in-savings 

arrangement: ORC sets a budget each year based on prior years’ actual 

expenditures and budget projections; if ProFac spends less than the 

budget, it is able to share the difference, a share in savings, only if it 

reaches a sufficient operational level. ProFac’s performance on 30 key 

performance indicators (KPI) determines its operational level. These KPIs 

are accumulated to determine a score in four performance objectives: 

management performance, financial performance, asset integrity, and 

customer service. The performance objectives are scored and then 

weighted according to ORC’s priorities to determine a total performance 

rating. 

The trade-offs and challenges associated with performance accountability 

in federal grants largely depend on several key aspects of grant design and 

implementation. As we have previously reported, performance 

accountability tends to be greater (and grantee flexibility lower) in 

programs with certain types of design features. Because design features 

that encourage performance accountability can limit state and local 

grantee flexibility, achieving these twin goals can be a delicate balancing 

act and has implications for the accountability relationship between levels

of government and the information needed to support accountability. Even 

in federal grants with designs that favor performance accountability, grant 

implementation challenges related to developing performance goals and 

measures as well as collecting and reporting performance data can 

influence the extent of performance accountability achieved.

Although there are various ways to design grants to encourage 

performance accountability, in general, there are three factors that 

particularly affect the degree of performance accountability that can be 

achieved, including whether a grant (1) includes performance-oriented 

objectives in addition to fiscally oriented objectives, (2) operates as a 

distinct program or as a funding stream, and (3) supports a limited or 

diverse array of objectives. 

As we discussed previously, federal grants have traditionally focused on 

fiscal or legal accountability, such as holding states accountable for using 

federal grant funds to supplement rather than to supplant their own 

spending on a particular activity. However, federal grants that also include 

performance-oriented objectives—as well as the provisions that 

implement them—provide the basis for performance measurement and 

Trade-offs and 

Challenges Exist in 

Ensuring 

Performance 

Accountability in 

Federal Grants 

Grant Design Features 

Affect the Balance 

between Accountability 

and Flexibility 

Page 11 GAO-06-1046 Grants Management
accountability for results, and signal a federal role in managing

performance over the grant. Ideally, both types of objectives would be 

present in federal grants. Performance-related objectives focus on service 

or production activities and their results. For example, the central 

objective of the grants for Special Programs for the Aging—Nutrition 

Services, is to provide nutritious meals to needy older Americans to 

improve nutrition and reduce social isolation. In contrast, fiscal or 

financial assistance objectives focus on providing dollars to support or 

expand activities. Typical fiscal objectives include increasing support for 

meritorious goods or underfunded services and targeting grant funding to

needy jurisdictions. For example, the objective of Title VI Innovative

Education grants is to provide funds to support local education reform 

efforts. When objectives are purely fiscal, accountability to the federal 

agency tends to focus on fiscal matters, such as holding states accountable 

for using federal grant funds to supplement rather than to supplant their 

own spending on a particular activity. 

Even when performance-oriented objectives are present, whether federal 

grants operate as distinct programs or as part of a larger funding stream 

directly affects who can be held accountable and for what.9

 A grant that 

operates as a program has performance requirements and objectives and 

carries out specific programwide functions through a distinct delivery 

system, such that grant-funded activities, clients, and products are clearly 

identifiable. This type of grant gives the federal agency a role in managing 

performance and makes it easier to obtain uniform information about 

performance attributable to the grant funds. It is possible to identify which 

activities were supported; the amount of federal funds allocated to each; 

and to various extents, the results grantees achieved with federal funds. 

In contrast, funds from grants that operate as part of a funding stream are 

merged with funds from state or local sources (and sometimes from other 

federal sources) to support state or local activities allowable under the 

flexible grant. These programs are managed at the state or local level, with

the federal role limited accordingly. When grants are part of a funding 

stream, it is possible to identify which activities federal funds supported 

and the amount allocated to each, but once the grant funds are combined 

with the overall budget for a state or local activity, federal dollars lose 

their identification and their specific results cannot be separated out. This

 9

GAO, Grant Programs: Design Features Shape Flexibility, Accountability, and 

Performance Information, GAO/GGD-98-137 (Washington, D.C.: June 22, 1998). 

Page 12 GAO-06-1046 Grants Management
is particularly the case when the federal share is small, with most funding 

coming from other sources. The program outcome measures available in

such programs are likely to be for outcomes of the state or local service 

delivery program, not the federal program from which the funding 

originated. Thus, grantees would generally be held accountable for overall

outcomes, regardless of the funding source. For example, projects such as 

Oregon Option and the National Performance Review were designed to 

promote accountability for federal and/or national priorities, regardless of 

the funding source. They encourage grantors and grantees to work toward 

collaboratively developed outcomes. These intergovernmental 

partnerships can be particularly useful when funds come from a 

combination of federal, state, local, and private sources, or when the 

federal funding share is small. 

Federal grants vary along a continuum, at one end supporting a single 

major activity common to all grantees (such as categorical grants), and at 

the other end, allowing unrestricted choice by the recipient among a wide 

variety of allowable activities, (such as block grants). Flexibility is 

narrowest, but accountability to the federal level clearest, in programs that 

focus on a single major activity. Flexibility is broadest in programs 

designed to support diverse state or local activities, but finding a common 

performance metric can be extremely challenging since these activities 

can vary considerably from state to state. That said, we have previously 

reported on options for building accountability provisions into block 

grants that help balance states’ flexibility to select a mix of activities and 

services that will best allow them to achieve a particular national outcome 

with accountability for achieving that outcome. These options include 

(1) relying on state processes both to manage block grant funds and to 

monitor and assess compliance and (2) emphasizing results-based 

evaluation rather than examining specific program or administrative 

activities. 

In addition to these design features, we have previously reported on a 

number of performance accountability challenges encountered in many 

grant programs during the grant implementation phase. 

Lack of consensus on goals and performance measures: The 

priorities of states, tribes, local communities, and the federal government

are not always the same. To ensure that grantees work toward national 

priorities, they need to be involved in the development of performance 

goals and measures. Lack of agreement on goals and measures—

particularly when the federal funding is a small portion of the funding 

Implementation Issues 

Present Further 

Performance 

Accountability Challenges 

Page 13 GAO-06-1046 Grants Management
stream—could lead to grantees making choices that do not necessarily 

support the achievement of national goals. 

Reliance on performance data from state and local partners and 

other third parties: Even if grantees collect data on similar activities, 

outcomes, and services, absent common data definitions Congress and 

program managers will lack comparable information, limiting the ability to

compare state efforts or draw meaningful conclusions about the relative 

effectiveness of different strategies. We have previously reported that 

agencies relying on third parties for performance data also have difficulty 

ascertaining the accuracy and quality of the data. Further, programs often 

rely on state administrative systems for performance information. For 

some programs—such as many of the Administration for Children and 

Families’ programs—-since final reports are not due until 90 to 120 days 

after the end of the federal fiscal year, there is a delay in available data. 

Onerous and inconsistent grant administration processes and 

requirements10: Multiple grants maybe available for the same or similar 

purposes, meaning that federal grant recipients must navigate through a 

myriad of federal grant programs in order to find the appropriate source of

funds to finance projects that meet local needs and address local issues. 

Sometimes programs meant to address common problems have potentially 

conflicting requirements. Variations in performance accountability 

requirements among these grants can limit the degree of performance 

accountability achieved. We have recently reported that while this 

situation is improving because of OMB’s efforts to streamline the grants 

application process, problems still exist.11

Prohibition of performance information collection12: Because states 

are principally responsible for implementing block grants at the state level, 

 10GAO, Federal Assistance: Grant System Continues to Be Highly Fragmented, 

GAO-03-718T (Washington, D.C.: Apr. 29, 2003). 

11Pub. L. No. 106-107, the Federal Financial Assistance Management Improvement Act of 

1999 requires OMB to coordinate agency efforts to streamline the administrative 

requirements of federal grants and engage and involve grantees in developing and 

implementing their reform goals and implementation plans. The act also requires GAO to 

evaluate the reform efforts. See GAO, Grants Management: Grantees’ Concerns with

Efforts to Streamline and simplify Processes. GAO-06-566 (Washington, D.C.: July 28, 

2006). 

12GAO, Block Grants: Issues in Designing Accountability Provisions. GAO/AIMD-95-226 

(Washington, D.C.: Sept. 1, 1995). 

Page 14 GAO-06-1046 Grants Management
the block grant statutory prohibitions and requirements, and federal 

regulations and guidance are generally kept to a minimum. Sometimes 

federal agencies are prohibited from imposing reporting requirements 

because they are seen as burdensome. Clearly, this limits the extent to 

which federal agencies can oversee grantee performance. 

Nevertheless, even with these trade-offs and challenges, agencies have

been able to shift toward increased performance accountability in federal 

grants and the use of accountability provisions to ensure that grantees 

achieve real results through the programs, activities, and services financed 

with federal funds. The accountability provisions described in this report, 

along with strategies for their effective use, can help address the 

challenges noted above.

We found a number of accountability provisions, specific actions that can

be taken—that is, rewards given or penalties imposed when performance 

exceeds or fails to meet specified performance levels—that Congress, 

granting agencies, and grantees can use at different points in the grant life 

cycle to improve both grant performance and performance accountability. 

These examples demonstrate that accountability provisions can result in 

significant performance improvement and are flexible enough to 

accommodate a variety of situations. 

We found that a wide variety of accountability provisions are being used in

both grant and contracting situations. A selection of these provisions is 

shown in table 1. This list is not intended to be exhaustive; rather, it is 

meant to illustrate the variety of mechanisms available. Some mechanisms 

may be more appropriate in certain situations than others, but all of these 

mechanisms can be used to either encourage improved performance or 

discourage poor performance. For example, public recognition and 

increased funding are two different mechanisms that can both be used to 

encourage and reward good performance. Similarly, mechanisms such as 

reduced funding or increased oversight can be used to discourage or 

penalize poor performance. 

Accountability 

Mechanisms Can 

Improve Performance 

and Performance 

Accountability 

A Variety of Accountability 

Mechanisms Exist 

Page 15 GAO-06-1046 Grants Management
Table 1: Examples of Accountability Provisions 

Accountability mechanism Definition 

Praise Public recognition of good performance, for example, through the press, 

Web sites, intranets, newsletters, hearings, testimony, and award 

ceremonies. 

Rewards 

Bonus Onetime cash payment. 

Increase/decrease flexibility Increase or decrease in grantee's flexibility by issuing administrative, 

programmatic, or financial waivers from requirements and restrictions or 

by adding award conditions. 

Increase/decrease workload Manipulate the workload (e.g., case load). 

Increase/decrease award term Increase or decrease in the length or term of the grant. 

Increase/decrease oversight Increase or decrease in the degree of oversight. 

Increase/decrease funding rate Increase or decrease in the per-unit reimbursement rate (e.g., case rate). 

Either partial or full funding can be based on a unit rate. 

Increase/decrease funding level Increase or decrease in funding. Either the entire award can be tied to 

performance or a portion of funding above an established baseline (i.e., 

an incentive portion). Examples include share in savings (grantee keeps a 

portion of dollars saved) and milestones (payments linked to a predefined 

chronological series of performance levels typically combining process, 

output, and outcome measures). 

Rewards or

penalties

Use of past performance Use past performance of grantee to inform selection of future recipients. 

Reproof Public reprimand for poor performance, for example, through the press, 

Web sites, intranets, newsletters, hearings, and testimony. 

Reperformance Grantee must reperform the service at its own cost to meet performance 

agreements. 

Penalties 

Impose financial penalty or sanction Includes a onetime reduction in the value of an award. Sanctions may also 

be in one area to influence actions in another area (crossover sanctions). 

Also includes suspending or withholding a payment (temporarily halting 

grant payments and/or work), suspending or terminating the award 

(canceling the current grant or temporarily excluding grantee from future 

awards), or finally, debarment (permanently exclude grantee from future 

grant awards).

Source: GAO.

In addition, mechanisms can be either financial or nonfinancial in nature.

A financial mechanism would be an increase in funding or a bonus. For 

example, the CSE program employs a financial incentive in the form of a 

bonus to encourage states to work toward the program’s five performance 

goals: states are eligible for a bonus every year based on performance. 

Nonfinancial mechanisms would include altered oversight or flexibility. 

For example, as part of the National Environmental Performance 

Partnership System, the Environmental Protection Agency affords states 

with high environmental performance levels greater flexibility in spending 

their grant funds. 

Page 16 GAO-06-1046 Grants Management
Financial mechanisms also vary by their degree of risk or risk sharing 

between the grantor and the grantee. Grantee risk increases as the amount 

of money tied to performance increases. For example, bonuses—money 

awarded over and above the base grant amount—represent the least risk, 

while an outcome-based milestone payment plan where the entire grant 

award is based on performance represents much higher financial risk to 

the grantee. Nonfinancial actions, such as altering flexibility or oversight, 

would be relatively risk neutral. 

Accountability Provisions 

Can Be Employed at 

Different Phases of the 

Grant Life Cycle 

Accountability mechanisms can be used in different phases of the grant 

life cycle by different actors, including Congress, granting agencies, and 

grantees themselves, and the lessons learned from one grant cycle can be

used to improve a performance accountability mechanism in the next (see 

fig. 1). For example, when reauthorizing the CSE program, Congress 

revised the original CSE incentive payments, which were solely based on 

cost efficiency, to create an incentive program tied to performance 

measures that reflect CSE’s five key goals: (1) paternity establishment, 

(2) order establishment, (3) current collections, (4) collection of payments

in arrears, and (5) cost-effectiveness (design/redesign phase).

Page 17 GAO-06-1046 Grants Management
Figure 1: Accountability Provisions Can Be Used at Different Points in the Grant 

Life Cycle by Various Users

In contrast, performance measures and targets for Perkins III are created 

during the implementation phase. Specifically, each state is required by 

law to create its own performance measures linked to four core indicators: 

(1) student attainment of challenging state-established academic and 

vocational technical skill proficiencies; (2) student attainment of 

secondary diploma or postsecondary degree or credential; (3) student 

placement in employment, pursuit of further education, or both; and 

(4) student participation in and completion of vocational technical 

education programs that lead to nontraditional training and employment. 

The Department of Education periodically negotiates the performance 

targets for each state measure (postaward phase). 

The use of past performance can inform and improve the recipient 

selection process (application phase). Specifically, the Florida Department 

of Children and Families has reported considerable success using past 

Page 18 GAO-06-1046 Grants Management
performance in recipient selection—contractors that do not meet their 

performance measures and standards are ineligible to be awarded future 

contracts. 

Other mechanisms, such as altered flexibility or oversight, can be used by 

the granting agency—or even the grantee—to encourage improved 

performance during the term of the award (postaward phase). For 

example, according to the literature we reviewed, Minnesota’s Department 

of Human Services Refugee Services Section increases its oversight of 

local agencies if their performance drops below 80 percent on their key 

performance measures, including job placement rates, which nearly 

doubled over 5 fiscal years. 

Importantly, grantees can also use these provisions to extend

accountability to subgrantees and contractors. This is significant because

many federal grants are ultimately passed through states to subgrantees.

Some accountability provisions, such as public award and recognition, can 

even be employed by stakeholders or interested parties. For example, the 

National Association for State Directors of Career and Technical 

Education Consortium annually recognizes high-performing career and

technical administrators and teachers and provides opportunities to share 

lessons learned and best practices. 

Even when performance accountability provisions are absent from or 

limited by a grant’s legislation, agencies and grantees may still be able to 

include these types of provisions in the terms and conditions of the grants

or subgrants or in contracts as long as the authorizing legislation does not 

specifically prohibit their use. OMB Circular A-110 provides that for grants 

awarded to nonprofits, a number of accountability mechanisms may be 

used—including withholding payments, termination of award, and “other 

remedies that may be legally available”—if the grantee materially fails to 

comply with the terms and conditions of the award. These terms and 

conditions can be specified in federal statute, regulation, assurance, 

applications, or the notice of award. For grants to state and local 

governments, however, OMB Circular A-102 contains no detailed 

accountability provisions and defers to the requirements specified in the 

authorizing legislation. 

Various authorities govern the use of accountability provisions (see table 

2). Provisions set by Congress, such as increased flexibility in the form of 

waivers from statutory restrictions, are generally laid out in authorization 

or appropriations legislation. As stated earlier, granting agencies can 

include accountability provisions in regulations, grant announcements, the 

Page 19 GAO-06-1046 Grants Management
request for proposal, and the notice of award. Grantees (and subgrantees) 

can use accountability provisions, such as formal recognition, to improve 

their performance internally. For example, the CSE program in 

Montgomery County, Pennsylvania, recognizes performance-improving 

suggestions from individual employees by publicly praising and inducting 

them into the office’s “all-star team.” These employees also receive a Tshirt with a picture of a stork—the program’s mascot—with the program’s 

motto Striving Toward Optimizing our Resources for Kids. 

Table 2: Sources and Types of Authorization and Guidance for Performance 

Accountability Mechanisms 

Authorizing body Authorizing/implementing vehicles

Congress Authorization, appropriations, other legislation

Grantor Regulations, announcements, the request for 

proposal in the Federal Register, notice of award 

Grantee Internal personnel policies and practices, use with 

subgrantees and contractors

Source: GAO.

Accountability 

Mechanisms Can Be 

Tailored to Specific 

Situations 

Selecting appropriate performance measures and linking them to 

performance accountability mechanisms is not a one-size-fits-all process; 

rather, accountability provisions are tailored to reflect the program’s 

characteristics. In addition to the range of accountability mechanisms 

available, we found a number of ways mechanisms were tailored and 

combined to reflect a variety of circumstances. Table 3 describes how 

measures and mechanisms can be designed and triggered to either reward 

or penalize performance. 

Page 20 GAO-06-1046 Grants Management
Table 3: Examples of Ways to Tailor Performance Measures and Mechanisms 

Tailored measure and mechanism Description

Stretch goals An action is taken based on reaching a secondary, higher goal. For example, a grantor 

awards the grantee when performance exceeds one performance target and reaches a 

secondary, higher target. 

Hurdles/triggers Specific conditions or performance levels that must be met before actions can be taken. For 

example, once a recipient meets a minimum performance level or requirement, it becomes

eligible for an award based on performance. 

Dead bands Ranges of performance are established for which the mechanism does not provide an award 

or penalty. For example, performance achieved within a certain range is not eligible for an 

award or penalty, but performance above or below that range is subject to them. 

Step up/step down Actions are taken based on a number of preset performance levels. Step up is similar to a

series of stretch goals. For example, a recipient receives a reward in which the value is 

determined by which performance interval it reached. Conversely, each time a recipient’s

performance drops, it is subject to increasing penalties or deductions. 

Formula Payments are made based on a formula—a mathematical weighting of a number of factors. 

For example, a recipient’s entire award or an incentive portion may be based on a formula 

containing a performance component. 

Share in savings/share in revenue Payments represent a share of a specific source of funds. Share in revenue is used to refer 

to situations where performance is defined by revenue generation and payments are based 

on some formulation of revenue generated, typically a percentage. For example, a recipient 

responsible for increasing financial collections is eligible to receive a portion of the additional 

funds collected.

Share in savings is used to refer to situations where performance is defined by cost savings 

and payments are based on some formulation of cost savings, typically a percentage. For 

example, a recipient that identifies efficiencies that result in administrative cost savings is 

eligible to receive a portion of the savings. 

Milestones Payments are linked to a predefined chronological series of performance levels representing 

processes, outputs, and outcomes. For example, a recipient is paid 33 percent of the 

performance-based portion of award as each of three milestones is completed successfully. 

Floating measures Used to refer to situations where one or sets of performance measures can be changed 

during the term of an agreement. These measures are selected from a larger set of 

predefined performance measures. For example, a grantor assesses grantee performance 

on 25 performance measures, but at any given time provides awards or penalties based on

the performance of a subset of the measures. The subset the grantor provides the award or 

penalty for can change during the course of the agreement, with notification. 

Indexes Used to refer to a situation where individual performance measures are weighted to create a 

single index. For example, a number of measures are weighted according to priority, and

then the combined weight is used as a single performance measure. 

Variable target Situation where performance is defined by a variable or relative measure, such as 

performance of a third party in the same issue area. This method is used, for example, in 

situations where performance can be directly affected by external factors, such as the 

economy. For example, grantors assess the performance of a single grant recipient by 

comparing its performance to other recipients of the same grant. 

Source: GAO, based on literature review. 

Page 21 GAO-06-1046 Grants Management
For example, to encourage its contractor, ProFac, to cut costs while 

maintaining a high-level of performance, ORC modified a basic financial 

incentive to include a share-in-savings feature. ProFac is eligible to share a 

portion of the savings if it spends less than its yearly budget—often 

referred to as share in savings. To ensure that ProFac does not cut costs to 

the detriment of high performance, ORC also requires that ProFac achieve 

a performance rating of 80 percent or higher to share in these cost savings. 

The CSE performance measures are an example of a “step up” provision—

for each increasing performance percentage interval there is a

corresponding increase in the incentive percentage paid. Each time a state 

moves to the next highest interval, it receives a higher percentage of the 

incentive for that measure. Conversely, the alternative penalty procedure 

for failure to implement a statewide child support data processing system 

acts as a “step down” mechanism. For each year the state fails to 

implement such a system, but shows a good faith effort to attempt to do 

so, the state will be penalized at increasing intervals—during the first year

of noncompliance, the state will receive a 4 percent penalty, the second 

year an 8 percent penalty, the third year a 16 percent penalty, and so on. 

Collectively, five key strategies appear to facilitate the effective selection, 

design, and implementation of performance accountability mechanisms.13

These strategies are 

• ensure mechanisms are of sufficient value, 

• periodically renegotiate and revise mechanisms, 

• ensure appropriate measurement selection and usage, 

• ensure grantor and grantee technical capacity, and 

• implement system in stages. 

In addition to these strategies, we noted extensive use of partnerships and 

collaborations and regular and effective oversight and feedback, which 

appeared critical to the success of accountability provisions in a thirdparty environment. We have previously reported that these practices are

often associated with high-performing organizations and organizations 

that effectively used performance information to manage.14

Strategies Support 

Successful Selection, 

Design, and 

Implementation of 

Performance 

Accountability 

Mechanisms 

 13We identified these strategies through our literature review, and illustrate them with 

examples from the literature and from our additional four case illustrations. 

14GAO-04-343SP, GAO-05-927. 

Page 22 GAO-06-1046 Grants Management
There are a number of factors to consider when designing accountability 

mechanisms that help to ensure the mechanisms are of sufficient value

and motivate performance improvement. Ensuring sufficient value 

requires that

• both the grantor and grantee are able to determine the value of the 

rewards and penalties and the cost of improved performance—be they 

financial or nonfinancial—and provide a meaningful return to both the 

grantor and the grantee and 

• rewards or penalties should be consistently applied to maintain the value 

of the mechanisms to both the grantor and grantee. 

According to the literature we reviewed, both the grantor and grantee 

should understand what a particular level of performance is worth to them 

and what it will cost them to achieve that level of performance. When the 

value of performance is not properly identified, funds could be wasted and 

grantees may not respond to the mechanism. For example, we found one 

case where the contracting agency offered and ultimately paid a $250,000 

bonus to a contractor for completing a pipeline 2-1/2 months earlier than 

scheduled. However, because the contracting agency did not actually need

the pipeline to be completed for several years after the original contractual 

deadline, the contractor paid $250,000 for a level of performance it did not 

need. Although the recipient responded to the incentive, the contracting 

agency did not properly calculate the value of the performance 

improvement to the agency, resulting in wasted funds. 

For a grantor, considering how accountability provisions support its 

strategic priorities can assist in determining the value of performance. The

size of the associated rewards and penalties should be commensurate with 

the priority. For example, successful pay-for-performance programs 

reserve large rewards for achieving an organization’s most important 

priorities, or those that lead to large benefits, and provide smaller 

incentives for achieving goals that reap smaller benefits or are of lesser 

importance. For example, in the health care field, for certain conditions 

such as heart attack or stroke, delays in administering appropriate therapy 

greatly increase the risk of mortality and disability. Therefore, the 

incentives to treat these conditions quickly and appropriately should be 

larger than the incentives for other practices that should be encouraged 

yet produce fewer direct effects on mortality and illness, such as avoiding 

the use of ineffective antibiotics to treat the common cold. 

Based on our literature review, it appears that insufficiently valued 

incentives are one of the main reasons that accountability provisions fail.

Ensure Mechanisms Are of 

Sufficient Value 

Understand the Value of 

Performance 

Page 23 GAO-06-1046 Grants Management
When an incentive is of sufficient value, the expected return outweighs the 

expected risk, and recipients are motivated to pursue the performance 

improvement. From 1975 through 1997 the CSE program included an 

incentive program that focused on cost-effectiveness. States were 

guaranteed an “incentive payment” from 6 to 10 percent of their total 

collections. In practice, the 4 percentage point difference between the 

minimum and maximum payment was reportedly not large enough to 

motivate states to increase collections enough to earn the 10 percent 

bonus. The new incentive system, established by the Child Support 

Performance and Incentive Act of 199815 only provides incentive payments 

to states that meet one or more of the act’s five outcome-based 

performance goals and associated targets,16 and penalizes states that fall 

below threshold levels in certain areas. A review of the new incentive

system in a sample of nine states found that the median score on each of 

the five performance measures increased from fiscal years 2000 to 2002, 

the time period that the incentive system was implemented.17

Motivating grantees to work toward federal outcomes is particularly 

challenging in grants where the federal investment is relatively small. 

Officials at Arizona’s Department of Adult Education, Career and 

Technical Education Division, told us that state funds in joint 

technological education districts outweighed federal funds for career and 

technical education (CTE) programs by more than four to one, and some 

districts did not want to accept federal CTE funds because, in their view,

complying with the federal performance requirements was not worth the 

amount of funds they would receive. In order to ensure that the financial 

value of the Perkins III grants was large enough to motivate districts to 

meet the Perkins III reporting and performance requirements, the Arizona 

Career and Technical Division requires districts be in Perkins III 

compliance in order to receive CTE-related state funds, thereby creating a 

large incentive for local school districts to comply with the Perkins III 

requirements. Indeed, one district we spoke with lost Perkins III funding, 

but it was not until the state linked Perkins III compliance to state funding, 

and the district lost the rest of its CTE funding from the state, that the 

 15Pub. L. No. 105-200. 

16The five performance goals are (1) paternity establishment, (2) child support order 

establishment, (3) collections on current support due, (4) collections on arrears, and 

(5) cost-effectiveness. 

17The Lewin Group, Study of the Implementation of the Performance-Based Incentive

System, October 2003. 

Page 24 GAO-06-1046 Grants Management
district started to make significant improvement toward meeting Perkins 

III requirements. 

In addition, the grantor and grantee should understand the trade-off 

between the financial risk—the possibility performance will not improve 

sufficiently despite the resource investment—and the potential return—

what will be gained if performance goals are met or exceeded—in order to 

determine whether to pursue any particular performance improvement. 

Accountability provisions that contain financial incentives and sanctions 

can shift risk between the grantor and grantee. That is, the more the grant 

award depends on performance, the greater the financial risk to the 

grantees: if they invest but do not perform sufficiently, they do not get 

paid. Conversely, in grants with limited or no performance accountability 

provisions, the grantor bears the bulk of the financial risk, since the 

grantee would receive the grant funds regardless of the results achieved. 

The ability of a performance accountability mechanism to influence 

performance also depends on the effective distribution of organizational 

rewards and penalties to individuals within the organization who are 

directly responsible for the desired performance.18 For example, Glendale 

Union School District officials provide significant financial incentives to 

every school employee with whom a student has contact, including 

teachers, administrative staff, and other support staff—including the 

maintenance staff and bus drivers. The district’s philosophy is that all 

employees influence the school’s atmosphere and academic achievement 

and therefore contribute to any success it enjoys. Incentive funds are 

distributed based on a school’s performance on 13 academic, involvement, 

and satisfaction-related measures. According to a district official, the

program, started 5 years ago, has increased camaraderie and collaboration

among school employees, which the official said has contributed to 

academic improvement. 

In Pennsylvania, the state passes along a portion of the state-earned 

federal incentive payments to the counties, according to each county’s 

proportionate share of the aggregate state CSE expenditures and to reflect

its relative score for each performance measure, following the 

performance targets defined in legislation. Pennsylvania codifies the 

Ensure Effective Distribution 

 18GAO, Results-Oriented Cultures: Creating a Clear Linkage between Individual

Performance and Organizational Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003).

Page 25 GAO-06-1046 Grants Management
performance expectations and incentive payment procedures through 

cooperative agreements with each county. 

The grantor must execute the mechanisms consistently and as designed to 

preserve the value of the mechanisms and to avoid introducing 

unnecessary risk. For example, if rewards are not paid as promised the 

grantee could learn that its additional efforts are not worth the cost—or 

risk—and may not make the additional effort to improve performance. 

Similarly, if rewards are paid indiscriminately or if penalties are not levied

as expected, the grantee could learn that no additional effort or

investment is required in order to benefit. In both cases, the system breaks 

down and the intended value of the accountability provision is lost. 

We have reported on an agency with the authority to levy penalties for 

poor performance that resisted doing so. For example, the Federal Transit 

Administration (FTA) has several enforcement tools to deal with grantees’

noncompliance, including warning letters, suspension of funds, and grant 

termination. However, traditionally, FTA had been reluctant to use these 

tools to enforce compliance, opting instead to work with grantees in an 

effort to continually promote transit development. Reviews also showed 

that FTA’s oversight was superficial and inconsistent and that FTA seldom 

used its enforcement authority to compel grantees to correct weaknesses, 

even those that were long-standing. Consequently, federal dollars had been

placed at risk. However, in response to our 1992 report, FTA established a 

new enforcement policy, developed detailed guidance on carrying out 

enforcement actions, and has since demonstrated a greater willingness to 

use these actions against grantees that do not comply with federal transit 

requirements. The Department of Defense (DOD), on the other hand, has 

paid billions in incentive and award fees for only “acceptable, average, 

expected, good, or satisfactory” performance. Despite paying billions in 

fees, DOD has little evidence to support its belief that these fees improve 

contractor performance and acquisition outcomes. The department has 

not compiled data, conducted analyses, or developed performance 

measures to evaluate the effectiveness of award and incentive fees. Using 

accountability mechanisms in this manner undermines their effectiveness 

as a motivational tool and marginalizes their use in holding grantees and 

contractors accountable for outcome-based results.19

Execute Mechanisms 

Consistently 

 19GAO, Defense Acquisitions: DOD Has Paid Billions in Award and Incentive Fees 

Regardless of Acquisition Outcomes, GAO-06-66 (Washington, D.C.: Dec. 19, 2005).

Page 26 GAO-06-1046 Grants Management
Organizations need to allow for and use the flexibility to revise, update, or 

improve performance accountability mechanisms in order to respond to 

changing needs. In the literature we reviewed, we found a number of 

reasons for why accountability provisions may need to be revised. For 

example, unintended consequences associated with performance 

measures may be discovered only after full implementation. 

Organizational priorities may change. Technology may be introduced that 

substantially alters performance expectations. In addition, expectations 

that were previously considered stretch goals can become the norm over 

time—for example, as productivity gains are realized rewarding such 

performance may no longer make sense. Finally, efforts to reevaluate and 

revise should consider whether established accountability provisions are 

still effective at motivating performance improvements. 

For example, the DMA/MBHP contract demonstrates a situation in which 

the entire accountability system experienced a revision to adjust to 

contract progression. Incentives in this contract were initially designed to 

motivate operational performance, such as processing time for billing, and 

performance targets were revised upward each year as performance 

improved. This upward revision helped ensure that performance 

continued to improve. Once MBHP’s performance reached the highest 

levels of industry performance in these areas, further improvements were 

no longer a priority. 

As a result, DMA and MBHP used the annual review to revise the incentive 

system from motivating operational improvement to completing projects 

designed to improve performance in areas that would add value to the 

services MBHP provides, such as a project on providing behavioral health

assistance to the homeless. 

There are a number of ways to accommodate the need for periodic 

revision. For example, congressional amendments to or reauthorizations 

of grant programs allow policymakers the opportunity to revisit and 

modify existing provisions and to add flexibility for agencies that can lead 

to improved effectiveness. Agencies can include renegotiation and revision 

policies in regulations, guidance, and the terms and conditions of a grant 

award. Providing for periodic revision may be particularly important 

where performance measures are specified in legislation, because agency 

flexibility to respond to changing needs is significantly reduced. For 

example, as we have discussed, the Child Support Performance and

Incentive Act of 1998 specifies the five performance measures, the 

performance targets, and the percentage of incentive payments that states 

can earn for performance. Initially, states made changes and saw 

Periodically Renegotiate 

and Revise Mechanisms 

and Measures 

Page 27 GAO-06-1046 Grants Management
improvement in these areas. Recently, both state and federal program 

officials have expressed concern about the long-term sustainability of such 

aggressive targets. For example, program officials said that even states 

that have in the past met the 90 percent performance target for the 

paternity measure are concerned because more recent annual rates have 

dropped back down closer to 80 percent. According to officials, states 

initially conducted an extensive caseload cleanup to improve performance 

on the five incentive measures when the incentive program was enacted in

1998, and much of the backlog of cases that could be addressed relatively

easily has been. However, since the measures and performance targets are

legislatively defined and the CSE program is permanently authorized, the

agency does not currently have the flexibility to revise the measures or 

performance targets. 

In contrast, state agencies, in negotiation with the Department of 

Education, can periodically revise their Perkins III CTE performance 

measures and targets during annual negotiations of their state plans. At 

program introduction, program targets are set through the negotiation 

process between states and OVAE. From this process, performance targets 

negotiated initially reflect a realistic level of what states can actually

produce. Next, through annual application updates, the legislation allows 

renegotiation of performance levels with states. Among other factors, 

OVAE officials attributed the program’s success to this ongoing ability to 

renegotiate and revise the program’s measures. Although the Perkins III 

legislation is similar to the Child Support Performance and Incentive Act 

of 1998, in that Perkins defines the four core indicators tied to the 

performance measures used in the incentive program, it provides 

flexibility that the Child Support Performance and Incentive Act of 1998 

lacks. The flexibility to revise or update the performance measures is built

into the Perkins III legislation. 

Accountability systems by their very nature assume that performance can 

be improved. However, performance improvements depend on adequate 

time for and ability of participants to learn from prior actions and use 

what they have learned to improve performance from one period to the 

next.20 Depending upon the complexity of the task, this process can take 

many cycles. Therefore, accountability systems should not be abandoned 

prematurely; rather, they should be assessed, revised, and improved. 

 20GAO, Tax Administration: IRS Needs to Further Refine Its Tax Filing Season 

Performance Measures, GAO-03-143 (Washington, D.C.: Nov. 22, 2002). 

Page 28 GAO-06-1046 Grants Management
Selecting and using appropriate types of performance measures is 

important to the effective use of accountability mechanisms. We have 

previously reported on general attributes of good performance measures, 

noting that measures should be linked to agency goals and missions; be 

clearly stated; include measurable targets; and be objective, reliable, and

balanced.21 Specifically, we found four of these characteristics that 

highlight key features of performance measures that can help ensure the 

successful linking of performance measures and rewards and penalties: 

• the performance being measured should be within the recipient’s sphere 

of influence,

• the performance measures should be suitable to the mechanism evaluation

cycle, and 

• the performance measures and performance data should be tested. 

Performance measures tied to rewards and penalties should represent 

performance that can be sufficiently influenced by the grant recipient’s 

actions. Absent this linkage, the grantee may have little motivation to 

change behavior to improve performance, and the granting agency risks 

wasting funds by either rewarding efforts that cannot reasonably be tied to 

grantee behavior or penalizing a grantee for outcomes that even its best 

efforts may not have prevented. For example, the Temporary Assistance to 

Needy Families (TANF) bonus payments22 rewarded states for reducing 

out-of-wedlock births. Several studies report, however, that there does not

appear to be a link between the existence of these programs, or increases 

in efforts to deliver program services, and the TANF bonus payment. Many 

state officials perceive the outcome measure as inappropriate, relatively 

difficult to influence, or both, and discourage attempts to do so. According 

to one study, several states reported that they did not compete or did not 

continue to compete for the bonus funds because, among other reasons, 

their actions would not sufficiently affect the out-of-wedlock birth rate; 

therefore they directed their efforts to activities that were more directly 

under their influence. 

Ensure Appropriate 

Measurement Selection 

and Usage 

Performance Should Be within 

Recipient’s Ability and 

Influence 

 21GAO-03-143. 

22The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 authorized 

the Bonus to Reward Decrease in Illegitimacy Ratio, a provision intended to motivate 

states to pursue nonmarital birth prevention programs. This provision awarded up to 

$25 million in each of fiscal years 1999 through 2002 to as many as five states showing the

largest reduction in nonmarital births. 

Page 29 GAO-06-1046 Grants Management
In another example, the Perkins III CTE program has a financial incentive 

system that assesses state performance through performance measures 

that support its four core indicators—one of which encourages 

participation in and completion of programs leading to nontraditional 

employment.23 State and local officials in Arizona said their ability to affect

performance for this indicator is very limited. They told us that although

they have tried to address the barriers to nontraditional employment, they 

found that cultural and demographic influences have limited their ability 

to improve performance every year. Because performance has not 

improved as a result of their efforts, they focus most of their energy on 

efforts to improve performance in the other three core indicator areas, 

which reflect performance that is more directly under their control.24

Measures should assess performance that can be observed, achieved, and 

reported frequently enough to inform the use of awards and penalties on a 

timely basis. For example, an annual reward or penalty should be tied to a 

measure that is also assessed annually. 

ORC uses performance measures that can be assessed in a relatively short 

period of time and that support program outcomes. ORC holds back 10 

percent of ProFac’s management fee each month. Each quarter, ProFac 

has an opportunity to earn the holdback on the basis of its performance 

during the prior quarter on 30 KPIs. For example, 1 of the quarterly 

indicators tied to its overall customer service objective is the “overall 

customer satisfaction rate with project delivery.” The quarterly assessment 

is based on performance information gathered through customer 

satisfaction surveys of local managers and facility management contacts 

for all alteration projects, capital repairs, or both completed in the 

previous quarter. Both ORC and ProFac officials credit the frequency of 

evaluation for motivating ProFac to maintain high performance 

throughout the year. 

OVAE uses the timing of its grant funding distribution cycle to its 

advantage in order to motivate states to meet federal performance 

accountability requirements. OVAE disburses grant funds in two pieces: a 

Measures Should Be Suitable to 

the Mechanism Cycle 

 23Nontraditional employment relates to the participation of students in fields in which their 

gender constitutes less than 25 percent of the individuals employed in that field (e.g.,

female students participating in automotive repair programs). 

24However, as discussed earlier, states can periodically revise their Perkins III CTE 

performance measures and targets during annual negotiations of their state plan. 

Page 30 GAO-06-1046 Grants Management
small portion in July and the remainder in October. States that did not 

provide complete, timely performance data, or missed their performance 

targets in the prior year, may have “conditions” put on the July portion of 

the funding; if conditions are not met during that quarter, the October 

funding is withheld. 

Performance measures that trigger accountability mechanisms should be

well functioning and time tested before they are linked to rewards and 

penalties to minimize the potential for unintended consequences. Although 

our literature review did not specify how long this could take, one study in

our review noted that many leading companies use and test their 

measurement systems for years before linking them to accountability 

provisions. 

Performance data should also be tested to make sure they are credible, 

reliable, and valid. Absent these attributes, organizations lack the basis for 

sound decisions about rewards and penalties. Data quality is so critical to 

performance accountability and oversight of grants that several 

organizations use it as the principal performance measure for 

performance-based funding. Pinellas County, Florida, alters the case 

funding rates paid to its ambulatory service contractor based on data 

quality. This “altered funding rate” provision links case reimbursement 

rates directly to data quality. For example, data that are incomplete, 

illegible, inaccurate, altered, or lacking evidence of medical necessity—

and limit the county’s ability to claim for payment or use its data 

processing procedures—result in reduced reimbursements to the 

ambulatory service contractor for the affected cases. Pinellas County 

reports that as a result, ongoing data quality issues are minimal. In another 

example, the Child Support Performance and Incentive Act of 1998 

prohibits the payment of financial incentives to states for performance in 

program areas where state data have failed an annual data reliability test. 

This requirement ensures that incentive payments are based on reliable 

and complete performance information. 

Grantor and grantee capacity—specifically, the knowledge about 

performance accountability mechanisms and the ability to effectively 

implement them—is critical to the effectiveness of performance 

accountability systems. For example, when the Air Force implemented its 

performance-based contracting program, it found that employee training

focusing on how the performance-based aspects of the contracts should 

work were most critical. Specifically, practices such as providing a stepby-step approach to the process that outlined who should be involved at 

Measures and Data Should Be 

Tested 

Ensure Grantor and 

Grantee Technical 

Capacity 

Page 31 GAO-06-1046 Grants Management
each step, how much of their time and effort would be required at each 

step, and what their specific roles and responsibilities would be were 

critical to employees understanding what was needed to create 

mechanisms to improve performance. 

In addition, federal CSE staff in Region III provide a “Child Support 

Enforcement Incentives 101” presentation to state and county CSE staff 

throughout the region to explain how the performance measures and 

incentive payments work. This training presentation is tailored to the 

experience of CSE staff and the demographics of the county, state, or both 

(large urban, rural, large interstate caseloads, etc.) but strives to provide a 

clear and consistent message: the everyday activities of CSE staff directly

affect the amount of child support available to children and their families, 

and drive the amount of incentive payments the county specifically, and 

the state in general, earns. The presentation includes interactive exercises 

to show how each employee’s casework feeds into outcome-based 

program results. 

Organizations go through a number of stages designing, testing, and 

revising measurement systems before linking them to accountability 

mechanisms. This longer, phased implementation allows organizations to 

ensure the system is effectively designed before tying it to rewards and 

penalties. During these stages, organizations can conduct pilot tests, 

create financial models, and conduct behavioral modeling to understand 

and modify a system prior to full implementation. For example, according 

to one expert, the Tennessee Valley Authority completes a “readiness test,” 

an assessment of measurement effectiveness and suitability, before 

allowing pay for performance or similar financial incentive systems to be 

pinned to that measure. This helps avoid unintended consequences 

associated with poorly designed measures. Phased implementation also 

allows organizations to adjust to new demands on their time and 

resources; set up or modify data collection systems; and ensure the 

credibility, validity, and reliability of the data before they are used to 

measure performance. 

For example, the CSE incentive program was implemented in three stages 

to allow states to learn about the new incentives and performance 

measures. The five performance areas attached to incentives were 

developed and legislatively defined in 1998. In 1999, the new data 

measures were used by the states and audited for data reliability for the 

first time. In year one, one-third of the total incentive funds were allocated 

based on the new formula and the remaining funds were allocated based 

Implement System in 

Stages 

Page 32 GAO-06-1046 Grants Management
on the old system. In year two, two-thirds of the funding was allocated 

using the new system, and the remaining funds were allocated based on 

the old system. In year three, all incentive funding was allocated according 

to the new formula. 

In addition to these strategies described above, we saw extensive use of 

partnerships and collaborations and regular and effective oversight and 

feedback. We have previously reported that these practices are often 

associated with high-performing organizations25 and organizations that 

effectively used performance information to manage. 

Designing and implementing accountability provisions in a collaborative 

environment can help develop and encourage buy-in and support and lead 

to improvements. For example, Arizona state and local CTE officials said

the state’s focus has shifted from a compliance-focused “audit,” ensuring 

performance data were properly collected and reported, to a true 

partnership in which state and local officials work together to identify and 

replicate successes, find solutions to challenges, and thereby improve 

performance. State CTE staff spend several days each year meeting with 

local CTE officials and providing regular assistance through on-site 

technical assistance teams, phone calls, and e-mails. 

Oversight and feedback are critical to creating and sustaining effective 

performance accountability provisions. We have previously reported on 

oversight practices, noting specifically the value of feedback provided 

through performance monitoring plans and tools such as site visits, 

document reviews, and evaluations. For example, OVAE employs a 

number of tools to provide feedback and assistance to states implementing 

the Perkins III vocational education program. Among these tools are 

Collaboration and 

Oversight Also Key to 

Success 

• establishing state guidance that outlines how to meet the Perkins III 

performance requirements, 

• developing a peer-to-peer mentorship program among states and with 

OVAE to share experiences and good practices, 

• conducting monthly conference calls with state directors and data 

specialists to discuss challenges and solutions to data collection and 

quality, 

 25The other attributes of high-performing organizations are a clear, well-articulated, and 

compelling mission; a focus on the needs of the clients and customers; and the strategic 

management of people. 

Page 33 GAO-06-1046 Grants Management
• offering data quality “institutes” and conferences to share performance 

measurement and data quality and collection practices, and 

• providing technical assistance to states. 

An OVAE official said providing these types of oversight and feedback

activities generated ideas and discussion to help states improve their 

performance; the state CTE officials with whom we spoke agreed. 

The experiences with and strategies related to federal grant accountability 

provisions described in this report suggest a number of opportunities for 

Congress and the executive branch to improve the design and

implementation of performance accountability mechanisms. First, a 

results-focused design can help encourage performance accountability in 

general and specifically provide for—or at least not prohibit—the use of 

accountability mechanisms to encourage desired behavior. In addition, the 

use of national program evaluation studies and research and

demonstration grants can provide valuable information to assist in agency

and congressional oversight of and knowledge about accountability 

mechanisms. Because credible performance information and performance 

measures form the basis for well-functioning accountability provisions, it 

remains critical for Congress and the executive branch to continue to 

encourage their development and use. Finally, OMB and agencies can 

commit to sharing good practices and lessons learned from experiences 

with performance accountability provisions in federal grants—an efficient 

and effective way to increase grantor and grantee knowledge, 

understanding, and use of these provisions. 

Considering grant design features and their implications for grantee 

flexibility and accountability can help policymakers provide for 

appropriate accountability provisions, whatever type of grant design is 

selected. We have previously reported that policy options reflected in 

grant design collectively establish (1) the degree of flexibility afforded to 

states or localities; (2) the relevance of performance objectives for grantee 

accountability; (3) whether accountability for performance rests at the 

federal, state, or local level; and (4) prospects for measuring performance 

through grantee reporting and oversight.26 Under a results-oriented 

approach, federal policymakers would specify national goals and 

Various Opportunities 

Exist at the Federal 

Level to Enhance 

Performance 

Accountability in 

Grants 

A Results-Focused Design 

Encourages Performance 

Accountability 

 26GAO/GGD-98-137. 

Page 34 GAO-06-1046 Grants Management
objectives in statute, enact a process for establishing them, or adopt some 

combination of the two. As a result, when designing or reauthorizing 

grants, it is important to consider questions like the following: 

• Is there a need for national performance objectives in this policy area? If 

so, grantees may be required to use uniform performance measures—as in 

the CSE program—to gauge progress. This allows for comparisons across 

grantees, and the supporting performance data collected from grantees 

have the advantage of being program specific. However, uniform activities, 

objectives, and measures may not exist or may not be desirable, especially

under flexible grant program designs. In these cases, Congress may 

instead decide to allow grantees to establish their own program objectives. 

For example, the Child Care and Development Block Grant requires states 

to certify that they have requirements in effect to protect the health and

safety of children whose child care is subsidized by the block grant. These 

requirements must cover the areas of preventing and controlling for 

infectious diseases, physical premise safety, and health and safety training. 

However, the specificity and stringency of these requirements and the 

manner in which they are enforced is left to the states. The Perkins III 

legislation outlines several performance areas and requires states to 

determine the measures they will use to measures progress in these 

statutorily defined areas. Performance targets for these measures are 

negotiated with OVAE. In these cases, the federal role in monitoring the 

grants is generally limited to collecting information on state and local

program efforts and accomplishments as well as evaluating and 

disseminating information on best practices. Another option is to grant 

temporary exemptions (waivers) from certain federal program 

requirements to grantees that demonstrate that the flexibility granted can 

lead to performance improvements. For example, Oregon Option is an 

intergovernmental partnership that seeks to improve performance on 

benchmarks for a broad variety of initiatives, including childhood 

immunization, employment for the disabled, wild salmon recovery, 

juvenile justice, welfare reform, and child nutrition, by waiving 

administrative rules or seeking statutory change.

• In all cases, what accountability provisions are needed to support 

attainment of national performance objectives? These might include 

constraints on activities and funds distribution or operational objectives, 

standards, and criteria for performance. These can be set for the program 

as a whole or delegated to the level of government responsible for 

program management. Additional considerations are as follows: What data 

are needed for grantee accountability, and is it feasible to collect these 

data from providers? Is it possible to collect data at the project level? Will 

the contribution of federal funds be distinguishable from state, local, and 

private funds? If the answer to several of these questions is no, is 

Page 35 GAO-06-1046 Grants Management
additional information needed for program oversight? If so, how will such

information be gathered and reported? The answers to questions such as 

these provide the basis for setting grantee reporting requirements. 

Congress has a number of opportunities to conduct oversight, such as 

when it establishes or reauthorizes a new program, during the annual

appropriations process, and during hearings focused on program and 

agency operations. Providing for—or at a minimum, not prohibiting—

performance accountability mechanisms can provide timely, targeted 

performance information and help policymakers ensure that federal grants 

focus on their goals, providing another basis for congressional oversight.

National program evaluations have the potential to answer questions 

about both overall program performance as well as the effectiveness of 

performance accountability mechanisms, in terms of their implementation, 

outcomes, impacts, and cost-effectiveness. However, national

programwide evaluations are expensive in terms of dollars and time and 

frequently require capacities and resources beyond those provided for 

program management. Also, while evaluations of multiple sites provide 

valuable information, programwide evaluation data are typically periodic

and often cover too few sites to support national estimates of 

performance. In these cases, research and demonstration projects often

can provide better information on the effectiveness of various service 

delivery methods and approaches. Knowledge to support effective practice 

is well established in some subject areas and can be incorporated into 

program provisions (such as service standards) or in companion technical

assistance or knowledge dissemination programs. 

Careful Use of National 

Program Evaluation 

Studies and Research and 

Demonstration Grants Can 

Help Assess Mechanism 

Performance 

Page 36 GAO-06-1046 Grants Management
As we discussed earlier, performance accountability provisions rely on a 

supply of credible, reliable, and valid data and high-quality performance 

measures. We found organizations that recognizing the importance of data

quality, tied incentives to increasing the supply of this type of information. 

Unfortunately, as our work on PART27 and GPRA implementation shows, 

the credibility of performance data has been a long-standing weakness. 

OMB, through its development and use of PART, has provided agencies 

with a powerful incentive for improving data quality and availability. 

However, improving the supply of performance information is in and of 

itself insufficient to sustain performance management and achieve real 

improvements in management and program results. Rather, it needs to be 

accompanied by a demand for and use of that information by decision 

makers and managers alike. Key stakeholder outreach and involvement is 

critical to building demand and, therefore, success. Lack of consensus by a 

community of interested parties on goals and measures and the way that 

they are presented can detract from the credibility of performance 

information and, subsequently, its use. While congressional buy-in is 

critical to sustain any major management initiative, it is especially 

important for performance accountability given Congress’s constitutional 

role in setting national priorities and allocating the resources to achieve 

them. Recognizing this, policymakers could use incentives to encourage 

program partners to agree on performance measures and targets against 

which performance will be judged. 

We and others have frequently reported on the benefits of sharing 

promising practices and lessons learned to promote performance 

accountability in general in federal programs and program partners. We 

believe sharing good practices related to the effective design and 

implementation of performance accountability mechanisms carries similar 

benefits. As noted earlier, some state and local agencies’ programs have 

used this type of information sharing among themselves and their grantees

and contractors as a means of performance improvement. 

Encourage Development 

and Use of Credible 

Performance Information 

and Performance 

Measures 

Share Good Practices and 

Lessons Learned 

 27OMB developed PART as a diagnostic tool meant to provide a consistent approach to

assessing federal programs during the executive budget formulation process. PART covers

four broad topics for all programs selected for review: (1) program purpose and design, 

(2) strategic planning, (3) program management, and (4) program results. We have 

previously reported on PART in GAO, Performance Budgeting: PART Focuses Attention

on Program Performance, but More Can Be Done to Engage Congress, GAO-06-28 

(Washington, D.C.: Oct. 28, 2005). 

Page 37 GAO-06-1046 Grants Management
OMB, as the focal point for overall management in the executive branch, 

plays a key role in promoting performance improvement in federal 

programs and has developed or contributed to a number of tools to share 

information and encourage improvements to federal grants and program 

performance. For example, www.grants.gov includes information on grant 

opportunities, resources to assist in writing grant proposals, and a 

newsletter highlighting recent grant success stories, and www.results.gov 

has information on best practices related to the President’s Management 

Agenda initiatives—one of which is Budget and Performance Integration 

(BPI). Successful implementation of BPI depends significantly on federal 

agencies’ ability to ensure federal program partners work toward program 

goals and are held accountable for results. Expectmore.gov provides 

information on PART assessments and improvement plans; these 

assessments consider, among other things, whether the agency regularly 

collects timely and credible performance information to manage its 

programs, and whether the performance measurements are used to 

increase accountability. OMB’s own Web site also contains information on 

and examples of what it considers to be high-quality PART performance 

measures; discussion papers on measurement topics, such as how to 

effectively measure what you are trying to prevent; and strategies to 

address some of the challenges of measuring research and development 

programs. 

OMB hosts a number of standing work groups and committees—

comprising agency and OMB staff—to address important grant-related 

issues, all of which could accommodate a more specific focus on grants 

accountability provisions. For example, OMB’s Chief Financial Officer’s

Council has a standing grants policy committee that focuses on grant 

application and reporting streamlining. Agency BPI leads meet monthly 

and recently developed a subgroup to share lessons learned related to 

efficiency measures that balance effectiveness, quality, and cost. They also

discuss strategies to address the challenges of efficiency measures in the 

grant context and to develop additional guidance for agencies in this area.

In addition, OMB hosted a Block and Formula Grant workshop in October

2005 for federal officials aimed at identifying and sharing best practices in

grants management and performance measurement. OMB staff agreed that 

the workshop was a valuable, efficient, and effective way to share 

information and lessons learned and that collectively the participants 

increased their knowledge and understanding of ways to enhance grant 

performance. They also noted that the real difficulty comes in “what to do 

next,” in other words, implementing the strategies gleaned from these 

sessions. 

Page 38 GAO-06-1046 Grants Management
OMB staff told us that focusing specifically on performance accountability 

provisions in grants is necessary and useful, but that to date, they have 

focused their governmentwide efforts primarily on encouraging and 

enhancing agency capacity to develop high-quality, results-based program 

performance measures since improving the quality of measures and data

necessarily precedes tying them to accountability provisions. The Block 

and Formula Grant workshop addressed issues of measurement and 

accountability, and several block grant programs have been working to 

strengthen grantee accountability. 

As the challenges of the 21st century grow, it will become increasingly 

important for Congress, OMB, and executive agencies to consider how the 

federal government can maximize performance and results. This will be 

particularly important for federal grant program managers, given the 

significant amount of federal resources invested in these tools. Because 

many national objectives can only be achieved through state, local, and 

nongovernmental organizations, enhancing performance accountability 

below the federal level is equally important. In this report, we identify a 

variety of accountability mechanisms as well as key strategies to enhance 

their use. Collectively, these can help enhance and sustain performance 

accountability in grants at all levels of government. 

As the cases we described illustrate, rewards and penalties are 

fundamental tools to help drive and motivate desired behaviors, but 

performance accountability mechanisms are not one size fits all; there is 

no universal transferable mechanism applicable to all programs. The 

specific mechanisms used by agencies and programs and highlighted 

throughout this report may not be universally adopted by other federal 

agencies and programs seeking to improve their own programs. 

Nevertheless, many can be tailored to specific grant programs, and the key 

strategies can be adapted to address the specific accountability challenges 

each agency faces. 

Like all successful change initiatives, the progress currently under way to 

move from traditional fiscal accountability in grants to greater 

accountability for performance will take time; accountability provisions—

and the performance measures associated with them—can take many 

years to mature. Although some federal programs are well on their way to

collecting and reporting on reliable, credible, and valid data that support 

high-quality outcome goals agreed to by all program partners, many others 

are still struggling with how to define appropriate outcome measures. It 

will be critical to proceed thoughtfully and implement performance 

Conclusions 

Page 39 GAO-06-1046 Grants Management
accountability in phases, building in enough opportunities to learn from 

mistakes and revise measures and mechanisms to reap the benefits of 

performance management while minimizing perverse incentives and 

unintended consequences. 

As with all challenges, starting with small steps is often the best way 

forward. Accountability provisions can be used to bring program partners 

together to identify common ground. For example, programs that struggle 

with defining appropriate outcome goals, measures, and targets may wish 

to tie incentives to reaching agreement on them. Those that struggle with 

poor data quality and data definitions could reward grantees for progress 

in this area. Performance accountability—especially in the early stages—

must be constructive, not punitive. Even if penalties are employed to 

promote performance accountability, there should be a constructive, 

collaborative approach to performance improvement that precedes them. 

Tying performance to lower risk, nonfinancial mechanisms may at first be 

more acceptable until performance measures have been time tested and 

revised as needed and grantees have had time to collect the necessary data

to support the measures. Above all, a collaborative process that includes 

Congress, the executive branch, and grantees will be critical to developing 

successful performance accountability systems. 

Accountability provisions assume that performance can be improved—but 

this requires information sharing and feedback. OMB has a central role in 

overseeing the performance and accountability in the federal government,

and has used its role to promote general results-oriented performance 

measurement and management practices in federal grants through Web 

sites, guidance, work groups, and workshops. Each of these tools and 

strategies could be expanded on to specifically promote and encourage 

performance accountability in federal grants, both among related federal 

grant programs—programs that have a common purpose—and federal 

grant types—such as categorical grants, block grants, and funding streams. 

Sharing good practices and lessons learned and providing feedback on

performance are valuable practices that can leverage resources to enhance 

knowledge and further performance accountability. Leading practices can 

be shared within and among agencies, grant programs, grantees, and even

grant types. OMB recognized the value in sharing information on 

performance accountability mechanisms, but has not yet focused on this 

issue. 

Page 40 GAO-06-1046 Grants Management
We are therefore recommending that the Director of OMB encourage and

assist federal agencies in working with the Congress to expand the 

effective use of performance accountability mechanisms, focusing on the 

practices in this report, when federal grant programs are being created or 

reauthorized. We further recommend that OMB offer opportunities for 

knowledge transfer among federal agencies and encourage agencies to 

share leading practices and lessons learned in implementing grant 

accountability mechanisms. Possible vehicles for the collection and 

dissemination of this information include good practices guides and 

workshops and Web sites such as results.gov, grants.gov, and 

expectmore.gov. 

On August 22, 2006, we provided a draft of this report to the Director of 

OMB and the Secretaries of Education and Health and Human Services. 

We also provided relevant sections of a draft of this report to the grantees 

and contractors highlighted in this report. We received technical 

comments from all three agencies, which were incorporated as 

appropriate. In addition, OMB agreed with our recommendation but 

suggested we broaden it to address the role of federal agencies and 

Congress in the grant design and reauthorization process. We agree, and 

have amended our recommendation accordingly.

We are sending copies of this report to the Director of the Office of 

Management and Budget, the Secretaries of Education and Health and 

Human Services, and other interested parties. We will also make copies 

available to others upon request. In addition, the report is available at no 

charge on GAO’s Web site at http://www.gao.gov. 

Please contact me on (202) 512-6543 or steinhardtb@gao.gov if you or your

staff have any questions about this report. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. Key contributors to this report are acknowledged in 

appendix II.

Sincerely yours, 

Bernice Steinhardt 

Director, Strategic Issues 

Recommendation for 

Executive Action 

Agency Comments 

Page 41 GAO-06-1046 Grants Management
Appendix I: Objectives, Scope, and Appendix I: Objectives, Scope, and Methodology 

Methodology 

The objectives of this report were to identify (1) the challenges to 

performance accountability in grants; (2) the kinds of mechanisms that are 

being used to improve grant performance and how; and (3) given the 

findings of questions 1 and 2, what strategies the federal government can 

use to encourage the use of these mechanisms, as appropriate.

To meet the first and second objectives, we interviewed experts in grants 

and performance management, including individuals from the following 

organizations: the School of Public Policy at the University of Maryland, 

the University of Central Florida, the John F. Kennedy School of 

Government at Harvard University, the John C. Stennis Institute of 

Government at Mississippi State University, the Public and International

Affairs Department at George Mason University, the Political Science 

Department at the University of New Hampshire, Measurement 

International, and the American Productivity and Quality Center. 

Based on our literature review, we developed a coding scheme for 

identifying (1) types of performance accountability mechanisms and 

(2) strategies used to successfully design and implement these 

mechanisms. We used these codes in a content analysis we conducted on a 

subset of the documents we reviewed. We chose the documents for 

content analysis based on the following criteria: 

• discussed accountability systems, mechanisms, or both, discussed general 

practices that facilitated to the effective use of accountability mechanisms, 

or provided case examples; 

• published in 1993 or later; 

• found in major electronic databases; and 

• published in the United States. 

The content analysis was conducted by two analysts, with the second 

analyst conducting a dependent review. Discrepancies in coding were 

discussed and agreement reached between the two analysts. Our analysis

produced an inventory of performance accountability mechanism types 

and five strategies used to facilitate the effective design and 

implementation of performance accountability mechanisms. See the 

bibliography for documents included in our review. 

To illustrate the mechanisms and strategies identified through our content

analysis, we used relevant case examples found in the literature. To 

further illustrate the mechanisms and design and implementation 

strategies, we also selected four additional case illustrations—two federal 

grant programs and two nonfederal contract cases. These four cases were 

Page 42 GAO-06-1046 Grants Management
Appendix I: Objectives, Scope, and 

Methodology 

selected based on our literature review, interviews with experts, and 

reviews of prior GAO work because they are good examples of where (1) a 

performance mechanism was present and (2) there is reason to believe 

that performance improved at least in part because of the mechanism. 

To screen and develop the grant case illustrations, we interviewed regional 

and headquarters federal agency officials and officials at county/local 

offices. We also reviewed grant legislation, program guidance, and prior 

studies. To develop contract case illustrations, we interviewed officials 

both from the contracting agencies and the contractors and reviewed the

contract. 

To address our third objective, we synthesized prior GAO work, and we 

interviewed officials at the Office of Management and Budget. 

We conducted our work from December 2005 through August 2006 in

accordance with generally accepted government auditing standards. 

Page 43 GAO-06-1046 Grants Management
Appendix II: 

A

GAO Contact and Staff 

cknowledgments 

Page 44 GAO-06-1046

Appendix II: GAO Contact and Staff 

Acknowledgments 

Bernice Steinhardt (202) 512-6543 or steinhardtb@gao.gov 

Jackie Nowicki (Assistant Director) and Chelsa Gurkin (Senior Analyst-inCharge) managed this assignment. David Bobruff, Katie Hamer, and Anne 

Marie Morillon made significant contributions to all aspects of the work. 

Kate France significantly contributed to the initial research and design of 

the assignment. In addition, Tom Beall and Jay Smale provided 

methodological assistance, Amy Rosewarne provided key assistance with 

message development, and Donna Miller developed the report’s graphics.

GAO Contact 

Acknowledgments 

Grants Management
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(450454) Page 47 GAO-06-1046 Grants Management
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