United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on VA, HUD, and Independent Agencies,

Committee on Appropriations, House of

Representatives

November 1998 ENVIRONMENTAL

PROTECTION

EPA’s Progress in

Closing Completed

Grants and Contracts

GAO/RCED-99-27

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-281260 

November 20, 1998

The Honorable Jerry Lewis

Chairman, Subcommittee on VA, HUD,

 and Independent Agencies

Committee on Appropriations

House of Representatives

Dear Mr. Chairman:

The Environmental Protection Agency (EPA) has a primary mission to

protect human health by safeguarding the natural environment—air,

water, and land. EPA carries out a large part of its mission by awarding

grants and contracts to states, public and private entities, and other

federal agencies. More than 70 percent of EPA’s budget is used to award

grants1

 and contracts. Once a grant or contract is completed or terminated

and once the applicable budget or project period has expired, the agency

must determine if the required work was completed and then close out the

project, which includes making any final payments due the recipient. One

of the primary purposes of closing out grants and contracts is to ensure

that any unliquidated obligated funds are recovered and used for

environmental programs, as permitted by statute. The unliquidated funds

from completed grants and contracts represent millions of dollars that

potentially could be recovered, deobligated, and used to provide EPA with

additional resources needed to fund other environmental programs. The

timely closeout of grants and contracts is also an important financial

management practice to ensure that the terms of the contracts and grants

are accomplished.

The timely closeout of inactive grants and contracts—those completed

grants and contracts whose required time period for closeout has

expired—is a long-standing management problem for EPA. The agency’s

untimely grant closeout activities and insufficient oversight of

nonconstruction grants were identified as material weaknesses in the

agency’s Fiscal Year 1997 Integrity Act Report to the President and

Congress. Also identified as a separate material weakness was the

untimely closeout of construction grants for wastewater treatment

facilities. Government entities were provided with these grants to improve

water quality. In 1994, EPA’s Office of Inspector General reported that a

significant number of inactive contracts needed to be closed out. EPA has

1

In this report, “grants” include both grants and cooperative agreements. Grants provide organizations

with financial assistance to carry out programs without substantial federal involvement. Cooperative

agreements provide financial assistance with substantial federal involvement.

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developed several initiatives to reduce the number, or backlog, of inactive

grants and contracts requiring closeout.

This report responds to your request that we (1) identify EPA’s efforts to

close out inactive grants and contracts; (2) identify the progress that EPA

has made in reducing the number of inactive grants and contracts, identify

the number of remaining inactive grants and contracts, and identify the

dates by which they are expected to be closed out; and (3) determine the

amount of unliquidated obligations for inactive grants and contracts.

To respond to these objectives, we reviewed documents, interviewed EPA

officials, and reviewed a random sample of grant and contract files. We

also analyzed EPA’s automated data files to identify the amount of

unliquidated obligations for inactive grants and contracts.

Results in Brief Over the last 8 years, EPA has taken several initiatives to reduce the

backlogs of inactive grants and contracts needing closeout. In 1992, EPA

developed a policy specifying procedures for closing out nonconstruction

grants, and in 1998, the agency developed a strategy for eliminating the

existing backlog of inactive nonconstruction grants and preventing a

future backlog. However, closeout procedures and strategies for

nonconstruction grants were not consistently followed, and strategies at

the regional level frequently did not include specific actions for

implementation. EPA also developed automated systems to improve the

monitoring of the nonconstruction grant closeout process. In 1990 and

1997, EPA developed strategies to reduce the backlog of wastewater

treatment construction grants. In fiscal year 1994, EPA established goals for

closing out a specific number of inactive contracts.

EPA has made significant progress in closing out inactive grants and

contracts, but a considerable number remain to be closed. In 1996, the

agency had a backlog of nearly 18,000 nonconstruction grants, but by June

1998, the backlog was reduced to approximately 4,100. EPA estimated in

1996 that the backlog of nonconstruction grants would be eliminated by

July 2000. With closeouts progressing at the current rate, it is likely that

this goal will be attained. The number of inactive wastewater treatment

construction grants needing closeout was about 500 as of

March 1998—reduced from about 5,900 at the end of fiscal year 1990.

While the construction grant backlog was initially projected to be

eliminated by the end of fiscal year 1997, this goal was not attained, and in

December 1996, EPA revised its projection to eliminate the backlog by

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2002. Recent estimates from EPA’s offices implementing the closeout

strategy for construction grants indicate that this goal is unlikely to be

attained. In March 1993, EPA had approximately 2,000 inactive contracts

needing closeout, and by August 1998, that number had been reduced to

1,028. Many of the remaining contracts are likely to be more difficult to

close out because they are old (37 percent have been inactive for 5 years

or more) or are of a type that requires additional documentation to close

out. Therefore, it is questionable whether EPA can sustain the closeout

progress made in the past.

Significant amounts of unliquidated obligations remain for inactive grants

and contracts and could potentially be allocated to other EPA projects and

programs. As of June 30, 1998, inactive nonconstruction grants and

contracts accounted for approximately $428.9 million in unliquidated

obligations. Construction grants had unliquidated obligations of about

$183.2 million as of March 30, 1998. Together, these unliquidated

obligations total $612.1 million, and for about $423.8 million of this total

amount, there are no statutory time restrictions on the use of funds.

Therefore, a large portion of these funds is potentially available for

recovery and could be used for other approved projects.

Background EPA relies extensively on states, public and private entities, and other

federal agencies to implement most federal environmental programs by

awarding grants and contracts. The administration of these grants and

contracts has been primarily delegated to EPA’s Grants Administration

Division and Office of Acquisition Management. The Grants

Administration Division’s grant management functions are performed

through EPA’s 10 regional Grants Management Offices and two Grants

Operation Branches in Washington, D.C. Three Office of Acquisition

Management contracting offices, located in Research Triangle Park, North

Carolina; Cincinnati, Ohio; and Washington, D.C., perform most of the

agency’s contracting activities.

The closeout of federal grants and contracts is required within specified

time periods after the grants and contracts are completed or terminated.

EPA’s Final Closeout Policy for Assistance Agreements establishes the

agency’s policy for closing out all completed grants. The grants addressed

in this policy include nonconstruction grants, such as grants to states for

conducting air quality monitoring activities or grants to universities for

conducting environmental research. Completed nonconstruction grants

should be closed out within 180 days after all of their terms and conditions

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have been satisfied. Construction grants are used for designing and

constructing wastewater treatment facilities to improve water quality in

specific geographical areas. The required closeout time frame for

construction grants varies, depending on the last grant action (e.g., final

audit resolution, project returned unaudited by the Office of Inspector

General, final debt collection, or forgiveness or dismissal of debt).

Generally, the closeout for construction grants should begin within 6

months of the last grant action.

Contracts are used by EPA for obtaining goods and services, such as the

services of contractors who remove hazardous waste at abandoned

industrial sites. The Federal Acquisition Regulation sets the time standards

for closing out completed contracts. These standards, which depend on

the nature of the contract, range from 6 to 36 months after the physical

completion of the contract. In addition to the Federal Acquisition

Regulation, EPA refers to its Acquisition Handbook in implementing the

agency’s closeout procedures for managing contracts. The regulations and

handbook provide for uniform and systematic procedures for promptly

closing out completed contracts. Closeout actions may begin when a

contract is physically completed, which occurs when the contractor

delivers all goods or performs all services as required. A contract is also

considered complete when EPA gives the contractor notice of complete

contract termination.

A significant number of inactive grants and contracts were not closed out

in a timely manner and grew into a significant work backlog. In 1996, there

were nearly 18,000 inactive nonconstruction grants requiring closeout, and

at the end of fiscal year 1990, there were 5,860 construction grants

requiring closeout. In 1994, EPA’s Office of Inspector General reported that

approximately 2,000 inactive contracts required closeout.

EPA Has Taken

Several Actions to

Close Out Inactive

Grants and Contracts

EPA has taken an aggressive approach to reducing the backlogs of inactive

grants and contracts awaiting closeout. During the past 6 years, EPA has

implemented several initiatives to address these backlogs and avert future

ones. For example, EPA has developed automated systems to monitor the

closeout process and streamlined closeout procedures to avoid

unnecessary delays. These initiatives generally involved

headquarters-developed strategies that required implementation by other

organizational units. These units are in EPA’s regional grants management

or contracting offices that have primary responsibility for closing out the

inactive grants and contracts. The initiatives vary in terms of scope and

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length of time, but they all attempt to focus management’s attention on the

issue of closing out inactive grants and contracts. The agency has

developed a strategy for eliminating the backlog of nonconstruction grants

and preventing a future backlog. A separate strategy was developed to

reduce the backlog of wastewater treatment construction grants that were

not closed out.

While EPA has devoted considerable effort and resources to these

initiatives, the closeout requirements and strategies that it developed have

not been consistently implemented. While reviewing randomly selected

files, we found that closeout procedures were not followed at times and

that the strategies to avert a future backlog of grants requiring closeout

were not implemented as required. For example, notification letters to

alert grantees of the required reports for the closeout process were not

always sent at the required intervals, and closeout strategies developed at

the regional offices did not specifically describe how the plans for regional

strategies would operate. As a result, improvements in the closeout

process were not fully realized.

EPA Has Taken Efforts to

Reduce the Number of

Nonconstruction Grants

Requiring Closeout

EPA has undertaken several significant efforts to reduce the number of

inactive nonconstruction grants that require closeout. To clarify and

emphasize closeout requirements for grants, EPA, in 1992, issued a

policy—the Final Closeout Policy for Assistance Agreements—to all EPA

organizations that were responsible for closing out grants. This document

sets forth the agency’s policy for closing out completed grants for all EPA

programs. To ensure the timely closeout of grants, the policy requires that

the agency’s offices and grant recipients take certain actions within

specified time frames. These time frames include those for agency offices

to obtain required documents from grant recipients and take actions to

complete closeouts. For example, 90 days before a grant ends, EPA is

required to notify the grant recipient of the closeout requirements.

The 1992 policy specifies that completed grants should be closed out

within 180 days after all of their terms and conditions have been satisfied.

For example, one grant that we reviewed, made to a Georgia county

organization for providing environmental information to teachers, was

completed in January 1996 and was closed in May 1996 when the

organization received information that the program had been conducted as

described in the project plan and that other terms of the grant were

fulfilled. To ensure the timely submission of required documents showing

that a grant’s conditions have been satisfied, the 1992 policy contains a

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schedule for sending notification letters to the grant recipient requesting

these documents. For example, a notification letter that provides

instructions and lists the documents that the recipient must submit as a

part of the closeout process should be mailed 90 days prior to the grant’s

ending date. Subsequent notification letters are required if the documents

have not been received.

EPA also implemented a policy in January 1998 to expedite the closeout of

grants that expired prior to October 1, 1990. This policy provided that EPA

could request required documents for several grants from the same

grantee and that if the documents were not available or the grantee was no

longer in existence, the grants could be closed without the required

documents consistent with EPA’s regulations. To avert a future grant

backlog, the agency developed a strategy that includes identifying the

required closeout documents for individual grants before the grants are

awarded, requiring each grants management office to develop a closeout

strategy, and streamlining closeout procedures to improve the

effectiveness of the closeout process.

Other ongoing initiatives taken by EPA include developing a pending grants

closeout database to improve and track closeout information for EPA’s

headquarters program and grants management offices, pilot testing an

automated notification system to provide EPA with information on required

reports for closing out inactive grants, and tracking and monitoring grants

by their required closeout dates.

Closeout Procedures and

Plans for Nonconstruction

Grants Were Not

Consistently Followed or

Implemented

EPA did not always follow its procedures when closing out

nonconstruction grants. Grants were closed out without the information

needed to determine whether their objectives were accomplished or

whether expenditures were made according to plans and requirements.

For example, EPA’s closeout procedures require that the grant project

officer certify that the project has been completed in accordance with the

conditions of the grant award. During our review of 15 randomly selected

grant files, we found that only 2 files showed evidence that the final

certifications were made by the project officers.2

 In addition, a follow-up

letter requesting required reports was sent to the grant recipient for only

one file. Appendix I contains additional information on the results of our

file reviews.

2

The selected files were from three locations—Chicago, Illinois; Atlanta, Georgia; and Washington,

D.C.—and were from a universe of grants that were closed out from 1993 through 1998. The results of

this sample are not projectable to the universe of closed grants.

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EPA also closed out a number of pre-1990 inactive grants without required

documentation by using its January 1998 policy to expedite the closeout of

older grants. Agency officials could not identify the number of grants that

were closed out under this policy. The implementation of the policy

resulted in deviations from the agency’s closeout procedures that might

not have been needed if the grants had been closed out in a timely manner.

Deviations from EPA’s closeout procedures were attributed to such factors

as EPA’s not having received the final certification of a project’s completion

from the project officer or EPA’s missing some required closeout reports

(e.g., the final financial status report or federally owned property report).

EPA officials cited these factors as some of the primary impediments they

encountered when closing out the older grants.

The strategy to avert a future backlog was also not consistently

implemented. The regional grants management offices were required to

prepare individual plans for averting a backlog, but our review of these

plans showed that most generally restated the 1992 final closeout policy.

As a result, the issues facing individual grants management offices were

not addressed. Some submitted plans provided no assurance that another

backlog would be averted because they lacked specific guidance on how

they would operate. For example, the majority of the plans did not identify

a specific strategy or methodology that would be used to accomplish

closeout goals, and some did not contain any closeout strategy. Additional

information on the lack of follow-through on closeout procedures or plans

by EPA is found in appendix I.

Strategies Have Not

Resulted in the Closeout of

All Construction Grants

EPA has developed two closeout strategies for construction grants during

the past 8 years. The objectives of the first strategy, developed in 1990,

were not attained, and actions called for in the second strategy, developed

in 1997, were not fully implemented. The construction grants program

provided grants to municipalities for individual projects to improve water

quality. Fiscal year 1990 was the final year that funding was authorized for

the program. At the end of that year, 5,860 grant projects totaling

$34 billion were yet to be completed and closed out. After 1990, state

revolving funds were to provide loans for community wastewater

treatment facilities.3

 To close out these grant projects, in November 1990,

EPA developed a closeout strategy that contained eight action initiatives to

expedite the closeout process. The plan had a goal of closing out all grants

3

In the 1987 amendments to the Federal Water Pollution Control Act, also known as the Clean Water

Act, the Congress authorized the creation of state revolving funds. The federal government provides

annual grants for states to help capitalize their revolving funds, which are used to make loans to local

governments and others to improve water quality.

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by September 30, 1997. If all the initiatives had been implemented

successfully, a substantial portion of the plan could have been completed

by fiscal year 1996, and project audits4

 and closeouts would have occurred

shortly thereafter to reach the goal for fiscal year 1997. This goal

presumed that EPA’s Office of Inspector General would take the steps

necessary to eliminate the audit backlog and accelerate the audit process.

Completed project grants were submitted to the Office of Inspector

General for a decision on whether to audit the projects, and the Office had

3 years to make these decisions. To accelerate these audits, the Office of

Inspector General had changed its audit-screening process in fiscal year

1995 by identifying 1,400 projects that were subject to review to determine

whether an audit should be performed. The remaining projects did not

have to be screened and could be closed without an audit. As a result,

regional offices had an increased number of grants that they could close

without a decision or audit by the Office of Inspector General.

In June 1997, EPA issued a second closeout strategy, which recognized that

all construction grants would not be closed out by the end of fiscal year

1997 for a variety of reasons. The plan stated that 497 of the 5,860 original

remaining construction grants would not be closed out by the end of fiscal

year 1997 and that a concerted effort would be required to close out these

grants to prevent additional delays after fiscal year 1997. This closeout

strategy also called for several initiatives, including reviewing the

workload for grants in each region and identifying impediments to closing

grants. Following the assessments, agreements were to be made between

headquarters and the regions on plans to complete the closeouts and

address the identified impediments. While EPA headquarters officials

discussed impediments with EPA regional personnel, the actions to address

impediments were not documented in regional agreements, and all of the

impediments were not resolved. The plan also called for an assessment of

key headquarters processes affecting the regional closeouts, but this too

was not performed.

EPA Has Taken Efforts to

Reduce the Number of

Inactive Contracts Needing

Closeout

EPA took several actions to reduce the number of contracts that require

closeout after we and the Office of Inspector General reported on the

number of contracts that required closeout.5

 In 1994, EPA officials

distributed a memorandum instructing contracting offices to place special

emphasis on decreasing the closeout backlog and closing out the older

4

EPA’s Office of Inspector General may decide to audit any construction grant.

5

EPA’s Contract Management: Audit Backlogs and Audit Follow-Up Problems Undermine EPA’s

Contract Management (GAO/T-RCED-91-5, Dec. 11, 1990).

Page 8 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
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contracts. EPA also required contracting offices to establish annual goals

for the number of contracts to be closed. For example, each contracting

office submitted its closeout goals to the Office of Acquisition

Management for fiscal year 1998. These goals were broken out by the age

of the contracts—those that were more than 10 years old, from 5 to 10

years old, and less than 5 years old. In total, all locations planned to close

out 347 contracts during fiscal year 1998. As of October 1998, EPA did not

know if this goal had been attained.

During our review, EPA also took several other actions to help reduce the

inventory of inactive contracts. First, EPA verified and is correcting the

information in its automated database on the status of contracts, which

supports its closeout activities. As a result, officials believe they have

more accurate management information on the remaining contracts to be

closed. Second, EPA established goals for a “reasonable number” of

contracts to be closed at each contracting location and is establishing

expectations for when each location should reach these levels. Third, EPA

is revising its closeout procedures, which the agency hopes will make it

easier to close out more low-dollar-value contracts without a detailed

audit. Audits can add significant time to the closeout process, and because

the audits are generally conducted by other agencies, EPA has limited

control to accelerate the audit process. EPA’s acquisition regulations now

allow a quick closeout—without a detailed audit—for contracts with total

costs of $2 million or less. By contrast, the Federal Acquisition Regulation

generally allows for quick closeouts if a contract’s indirect costs are

$1 million or less, regardless of the contract’s total costs.6 EPA plans to

eliminate the $2 million criterion in its regulation and use the $1 million

indirect cost criterion specified in the general Federal Acquisition

Regulation. Once the change is implemented, EPA officials believe that it

should reduce the number of required external audits and expedite the

closeout of some contracts.

Inactive Grants and

Contracts and

Expected Closeout

Time Frames

EPA has made significant reductions in the number of inactive grants and

contracts. For nonconstruction grants, the backlog was reduced from

approximately 18,000 in 1996 to approximately 4,100 as of June 30, 1998,

and the number of inactive construction grants was about 500 as of

March 1998—reduced from about 5,900 at the end of fiscal year 1990.

Inactive contracts were reduced from 2,000 in 1993 to about 1,000 as of

August 1998. The backlog of inactive nonconstruction grants will likely be

6

Indirect costs are costs not directly identified with a final cost objective, such as a contract.

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eliminated by 2000, but it is uncertain when the backlogs of construction

grants and contracts will be eliminated.

Current Status of

Nonconstruction Grants

Requiring Closeout

EPA has made significant progress in reducing the backlog of

nonconstruction grants, and, as of June 30, 1998, had reduced the initial

backlog of nearly 18,000 identified in 1996 to approximately 4,100. EPA

management’s attention was focused on the issue in July 1996, when the

backlog was reported to be nearly 18,000 by the Office of Inspector

General and determined to be a material weakness. From 1996 through

June 30, 1998, 15,548 grants in this backlog were closed out. Many of these

grants had expired over 5 years before they were closed out. Table 1

displays the progress EPA has made, by grant expiration date.

Table 1: Number of Nonconstruction

Grants Still Requiring Closeout Action,

by Grant Expiration Date, as of

June 30, 1998

Status of

grants

Grants

expiring

prior to Oct.

1,1990

Grants

expiring

from Oct. 1,

1990, to

Sept. 30,

1995

Grants

expiring

from Oct. 1,

1995, to

Sept. 30,

1997

Grants

expiring

from Oct. 1,

1997, to

June 30,

1998 Total

Total grants

needing

closeout 5,873 7,103 6,183 541 19,700

Grants already

closed 5,258 5,878 4,159 253 15,548

Remaining

grants to be

closed 615 1,225 2,024 288 4,152

Source: GAO’s presentation of data from EPA’s Grants Administration Division.

In addition to the 4,152 grants remaining to be closed out as of June 30,

1998, there were 1,134 grants that had been completed, but 180 days had

not elapsed for them to be classified as inactive. If these grants are not

closed within 180 days after completion, they too will become a part of the

backlog and will increase the number of grants requiring closeout.

In July 1996, EPA proposed 2000 as the date for eliminating the backlog of

nearly 18,000 nonconstruction grants. If the agency maintains its current

progress and closure rate, the goal may be achieved earlier. In 1996, the

agency also committed itself to closing out all grants ending after October

1, 1995, within the 180 days allowed after completion. However, as of

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June 30, 1998, more than 2,300 grants that ended from October 1, 1995,

through June 30, 1998, remained in the backlog.

Status of Construction

Grants to Be Closed

The inventory of construction grants needing closeout action has been

reduced considerably. As of March 1998, 598 construction grants awarded

prior to September 30, 1991, remained open. This represented a reduction

from 5,860 grants that remained open at the end of fiscal year 1990. Of

these 598 grants, 476 were for completed wastewater treatment projects

that had begun operations; therefore, EPA could begin the closeout

process.

EPA’s initial plan was to close out all construction grants awarded prior to

September 30, 1990, by September 30, 1997. That goal was not met, and in

a 1996 report to the President and the Congress, EPA indicated that all

pre-1991 construction grant projects will be closed out by September 2002.

It is unlikely, however, that this goal will be met either. Estimates from

EPA’s regional offices that are responsible for closing out grants indicate

that not all projects will be closed out by that date. Several wastewater

treatment construction grants that remain to be closed out involve

disputes between the agency and the grantee regarding whether certain

project costs may be reimbursed with grant funds. These disputes may

result in lengthy administrative appeals. Additionally, while the remaining

grants have been put on firm schedules for completion, the schedules have

been affected by impediments such as the untimely resolution of grantees’

disputes at the regional offices. Some of these impediments are beyond the

control of the regional offices.

Status of Contracts

Requiring Closeout

EPA has also made significant progress in reducing the backlog of contracts

needing closeout action, but many of the contracts that remain will

probably be more difficult to close. In 1990, we testified that EPA had

almost 2,400 inactive contracts that needed to be closed,7

 and in 1994, the

Office of Inspector General reported that almost 2,000 needed to be

closed.8

 By August 1998, EPA had reduced that number to 1,028. The

closeout process had started for 599 contracts but had not yet begun for

429.

7

EPA’s Contract Management: Audit Backlogs and Audit Follow-Up Problems Undermine EPA’s

Contract Management (GAO/T-RCED-91-5, Dec. 11, 1990).

8

Final Report of Audit on Contracts Not Closed, EPA/OIG (July 1994).

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The contracts remaining in EPA’s inventory will likely be more difficult to

close because most are cost-reimbursement contracts.9

Cost-reimbursement contracts of over $2 million are generally subject to

an audit by an outside agency. This requirement adds time to the closeout

process. For contract audits received in 1997, the average time between

the dates when the audit was requested and received was 869 days. Adding

to the closeout difficulty, cost reimbursement contracts are generally more

complex than fixed-price contracts and require more closing documents.

In reducing the number of contracts to be closed out, EPA has focused

more on the fixed-price contracts, which are easier to close out because

they do not require detailed audits and involve less documentation. From

October 1993 through August 1998, EPA closed out 1,165 fixed-price

contracts and 949 cost-reimbursement contracts.

A second source of difficulty is the age of the remaining contracts,

37 percent of which have been inactive for over 5 years. The Federal

Acquisition Regulation provides that once a contracting officer receives

evidence of physical completion, an agency should close out a

cost-reimbursement contract within 36 months and a fixed-price contract

within 6 months. Because the inactive contracts were not closed out

within these required time frames, EPA and contractor personnel are likely

to be less knowledgeable about the contracts, and records are less likely

to be readily available than if the contracts had been closed out on time.

The type and age of the inactive contracts remaining to be closed out are

shown in tables 2 and 3.

Table 2: Type of Inactive Contracts to

Be Closed, as of August 1998 Type of contract Number of inactive contracts

Cost-reimbursement 718

Fixed-price 205

Other 105

Total 1,028

Source: GAO’s analysis of data from EPA’s Contract Information System, as of August 24, 1998.

The data reflect corrections based on reviews by EPA’s contract personnel.

9

Under cost-reimbursement types of contracts, the government reimburses contractors for allowable

incurred costs. Fixed-price contracts generally provide for a firm price.

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Table 3: Age of Inactive Contracts to

Be Closed, as of August 1998 Age of contracta Number of inactive contracts

Less than 5 years 649

5 to 10 years 295

More than 10 years 84

Total 1,028

aIncludes contracts that were inactive as of June 30, 1998.

Source: GAO’s analysis of data from EPA’s Contract Information System, as of August 24, 1998.

The data reflect corrections based on reviews by EPA’s contract personnel.

Besides the audit delays for cost-reimbursement contracts, EPA officials

attributed the size of the inventory to the low priority that was placed on

closing out contracts because of limited staff resources. EPA has not set a

specific date for closing out the contract inventory; however, the agency

determined that an inventory of about 620 inactive contracts for all

contracting locations would be reasonable—a level requiring a reduction

of 40 percent. According to EPA officials, by maintaining this inventory

level, they will be complying with the Federal Acquisition Regulation’s

time frame requirements for closing out contracts. All contracting

locations were required to estimate an inventory level and a date by which

they would attain this level. As of August 1998, all but one location had

provided a range of estimates. In some cases, locations had already

achieved the target inventory level, while others will not attain it until

fiscal year 2001.

Unliquidated

Obligation Amounts

Significant amounts of unliquidated moneys remain available for grants

and contracts that are awaiting closeout. Using EPA’s data systems and

information from the agency’s regional offices, we identified inactive

grants and contracts with unliquidated obligations of approximately

$612.1 million that may no longer be needed for the intended purposes. Of

the total unliquidated amount, $469.8 million represents funds whose use

is not subject to statutory time limits and may therefore be available for

deobligation and reuse for similar program activities if additional funds

are not required to satisfy outstanding project or contract obligations.

As of June 30, 1998, approximately $354.5 million in unliquidated

obligations remained for nonconstruction grants, and of this amount,

approximately $240.1 million was for funds whose obligation authority did

not have a time limit. For construction grants, approximately

$183.2 million remained available as of March 1998. These funds represent

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B-281260 

construction grants that were made prior to fiscal year 1992. The projects

are complete, and the grants are in the process of being closed out. The

remaining funds may be used for ongoing projects, may be used for new

projects, or may be transferred into the appropriate state revolving fund.

The amounts that are ultimately available depend on the grantees’ final

claims and audits that may disallow claimed amounts. Therefore, the

available amounts may increase or decrease prior to the final closeout.

In addition to grants, inactive contracts that required closeout as of

June 1998 had unliquidated obligated funds of approximately $74.4 million.

EPA reserved an additional $141.2 million of unliquidated obligated funds

for these inactive contracts to cover final expenditures or additional costs.

The amount reserved is 10 percent of the contracts’ total expenditures.

Approximately $46.5 million of the $74.4 million is for funds whose

obligation authority did not have a time limit, and the majority of these

funds are for EPA’s Superfund program. These funds may be recovered and

used for similar program purposes as allowed by statute.

EPA headquarters routinely requests that the agency’s regional and

contracting offices identify funds from grants and contracts that are

available for deobligation. For example, each year, headquarters requests

the contracting offices to identify contracts that have funds available for

deobligation and report whether action is planned to deobligate the funds.

One special effort that we reported on previously was EPA’s concentrated

effort to recover unliquidated funds for work orders and assistance

agreements for Superfund contracts and grants that were completed

before 1997.10 Prior to 1997, EPA experienced continuing problems in

recovering unliquidated funds for inactive Superfund contract work orders

and assistance agreements. We reported that EPA has opportunities to

recover $125 million by deobligating Superfund contracts and grants that

expired in 1997.

EPA has concentrated its efforts on Superfund contracts and grants. For

other contracts and grants, headquarters policies encouraging regional and

contracting offices to identify funds available for deobligation were not

effective in the past until the agency made special efforts to reduce the

backlogs.

10Environmental Protection: Funds Obligated for Completed Superfund Projects (GAO/RCED-98-232,

July 21, 1998).

Page 14 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
B-281260 

Agency Comments We provided EPA with a draft of this report for review and comment. The

agency generally agreed with the findings in the report and suggested

several technical comments, which we incorporated into the report. EPA

also suggested that information be added to the methodology section on

the time period for liquidating nonconstruction grant balances. We added

the information EPA suggested and included an additional note to the table

in appendix II to further clarify the time period.

We conducted our review from December 1997 through November 1998 in

accordance with generally accepted government auditing standards. Our

scope and methodology are presented in appendix III. We are sending

copies of this report to appropriate congressional committees; interested

Members of Congress; the Administrator, EPA; and other interested parties.

We will make copies available upon request.

Major contributors to this report were Roger Bothun, Jimmie Gilbert,

James Hayward, and John A. Wanska. Please call me at (202) 512-6111 if

you or your staff have any questions.

Sincerely yours,

Peter F. Guerrero

Director, Environmental

 Protection Issues

Page 15 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Contents

Letter 1

Appendix I 

Grant Closeout

Procedures and

Implementation Plans

18

Appendix II 

Unliquidated Amounts

for Inactive Grants by

Appropriation

Category, as of June

30, 1998

24

Appendix III 

Scope and

Methodology

25

Tables Table 1: Number of Nonconstruction Grants Still Requiring

Closeout Action, by Grant Expiration Date, as of June 30, 1998

10

Table 2: Type of Inactive Contracts to Be Closed, as of

August 1998

12

Table 3: Age of Inactive Contracts to Be Closed, as of August 1998 13

Table I.1: Compliance With Closeout Requirements for 15

Randomly Selected Grant Files

20

Abbreviations

EPA Environmental Protection Agency

FMO Financial Management Office

FSR Financial Status Report

GAO General Accounting Office

GMO Grants Management Office

IFMS Integrated Financial Management System

PO Project Office

Page 16 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Page 17 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Appendix I 

Grant Closeout Procedures and

Implementation Plans

We examined the implementation of the Environmental Protection

Agency’s (EPA) Final Closeout Policy for Assistance Agreements and

national strategy to prevent a future backlog. On the basis of a review of

the randomly selected files and other documentation gathered, we found

that the requirements for closing out grants were not always followed and

that actions to prevent a future backlog of grants requiring closeout were

not always taken. Some grants were closed out without the required basic

financial and project documents, and actions that were to be taken by EPA,

as called for in its national strategy, were not performed.

Grants Closed

Without Required

Documentation

EPA’s Final Closeout Policy for Assistance Agreements requires that

nonconstruction grant projects be closed within 180 days after EPA

receives the required reports. To ensure the timely receipt of the required

reports, EPA is required to alert grant recipients by a notification letter 90

days before the scheduled end of the grant project period. The notification

letter provides instructions and identifies documents that a recipient must

submit as a part of the closeout process. If required, subsequent

notification letters must be sent at 30-, 90-, and 120-day intervals after the

project’s completion to request that the recipient submit the required

closeout documents. In addition, an EPA grant specialist is to track and

record on a checklist the closeout action milestones as they occur and

make updates to the Grant Information Control System, which tracks

individual grants. This checklist is to be included in the official grant file.

Within 90 days of a project’s completion date, a grant recipient is to submit

to EPA the required closeout reports unless EPA waives the requirement.

The following are among the reports required:

• Final progress (technical) report (covering progress made for the entire

project).

• Final financial status report (showing the project’s expenditures and

unliquidated balances, if any).

• Federally owned property reports (listing nonexpendable personal

property owned by the government, if applicable).

• Invention disclosure reports (showing inventions developed under the

project, if applicable).

• Final minority business enterprise/women business enterprise report

(showing the utilization of disadvantaged businesses, if applicable).

• Final request for payment and/or final EPA automated clearing house

payment request (showing that all payments have been made and accounts

settled, if applicable).

Page 18 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Appendix I 

Grant Closeout Procedures and

Implementation Plans

In addition to these reports, a recipient must submit other data, manuals,

specifications, and products required in the grant agreement, if applicable.

The responsibility for closing out an individual grant is shared by the grant

project officer, Grants Management Office personnel, and Financial

Management Office personnel. The project officer is required to review

and approve the technical reports related to the grant, ensure that all grant

activities have been accomplished, and certify to the Grants Management

Office within 90 days of the project’s completion that the work was

performed satisfactorily and that all technical requirements related to the

grant have been met.

The Grants Management Office is required to ensure that the final

certification of the project’s completion has been received from the

project officer and that the required reports, including the one certifying

compliance with all terms and conditions of the grant, have been received.

The Grants Management Office is also required to review and analyze the

financial status report. As part of its review and analysis, the office

(1) determines the allowability of reported indirect costs, (2) reconciles

the financial data in the report with the Integrated Financial Management

System’s data, (3) determines whether any unliquidated obligations and/or

funds are owed to EPA and provides the Financial Management Office with

instructions for disposing of the funds, (4) requests a final audit (if

applicable), (5) prepares the closeout amendments and letters, and

(6) retires the file.

The Financial Management Office is required to assist the Grants

Management Office in reconciling a recipient’s reported financial data. The

Financial Management Office is also responsible for reviewing closeout

amendments, deobligating unliquidated funds, billing the recipient for

funds owed to EPA, establishing accounts receivable, and conducting

follow-up collection efforts when applicable. In addition, the Financial

Management Office is responsible for making entries to the automated

financial system for any deobligations and collections of funds and for

approving and processing the recipient’s final payment request.

The basic documentation required for closing out a nonconstruction

assistance agreement includes the final financial status report, the final

progress (technical) reports, and the project officer’s certification. Our

review of 15 randomly selected grant files disclosed that many of the

required documents were not present, as indicated in table I.1.

Page 19 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Appendix I 

Grant Closeout Procedures and

Implementation Plans

Table I.1: Compliance With Closeout Requirements for 15 Randomly Selected Grant Files

Issue Criterion/policy

Number of files

showing evidence of

compliance

Number of files

showing no evidence

of compliance

Number of files noted

as not applicable

Was the grant and/or

cooperative agreement

closed no later than 180

days after the project

ended?

EPA should close out a

nonconstruction grant

project within 180 days

after receiving all

required reports and

deliverables. 3 12 0

Did the closeout process

start prior to the last 3

months of the

budget/project period?

Closeout policy requires

that the grant specialist

prepare a “completion

alert” letter 90 days

before the project ends. 0 14 1

Was a copy of the letter

sent to the PO?

Closeout policy requires

that the grant specialist

send a copy of the

completion alert letter to

the PO. 0 3 12

Was an interim alert

notification letter mailed to

the grant recipient within 30

days after completion?

Closeout policy requires

that within 30 days after

completion, a follow-up

letter be sent to the grant

recipient about the

required closeout reports. 0 5 10

Was a copy of the 30-day

notification letter sent to the

PO?

Closeout policy requires

that the grant specialist

send a copy of the

30-day notification letter

to the PO. 0 3 12

Was a follow-up letter sent

to the grant recipient after

90 days if the overdue

reports were not received?

Closeout policy requires

that after 90 days

following completion, a

follow-up letter be sent to

a grant recipient with

overdue reports. 1 11 3

Were copies of the 90-day

letter sent to the PO and the

FMO?

Closeout policy requires

that copies of the 90-

day letter be sent to the

PO and the FMO. 1 7 7

Was a final demand

closeout letter sent to the

grantee after 120 days if the

required reports were not

received?

Closeout policy requires

that after 120 days

following completion, a

follow-up letter be sent to

a grant recipient with

overdue reports. 1 5 9

(continued)

Page 20 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Appendix I 

Grant Closeout Procedures and

Implementation Plans

Issue Criterion/policy

Number of files

showing evidence of

compliance

Number of files

showing no evidence

of compliance

Number of files noted

as not applicable

Were copies of the 120-day

follow-up letter sent to the

PO and FMO?

Closeout policy requires

that copies of the 120-

day follow-up letter be

sent to the PO and FMO. 0 3 12

Did the GMO receive the

final certification for the

project’s completion from

the PO?

Closeout policy requires

the GMO to ensure

receipt of the final

certification. 2 9 4

Did the file contain the final

progress (technical) report?

Closeout policy requires

the PO to review and

approve the final

progress report. 2 8 5

Did the GMO reconcile the

FSR’s financial data with the

IFMS’ data?

Closeout policy requires

that the GMO ensure that

the FSR’s financial data

are reconciled with the

IFMS’ data. 7 5 3

Did the GMO determine the

allowability of the reported

indirect costs (on the basis

of the assistance

agreement’s provisions and

the final negotiated indirect

cost rate)?

Closeout policy requires

that the GMO determine

allowability of the

reported indirect costs

on the basis of the

assistance agreement’s

provisions and the final

negotiated indirect cost

rate. 1 7 7

Did the file have a closeout

checklist?

Closeout policy requires

that the GMO record

milestone events as they

occur on a locally

prepared checklist for

inclusion in the official

agreement file. 4 11 0

Did the PO assess the

grantee’s compliance with

the work plan?

Closeout policy requires

that the PO ensure that

all deliverables required

under the award are

received and are

acceptable. 5 8 2

Did the PO approve the

final progress (technical)

report?

Closeout policy requires

that the PO review and

approve all technical

reports in accordance

with the requirements of

the award and statement

of work. 5 5 5

(continued)

Page 21 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Appendix I 

Grant Closeout Procedures and

Implementation Plans

Issue Criterion/policy

Number of files

showing evidence of

compliance

Number of files

showing no evidence

of compliance

Number of files noted

as not applicable

Did the PO review and

reconcile the FSR with the

award document?

Policy requires that the

PO and FMO share

responsibility for

reconciling differences in

billing and payments

and for determining the

final payment due the

recipient. 0 12 3

Legend

FMO Financial Management Office

FSR Financial status report

GMO Grants Management Office

IFMS Integrated Financial Management System

PO Project officer

Actions Not Taken to

Prevent Future

Backlogs

EPA did not take specific actions identified in the agency’s national strategy

to avert a future backlog of assistance agreements. EPA’s national strategy

policy applies to nonconstruction grants that were awarded after

October 1, 1995. The national strategy primarily addresses the following

five issues and the actions to address the issues:

• Identifying closeout reports prior to an award. For grants awarded after

October 1, 1997, the Grants Management Office, in conjunction with the

project officer, is to identify the required closeout reports in the file at

least 30 days before or at the time of the award. To facilitate the closeout

process and avoid waiting for unnecessary closeout reports, the Grants

Management Office, in conjunction with the project officer, is required to

document the reports that the recipient will need to close out the inactive

project.

• Streamlining the number of closeout procedures. To expedite the closeout

process and prevent another backlog, the Grants Administration Division

streamlined two procedures involving the property and invention reports.

• Requiring Grants Management Offices to develop a closeout strategy.

Grants Management Offices were to develop a closeout strategy and

certify to the Grants Administration Division by April 1, 1998, that a plan

had been implemented to prevent another backlog. Revised strategies are

Page 22 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Appendix I 

Grant Closeout Procedures and

Implementation Plans

to be developed and provided for the Grants Administration Division by

January 1 for subsequent years.

• Analyzing the efficacy of the closeout strategies. The Grants

Administration Division will periodically assess the strategies and provide

the Grants Management Offices with the results.

• Testing Region VI’s notification system in headquarters. The Grants

Administration Division will test the system and determine whether to

make the system available to regional Grants Management Offices in fiscal

year 1999.

Our review of 15 files for grants that had recently been awarded showed

that none of the files included or identified the data needed before an

award is made. In addition, the files showed no evidence that the Grants

Management Offices are identifying and documenting the closeout reports

that recipients need to expeditiously close out inactive grants. Moreover,

as previously noted, some of the Grants Management Offices’ strategic

plans to avert a future backlog did not identify a specific strategy or

methodology that would meet the goals identified in the plan. On the basis

of the conditions we observed, we concluded that the Grants Management

Offices’ strategies do not ensure that a future backlog will be averted.

Page 23 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Appendix II 

Unliquidated Amounts for Inactive Grants

by Appropriation Category, as of June 30,

1998

Appropriation time perioda

Dollars in millions

Appropriation category No-year 2-year 1-year

Wastewater treatment (pre-1992) $183.2b $0 $0

State revolving funds 60.8 0 0

State and tribal assistance grants 91.4 0 0

Superfund grants 26.7 0 0

Leaking Underground Storage Tank Trust

Fund 35.9 0 0

Oil Pollution Act Trust Fund 0.1 0 0

Environmental program management and

abatement control and compliance 0 100.7 0

Science and technology, and research and

developmentc 17.4 6.9 0

Other, including reimbursables 7.8 6.3 0.5

Totald $423.3 $113.9 $0.5

aNo-year authority is budget authority that remains available for obligation for an indefinite period

of time. One-year and 2-year authority is available for obligation during only one or two specific

fiscal years, respectively, and expires, if not obligated, at the end of that time.

bAs of March 31, 1998.

cIncludes Superfund moneys transferred to science and technology.

dTotal amount includes $14.4 million for completed nonconstruction grants that were within the

180-day closeout period and were not classified as inactive as of June 30, 1998.

Page 24 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Appendix III 

Scope and Methodology

To review EPA’s efforts to reduce the number of completed grants and

contracts that should be closed out, we interviewed EPA officials at

selected locations to discuss the initiatives taken and planned to reduce

the number of completed contracts and grants. We reviewed documents

related to EPA’s efforts, including regulations, policies, and closeout

strategy plans. We also reviewed 15 closed out grant files and 5 closed out

contract files that were randomly selected to assess EPA’s compliance with

established closeout requirements. The grant files were reviewed at EPA

headquarters and at the agency’s regional offices in Atlanta, Georgia, and

Chicago, Illinois. The contract files were selected and reviewed at the

Contracts Management Division in Research Triangle Park, North

Carolina. For wastewater treatment construction grants, we interviewed

officials and reviewed documents from EPA’s regional offices in New York,

New York; Boston, Massachusetts; Philadelphia, Pennsylvania; and EPA

headquarters. To assess the implementation of EPA’s strategy to prevent a

future backlog of grants, we reviewed the national strategy plan and

regional implementation plans. We also randomly selected 15 files of

recently awarded grants to determine if the strategy’s measures had been

implemented. These files were located at the same offices as those for the

grant selections previously mentioned.

To identify the number of completed grants and contracts that should be

closed, we obtained data from EPA headquarters and analyzed the data to

determine the status of grants and contracts closed and remaining to be

closed as of June 30, 1998. For wastewater treatment construction grants,

we requested that EPA obtain information on the number of inactive grants

as of March 1998. To determine when completed grants and contracts are

expected to be closed, we reviewed EPA’s closeout strategies that

contained expected completion dates and discussed these dates with EPA

officials. We also discussed with EPA officials the impediments to closing

grants and contracts.

To determine the amount of unliquidated obligations for completed grants

and contracts that should be closed, we developed data from EPA’s

financial databases, which included the Integrated Financial Management

System, the Contract Information System, and the Grants Information

Control System. Unliquidated obligations are associated with grants

completed between October 31, 1991, and June 30, 1998. These dollars also

include amounts not in the closeout backlog (i.e., within 180 days of the

completion date). For wastewater treatment construction grants, we

obtained unobligated amounts as part of EPA headquarters’ March 1998

request to EPA’s regional offices. To verify these automated data, we

Page 25 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
Appendix III 

Scope and Methodology

randomly selected 15 grant files and 5 contract files and verified selected

financial information against data contained in the automated systems. We

found no significant differences in the data. We conducted our review

from December 1997 to November 1998 in accordance with generally

accepted government auditing standards.

(160423) Page 26 GAO/RCED-99-27 Closing Out EPA’s Grants and Contracts
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