a

GAO

United States Government Accountability Office

Report to Congressional Committees

November 2005 DEFENSE 

MANAGEMENT

Actions Are Needed to 

Improve the 

Management and 

Oversight of the 

National Guard Youth 

Challenge Program

GAO-06-140
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

November 2005

DEFENSE MANAGEMENT 

Actions Are Needed to Improve the 

Management and Oversight of the 

National Guard Youth Challenge Program 

Highlights of GAO-06-140, a report to 

congressional committees 

The fiscal year 1993 National 

Defense Authorization Act 

established the National Guard

Youth Challenge Program as a pilot 

program to evaluate the 

effectiveness of providing military 

based training to improve the life 

skills of high school dropouts. The

Assistant Secretary of Defense for

Reserve Affairs, under the 

authority of the Under Secretary of 

Defense for Personnel and 

Readiness, is responsible for 

overall policy for the program. The

National Guard Bureau (NGB) 

provides direct management and 

oversight. In 1998, Congress

permanently authorized the 

program and began decreasing the 

federal cost share until it reached 

its current level of 60 percent in 

2001. Conference Report 108-767 

directed GAO to review the

program. Specifically, GAO 

reviewed (1) historical trends of 

the program; (2) the extent of 

analyses performed to determine 

program costs and the need to

adjust the federal and state cost

share; and (3) NGB oversight of the 

program. GAO is also providing 

information on Reserve Affairs’ and 

states’ efforts to obtain funding

from alternative sources. 

What GAO Recommends

GAO recommends a number of 

actions designed to improve the 

management and oversight of the 

National Guard Youth Challenge

Program. DOD concurred with 

GAO’s recommendations.

Between fiscal years 1998 and 2004, total expenditures for the Challenge 

Program, including funds spent to cover the federal and state cost shares 

and federal management expenses, have increased from about $63 

million to $107 million. During this same period, participation in the 

program has grown from 10 sites in 10 states to 29 sites in 24 states and 

Puerto Rico. Since the program’s inception, NGB has reported positive 

performance outcomes in academic performance, community service 

activities, and post-residential placements. For example, in 2004, NGB 

reported graduating 7,003 students, or 79 percent of those enrolled, with 

70 percent of those graduates earning a high school equivalent diploma. 

While Reserve Affairs and NGB have expressed concern about the 

current program funding level and have suggested increasing both the 

cost basis used to determine funding needs and the federal cost share, 

neither has performed analyses to support the need for such changes. 

Federal financial standards state that reliable cost information is crucial

for effective management of government operations. Since 1993, NGB 

has used $14,000 per student as the basis for determining the amount of 

funds needed to cover program operating costs, and applied the federalstate cost share to this amount. To keep pace with inflation, NGB has 

suggested increasing the per student cost to $18,000. Reserve Affairs has 

reported some states are having difficulty meeting their share and, in

2004, recommended the federal share be increased from 60 percent to 75

percent. However, neither Reserve Affairs nor NGB has compiled or 

analyzed data on actual program costs, states’ financial situations, or the 

impact of adjusting the federal and state cost-share. Without better cost 

and financial information, the Department of Defense (DOD) cannot 

justify future funding requests or a change in the cost-share ratio. 

Although NGB uses various oversight mechanisms, it lacks a complete 

oversight framework, making it difficult to measure program 

effectiveness and to adequately address audit and review findings. Also, 

some audits have not been performed as required. The Government 

Performance and Results Act suggests a complete oversight framework 

including goals and measures against which to objectively evaluate 

performance. While NGB requires states to report certain performance 

outcomes, it does not require states to establish performance goals in 

these areas, and therefore does not have a firm basis for evaluating 

program outcomes and DOD’s return on investment. Existing 

agreements require state programs to be audited at least every three 

years. However these audits have not been conducted as required and no

provisions exist for submitting audit results to NGB. Without regular 

audits and access to results, NGB cannot be assured that programs are 

using federal funds appropriately and that audit findings are addressed. 

www.gao.gov/cgi-bin/getrpt?GAO-06-140.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Sharon Pickup 

at (202) 512-9619 or pickups@gao.gov. 
Contents 

Letter 1

Results In Brief 3

Background 6

Challenge Program Expenditures and Participation Have Increased 

and NGB Has Reported Positive Performance Outcomes 9 

Reserve Affairs and NGB Have Not Analyzed Data to Determine 

Actual Program Costs or the Need to Adjust the Federal and

State Cost Share 18 

The National Guard Bureau Lacks a Complete Framework for 

Oversight of the Challenge Program, Making It Difficult to 

Measure Program Effectiveness 21 

Reserve Affairs Lacks a Formal Approach for Securing Alternative 

Funding Support for the Challenge Program, While Some 

Participating States Have Obtained Alternative Funding Support 

as a Result of Their Efforts 25 

Conclusions 29

Recommendations for Executive Action 29 

Agency Comments and Our Evaluation 30 

Appendix I Scope and Methodology 33 

Appendix II National Guard Youth Challenge Program Sites 36 

Appendix III Comments from the Department of Defense 37 

Appendix IV GAO Contact and Staff Acknowledgment 40 

Tables 

Table 1: Hypothetical Examples Showing How Changing the Cost 

Basis or Cost-Share Ratio Would Affect Yearly Challenge 

Program Funding Amounts 19 

Table 2: States Selected for Site Visits or Interviews 34 

Page i GAO-06-140 Defense Management
Figures 

Figure 1: Annual Expenditures for the National Guard Youth 

 Challenge Program 11 

Figure 2: Number of National Guard Youth Challenge Program 

 Sites by Reporting Year 12 

Figure 3: Youth Participation in National Guard Youth Challenge 

 Program 13 

Figure 4: Challenge Program Sites by 2004 Graduation Results 14 

Figure 5: Number of GEDs Earned by Challenge Students 16 

Figure 6: Post-Residential Placement Data, 2003-2005 17 

Abbreviations 

DMARS Data Management and Reporting System 

DOD Department of Defense 

DOJ Department of Justice 

DOL Department of Labor 

ED Department of Education 

GED general educational development 

NGB National Guard Bureau

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Page ii GAO-06-140 Defense Management
United States Government Accountability Office

Washington, DC 20548 

 

November 29, 2005 

The Honorable John Warner 

Chairman 

The Honorable Carl Levin 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

The Honorable John Warner 

Chairman 

The Honorable Carl Levin 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

The Honorable Duncan L. Hunter 

Chairman 

The Honorable Ike Skelton 

Ranking Minority Member 

Committee on Armed Services 

House of Representatives 

The Honorable Duncan L. Hunter 

Chairman 

The Honorable Ike Skelton 

Ranking Minority Member 

Committee on Armed Services 

House of Representatives 

After Operation Desert Storm and the end of the Cold War, Congress 

began to reevaluate the focus of U.S. military activities and proposed using 

some military assets and training to help address critical domestic 

challenges such as drugs, poverty, and unemployment. In particular, some 

policymakers saw an opportunity to use the military’s capabilities to 

address domestic needs by providing role models for youth and training 

and educational opportunities for the disadvantaged. Section 1091 of the 

National Defense Authorization Act for Fiscal Year 1993 established the 

National Guard Youth Challenge Program (Challenge Program) as a pilot 

program to evaluate the feasibility and effectiveness of military based 

training to improve the life skills and employability of high school 

dropouts. After the program was permanently authorized in 1998, 

Congress began limiting the share of state operating costs covered by the 

federal government through the Department of Defense (DOD), which 

initially paid for 100 percent of these costs. DOD now pays 60 percent of 

state operating costs, and states provide 40 percent. In addition, the 

authorizing legislation for the Challenge Program allows the Secretary of

Defense to use nondefense funding sources in support of the program. 

After Operation Desert Storm and the end of the Cold War, Congress 

began to reevaluate the focus of U.S. military activities and proposed using 

some military assets and training to help address critical domestic 

challenges such as drugs, poverty, and unemployment. In particular, some 

policymakers saw an opportunity to use the military’s capabilities to 

address domestic needs by providing role models for youth and training 

and educational opportunities for the disadvantaged. Section 1091 of the 

National Defense Authorization Act for Fiscal Year 1993 established the 

National Guard Youth Challenge Program (Challenge Program) as a pilot 

program to evaluate the feasibility and effectiveness of military based 

training to improve the life skills and employability of high school 

dropouts. After the program was permanently authorized in 1998, 

Congress began limiting the share of state operating costs covered by the 

federal government through the Department of Defense (DOD), which 

initially paid for 100 percent of these costs. DOD now pays 60 percent of 

state operating costs, and states provide 40 percent. In addition, the 

authorizing legislation for the Challenge Program allows the Secretary of

Defense to use nondefense funding sources in support of the program. 

The Assistant Secretary of Defense for Reserve Affairs, under the authority 

of the Under Secretary of Defense for Personnel and Readiness, is 

responsible for management oversight of the Challenge Program, including 

policy and funding issues, while the National Guard Bureau (NGB) is 

responsible for the administration of the program, including daily 

management and oversight. For example, NGB maintains frequent 

contacts with state programs and conducts program evaluations through a

The Assistant Secretary of Defense for Reserve Affairs, under the authority 

of the Under Secretary of Defense for Personnel and Readiness, is 

responsible for management oversight of the Challenge Program, including 

policy and funding issues, while the National Guard Bureau (NGB) is 

responsible for the administration of the program, including daily 

management and oversight. For example, NGB maintains frequent 

contacts with state programs and conducts program evaluations through a

Page 1 GAO-06-140 Defense Management
contractor, while Reserve Affairs prepares the program budget based on

input from NGB and ensures that states are able to provide their required 

share. To participate in the program, states must sign a cooperative 

agreement with NGB that lays out roles and responsibilities among the 

states and NGB, and also provides guidance on the content of the 

program. Since 1993, NGB has used a cost of $14,000 per student as a 

basis for providing funds to state programs. 

Conference Report 108-767 directed the Comptroller General to conduct a 

study of the Challenge Program.1

 Specifically, we examined: (1) historical 

trends of the Challenge Program, including program expenditures, 

participation, and performance; (2) the extent to which Reserve Affairs 

and NGB have determined actual program costs and the consequent need 

to adjust the federal and state cost share; and (3) the extent to which NGB 

has provided oversight of the program. We also determined the extent to

which Reserve Affairs and participating states have made an effort to 

obtain alternative funding support for the Challenge Program. 

In performing our work, we interviewed officials from the Office of the 

Assistant Secretary of Defense for Reserve Affairs; NGB; the Departments 

of Education, Labor, and Justice; the contractor that monitors and 

evaluates state programs; the National Guard Youth Foundation; and 

selected states. We also reviewed the program’s annual reports and other 

documents provided by Reserve Affairs and NGB as well as the data 

management system used by states to collect Challenge Program student 

information and track individual and program activities. We concluded 

that the data were sufficiently reliable for our purposes. We analyzed 

program evaluations, resource management reviews, and audits, in 

addition to reviewing existing policies and procedures for managing the 

program. We conducted a survey of all 29 established programs to collect 

information on their budgets and expenditures, federal and state funding 

levels, each state’s ability to fund their individual program, and the 

availability of funding from other sources. We also visited or contacted 

eight Challenge Program sites in seven states and asked them about any 

alternative sources of funding for their programs. A detailed description 

of our scope and methodology is presented in appendix I. We conducted 

our work from January 2005 to October 2005 in accordance with generally

accepted government auditing standards. 

 1

Conference Report 108-767 accompanied the Ronald W. Reagan National Defense 

Authorization Act for Fiscal Year 2005, Pub. L. No. 108-375 (2004). 

Page 2 GAO-06-140 Defense Management
According to NGB, program expenditures and state participation in the 

Challenge Program have increased since the program began, and the 

program has achieved positive performance outcomes. Between fiscal 

years 1998 and 2004, total expenditures for the Challenge Program, 

including funds spent to cover the federal and state cost shares and federal 

management expenses, have increased from about $63 million to about 

$107 million. For fiscal year 2004, for example, NGB spent approximately 

$61.6 million for the federal share of the program and $5.8 million for NGB 

management costs, while states contributed approximately $40.5 million. 

Ten states participated in the first year of the pilot program in 1993; and

today there are 29 Challenge Program sites in 24 states and Puerto Rico. 

Additionally, 9 states remain on a waiting list to start new programs, and 

several states have expressed an interest in expanding their existing 

programs. Some common performance outcomes that NGB reports 

include the number of graduates earning a general educational 

development credential, changes in program students’ scores on 

standardized math and reading tests, and the number of community 

service hours performed by Challenge Program students. For example, 

the Challenge Program reported that 70 percent of graduates in 2004 

earned a general education development credential. Another performance 

outcome that NGB reports is the number of placements of program 

graduates in continuing education, the military, or the labor force at the 

time they complete their 12-month post-residential phase. For example, in 

2004, 3,698 graduates were placed in one of these categories by the end of 

the post-residential phase of the program. 

Results In Brief 

Although Reserve Affairs and NGB have expressed concern about the 

current program funding level and have suggested increasing both the cost 

basis used to determine funding needs and the federal cost share, we 

found that neither Reserve Affairs nor NGB has performed analyses to 

support the need for such changes. Good budget practices, included in the 

Office of Management and Budget’s Federal Financial Accounting 

Standards, state that agencies should determine actual costs of their 

activities on a regular basis and that reliable cost information is crucial for 

effective management of government operations. Since 1993, NGB has 

used a cost of $14,000 per student as the basis for determining the amount 

of funds needed to cover program operating costs. However, due to cost 

variations between states, program officials that we surveyed reported 

that they actually spent between $9,300 and $31,031 per graduate. 

According to NGB, all 29 programs are providing the services required by

the cooperative agreements, and several states have added program 

enhancements such as field trips or vocational classes. However, some of

these states reported that they reduced nonrequired services to stay within 

Page 3 GAO-06-140 Defense Management
their budgets. For example, they implemented staff pay and hiring freezes, 

eliminated the student stipend, and eliminated some enrichment activities 

such as field trips and vocational classes. In addition, Reserve Affairs, 

NGB, and participating states have suggested that the cost-share ratio be 

changed from its current 60 percent federal share to a 75 percent federal 

share because they believe that the current required 40 percent state share 

is sometimes difficult for states to meet. However, neither Reserve Affairs 

nor NGB has compiled or analyzed data on actual program costs, states’ 

financial situations, or the impact of adjusting the federal and state cost 

share. Reserve Affairs has asked the National Guard Bureau to determine 

a new funding formula for the program based on individual state needs, 

but, at the time of our review, NGB had not yet done so and Reserve 

Affairs has not given NGB a deadline for completion. Without better cost 

and financial information, DOD cannot justify future funding requests or a 

change in the cost share ratio. 

Although NGB has several mechanisms in place for overseeing the 

Challenge Program, it lacks a complete oversight framework, making it 

difficult to measure the effectiveness of the program and to adequately 

address audit and review findings. NGB conducts several oversight 

activities, including informally communicating with state program 

directors and having an outside evaluator conduct yearly operational 

evaluations and biennial resource management reviews of the Challenge 

Program, and these reports have prompted some changes to the program. 

However, until recently, NGB did not have a formal mechanism for 

tracking the findings of these reports. In response to our review, NGB 

recently implemented a mechanism for tracking these findings. As part of 

its oversight activities, NGB does require each state program to report 

certain performance outcome measures, such as academic test scores. 

However, it does not require states to establish performance goals in these 

areas. A complete oversight framework includes performance goals and 

measures against which to objectively measure performance as well as a 

mechanism for tracking findings of audits or reviews and responding to 

those findings. Without clear and agreed upon performance goals, there is 

no objective yardstick against which to fully measure program 

performance and effectiveness and thereby assess DOD’s return on 

investment. In addition, Standards for Internal Control in the Federal 

Government states that agencies need to ensure that the findings of audits 

and reviews are promptly resolved. Under the cooperative agreements 

governing the Challenge Program, United States property and fiscal 

officers in each state are required to conduct full audits of the individual 

Challenge Programs at least once every three years. However, according 

to property and fiscal officers that we spoke with, all of these audits have 

Page 4 GAO-06-140 Defense Management
not been conducted as required, due to the low priority placed on these 

audits and lack of staff for the property and fiscal officer. If these audits 

are not conducted, it may be difficult to ensure that federal interests are 

adequately protected. Copies of these audits are not currently being

provided to program managers at NGB because, according to the Chief of 

Property and Fiscal Affairs at NGB, there is no specific requirement to do 

so. If the National Guard does not see the audits, it cannot ensure that the 

findings of these audits are promptly resolved. 

The authorizing legislation for the Challenge Program allows the Secretary

of Defense to use nondefense funding sources in support of the program, 

and allows states to supplement program funds from other resources. 

However, Reserve Affairs has not adopted a formal strategy for pursuing 

nondefense funding, while some states have been successful in securing 

alternative funding support for their programs. Reserve Affairs has 

primarily adopted informal strategies to contact agencies outside DOD to 

inform them about the Challenge Program and seek opportunities for 

partnerships, but has not been successful in securing funds from these 

agencies. We found that because Reserve Affairs has not made a formal 

business case to request funds from these nondefense agencies, these 

agencies are unable to determine whether or not they are specifically able

to fund the Challenge Program. Officials from some federal agencies told

us that that their agencies have general authority to provide funds to other 

programs if those programs are consistent with their agency’s interests. 

However, officials at the Department of Justice, the Department of Labor, 

and the Department of Education stated that Reserve Affairs needed to

present more specific information to them before they could determine 

whether funds could be provided to the Challenge Program. According to

those officials, at a minimum, any such request should contain the amount 

of funding sought and a sufficiently detailed description of the program to 

allow the agency receiving the request to determine whether it would be 

an appropriate use of funds. Until Reserve Affairs makes a more formal 

request for funding, other agencies will be unable to determine if they can 

provide funds for the Challenge Program. At the state level, some states 

we contacted had made efforts to obtain alternative funding support to 

enhance or maintain their program’s operations. For example, some state 

programs organized into charter schools to obtain funding from local 

school districts, applied for National School Lunch Program funding, 

obtained grants from nonprofit organizations, and received additional 

funding from the state government beyond the required match. Some 

states reported obstacles in securing supplemental funding, such as the 

prohibition against using Challenge funds to hire grant writers. 

Page 5 GAO-06-140 Defense Management
We are making recommendations designed to improve DOD’s management 

and oversight of the Challenge Program and to strengthen efforts in 

obtaining alternative funding support for the program. In commenting on 

a draft of this report, DOD concurred with our recommendations. DOD’s 

comments and our evaluation of them appear later in this report. 

The National Guard Youth Challenge Program is a 17-month program that 

serves at-risk youth at 29 sites in 24 states and Puerto Rico. The purpose 

of the program is to improve the education, life skills, and employment 

potential of students by providing military-based training, supervised work 

experience, and knowledge in eight core program components.2

 Students 

must be 16 to 18 years old, drug-free, unemployed, high school dropouts, 

and not in trouble with the law. NGB reports that more than 59,000 

students have been graduated from the Challenge Program since it began 

as a pilot in 1993. The program was authorized by 32 U.S.C. §509 on a

permanent basis in fiscal year 1998, at which time states were to begin 

paying a share of operating costs. 

Each Challenge Program site operates two residential classes per year, 

one of which begins in January and the other around July.3

 A typical 

graduation goal is 100 students per class, or 200 per year, although several 

programs graduate more students. In 2004, for example, Illinois graduated 

almost 800 students in 2004, and Louisiana’s three sites combined 

graduated more than 950 students. The residential phase of the program 

runs 22 weeks and includes a 2-week Pre-Challenge phase. During PreChallenge, applicants are assessed for their ability and motivation to 

complete the remaining 20 weeks of the residential program. Those who 

successfully complete Pre-Challenge are then formally enrolled in the 

Challenge Program in numbers that equal each program’s graduation 

target plus normal program attrition rate. In the residential phase, 

students receive military-based training and supervised work experience. 

Additionally, each state develops a curriculum that incorporates the eight

core components and the tasks, conditions, and standards that students 

Background 

Challenge Program 

Structure 

 2

 The eight core program components are: leadership/followership, job skills, responsible 

citizenship, health and hygiene, service to the community, academic excellence, life-coping

skills, and physical fitness.

3

 NGB reports on site activities by NGB class numbers. The first class under the pilot 

program, NGB-1, began in July 1993, and NGB-25 started in July 2005. 

Page 6 GAO-06-140 Defense Management
must complete to demonstrate progress in those components.4

 Each 

student must receive a score of at least 80 percent on each core 

component to be graduated from the program. 

During the 12-month post-residential phase, individuals who have 

successfully completed the residential phase are involved in placement 

activities, which include employment, education, volunteer activities, or 

any combination of the three or military service. The graduates work with

adult mentors who were matched with them during the residential phase. 

These mentors provide guidance and support to the graduates and are 

required to contact the youths twice each month at a minimum. Program 

staff use the written, post-residential action plan that each student 

prepares and updates during the residential phase to monitor placement 

activities. Mentors also use this plan during their interactions with 

graduates. The Challenge Program reports youth placement activities at 

the end of the 12-month follow-up period. To further assess the long-term 

impact of the program, NGB has contracted with AOC Solutions to 

conduct a retrospective longitudinal study of program graduates as well as 

students who did not complete the program. 

Program Funding Prior to 1998, the federal government, through DOD, completely funded 

the Challenge Program. In fiscal year 1998, Congress began requiring 

states to provide a minimum of 25 percent of their programs’ operating 

costs. The state cost share increased 5 percent each year until fiscal year 

2001, when it reached the current funding requirement of 40 percent.5

Although some states had provided more funds than required in the past, 

program funding each year is now determined by the 40 percent share, 

which is based on $14,000 for each youth targeted for graduation. In 

addition to the federal and state funds used to operate the program sites, 

DOD also provides funds for NGB management expenses such as program 

evaluations, contractor-provided training, and travel for training and 

workshops. These NGB program management costs are not subject to the 

federal/state 60/40 cost share requirement. 

 4

A task is a clearly defined and measurable activity accomplished by an individual. 

Condition describes the training situation, environment, or field conditions under which

the cadet must perform the task. The standard establishes criteria for how well a task must 

be performed. 

5

32 U.S.C. §509(d)(4).

Page 7 GAO-06-140 Defense Management
Each state submits a budget to NGB that is based on that state's target for 

number of graduates. Since the program’s inception, the funding provided

by NGB has been based on a cost per student of $14,000.6

 For example, if 

a state has a target of 100 students per class (200 per year) to graduate, the 

estimated program costs would be $2.8 million. The federal contribution, 

or 60 percent of the total, would be $1.68 million, while the state 

contribution would be $1.12 million. 

To receive federal funding, a state must certify that it has sufficient funds 

to provide its 40 percent share. State funds can be composed of cash, 

noncash supplies, services, or a combination of these sources. States are

allowed to provide additional funding (over and above the 40 percent 

share) to the program from sources such as individual and corporate 

donations, additional moneys from the state general fund or other state 

revenue sources, or other federal funding. Some Challenge Program sites, 

for example, operate as alternative schools and are reimbursed by their 

state education agencies for portions of their program costs. 

Management, Oversight, 

and Support 

Reserve Affairs, under the authority of the Under Secretary of Defense for 

Personnel and Readiness, is responsible for preparing the annual budget 

and reviewing state budgets and funding certifications. Reserve Affairs is 

to monitor program compliance with DOD policy, issue supplemental 

policy guidance, and submit the Challenge Program annual report to 

Congress. NGB provides day-to-day administration and oversight of the 

Challenge Program, issuing regulations, and submitting budgets and 

annual report drafts to Reserve Affairs. NGB has contracted with AOC 

Solutions to assist with the oversight of the Challenge Program. AOC 

Solutions performs the annual operational evaluations and the biennial 

resource management reviews. This contractor also pulls together the 

program information for the annual report and maintains and oversees the 

Data Management and Reporting System (DMARS), which is used to 

collect student data and report on individual and program activities. NGB 

has also contracted with Dare Mighty Things to provide training and 

 6

Funding allocations to the states have historically been based on target enrollments; that 

is, the maximum number of students per class that are funded annually in a program’s

budget. Beginning with fiscal year 2004, funding allocations are now based on target 

graduation, which is the maximum number of students identified in a program’s budget for

participation in and graduation from the program. According to NGB officials, although 

allocations were originally based on a site’s target enrollment, this figure was treated as a

graduation goal. These numbers differ by state. 

Page 8 GAO-06-140 Defense Management
technical assistance to Challenge Program staff.7

 Finally, NGB has United 

States property and fiscal officers in each state who are responsible for 

receiving and accounting for all federal Challenge Program funds and 

property under control of the National Guard in that state. The property 

and fiscal officers are also responsible for ensuring that federal funds are 

properly obligated and expended. 

NGB enters into cooperative agreements with governors of states 

approved to participate in the Challenge Program. The cooperative 

agreements describe the responsibilities of the states and NGB as well as 

the funding, costs, and regulations for operating National Guard Youth 

Programs.8

 The cooperative agreements also define the eight core 

components and provide guidance on how to run the residential and postresidential phases and other aspects of the Challenge Program. Each 

Challenge Program state is also required to submit state plans and budget 

estimates for their state. These state plans must include details on the 

state’s procedures and be consistent with overall program guidance 

provided by DOD. For example, state plans include information on 

application and selection procedures, staffing and staff training, and a 

detailed budget. 

According to NGB, Challenge Program expenditures and state

participation have increased since the program began, and the program 

has achieved positive program performance outcomes over time. Since 

the program’s inception, total expenditures have increased from about $63 

million to about $107 million per year. The number of states participating 

in the Challenge Program has also increased, and several states have 

expressed interest in adding a program or expanding existing ones. 

Challenge sites must account for their activities throughout the year, and 

NGB has reported positive performance outcomes over time. 

Challenge Program 

Expenditures and 

Participation Have 

Increased and NGB 

Has Reported Positive 

Performance 

Outcomes 

 7

Contracts with AOC Solutions and Dare Mighty Things were competitively awarded for a 

1-year base period with four 1-year options. 

8

The Master Youth Programs Cooperative Agreement covers two youth programs: the

National Guard Youth Challenge Program and the National Guard STARBASE Program. 

The STARBASE Program was established to improve the knowledge and skills of at-risk 

youth in math, science and technology. 

Page 9 GAO-06-140 Defense Management
Program Expenditures 

Have Increased Over Time 

NGB reports that overall federal expenditures for the Challenge Program 

have increased over time, but states have also increased their 

expenditures since the program was permanently authorized in fiscal year 

1998. Between fiscal years 1998 and 2004, total expenditures for the 

Challenge Program, including funds spent to cover the federal and state 

cost shares and federal management expenses, have increased from about 

$63 million to about $107 million. For fiscal year 2004, for example, NGB 

expenses included $61.6 million for the federal cost share and $5.8 million 

for NGB management costs, while states contributed approximately $40.5 

million.9

 In addition, in 2000 and 2001, the Challenge Program received $5

million and $7,483,500 respectively from the Department of Justice. 

Reserve Affairs stated that the primary use of these funds has been to start 

new Challenge Program sites. Since 2001, four programs were established 

using these funds and three programs’ operations were maintained in 2002. 

In total, approximately $5.97 million remain unspent in a nonexpiring 

account. Officials at Reserve Affairs and NGB told us that these funds 

remain unspent because no new Challenge Programs have started. 

According to these officials, new programs have not been established 

because state governments have not committed the required 40 percent 

match. (See fig. 1 for total program expenditures from fiscal year 1998 to 

2004, broken down by federal and state cost share and NGB management 

expenses.) 

 9

At the time of our review, final expenditure reports for fiscal year 2005 were unavailable. 

Page 10 GAO-06-140 Defense Management
Figure 1: Annual Expenditures for the National Guard Youth Challenge Program 

Note: Federal cost shares for fiscal years 2001 and 2002 include $6.5 million from Department of 

Justice. State cost share amounts are the required state matches only and do not include any 

additional funding or in-kind support the states might have provided.

The Number of States 

Participating in the 

Challenge Program Has 

Increased 

When the pilot program began in 1993, there were 10 Challenge Program 

sites in 10 states. The program has now grown to 29 sites in 24 states and 

Puerto Rico.10 In fiscal year 2005, Wyoming received funds to start up a 

program site. According to NGB, Wyoming will begin its first class in 

January 2006. In addition to those states currently operating Challenge 

Program sites, there are also nine states that have expressed interest in 

 10Louisiana has three Challenge Program sites, and Georgia and South Carolina each

operate two sites. 

Page 11 GAO-06-140 Defense Management
establishing new programs.11 For example, according to NGB officials, 

representatives from Washington and Indiana National Guard units have 

visited some existing program sites and are in the process of developing

state programs. Other states are interested in expanding their programs to 

serve more youth at existing sites or to open new locations. On the other 

hand, for various reasons including difficulty meeting the state match 

requirement, lack of state support, and substandard facilities, four states 

have discontinued their Challenge Programs. Connecticut, a pilot program 

state, dropped its program in 1994 after two classes. Colorado 

discontinued its program after 1999, Missouri after 2002, and New York 

after 2003. Figure 2 describes the number of Challenge Program sites for 

each year since the program began. Appendix II identifies the individual 

states with Challenge Program sites. 

Figure 2: Number of National Guard Youth Challenge Program Sites by Reporting Year 

Number of sites

Source: GAO analysis of data from AOC Solutions, Inc.

0

5

10

15

20

25

30

35

Reporting year

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Note: Reporting year is the time frame covered in annual reports. It includes the July class from the 

previous year and the January class from the current year. 

 11According to NGB, as of August 2005, the District of Columbia and eight states had 

expressed interest in starting a Challenge Program: Alabama, Colorado, Connecticut, 

Delaware, Indiana, Nevada, Pennsylvania, and Washington. 

Page 12 GAO-06-140 Defense Management
Student participation in and graduation from the Challenge Program have 

also increased over time. States are required to track the number of youth 

who have applied to the Challenge Program, enrolled in the third week of 

the program (after the 2-week Pre-Challenge phase), and were graduated 

from the residential phase. According to NGB, the target graduation rate 

for 2004 was 6,961; the actual number of enrollees was 8,920; and 7,003 

students were graduated, or 79 percent of those enrolled, from the 

Challenge Program. Figure 3 shows the target numbers, the actual number 

of students who were enrolled in the residential phase at week 3, and the 

number that graduated from the program from 2000 through 2004. 

Figure 3: Youth Participation in National Guard Youth Challenge Program

Number of participants

Source: GAO analysis of data from AOC Solutions, Inc.

0

2000

4000

6000

8000

10000

Reporting year

2000 2001 2002 2003 2004

Target enrollment

Actual enrollment

Number of graduates

Note: Reporting year is the time frame covered in annual reports. It includes the July class from the 

previous year and the January class from the current year. 

Although all Challenge Programs graduate two classes per year, the 

number of graduates per class varies. In addition, some states have 

multiple programs. For example, Louisiana has three Challenge Programs 

and, in 2004, graduated a total of 952 students. Figure 4 identifies those 

Page 13 GAO-06-140 Defense Management
states currently participating in the Challenge Program by the number of 

graduates they reported for 2004. 

Figure 4: Challenge Program Sites by 2004 Graduation Results 

Source: GAO analysis of data from AOC Solutions, Inc. 

No program

200 or fewer graduates

201 to 400 graduates

More than 400 graduates

Challenge Program Sites

Note: The 2004 reporting year covers NGB classes 21 and 22, which began in July 2003 and January 

2004. 

Page 14 GAO-06-140 Defense Management
NGB has reported positive performance outcomes in academic 

performance, community service activities, and post-residential 

placements. Program performance information is tracked by each 

Challenge site and submitted to NGB. Each year, the Challenge Program 

reports on outcomes for the two classes completing the 22-week 

residential phase during that reporting year and for the two preceding 

classes as they complete their 1-year post-residential follow-up phase. The

Challenge Program sites use the same automated system, DMARS, to 

collect information on students and report on their progress and activities. 

The information collected in DMARS is reviewed by the contractor 

through weekly and monthly reports and during random checks of source 

documents during operational evaluation site visits. 

NGB Has Reported 

Positive Performance 

Outcomes 

Some residential phase outcomes of the Challenge Program, such as the 

number of graduates earning a general educational development (GED) 

credential or high school degree and changes in scores on standardized 

math and reading tests, are tied to the core component of Academic 

Excellence.12 For example, NGB reported that 70 percent of graduates in 

2004 earned a GED. Figure 5 illustrates the outcomes of GED attainment 

for the past 5 reporting years. Students also take the Tests of Adult Basic 

Education, a series of tests that identify individual education levels in 

various academic subject areas. Each state program tests its students early

in the residential phase and then toward the end of the 22-week period, 

and it reports the changes in test scores. In 2004, for example, NGB 

reported that graduating students improved 1.7 grade levels in reading and 

1.8 grade levels in math during the residential phase. Another core 

component, Service to the Community, requires each student to perform a 

minimum of 40 hours of service to the community or conservation project 

activities. The number of community service hours performed by each 

student is tracked, and the total number of hours for each site is another 

outcome that the Challenge Program reports annually. For example, in 

2004, NGB reported that Challenge Program students performed more 

than 590,000 hours of community service, such as maintaining historical 

cemeteries and parks and supporting organizations such as Special 

Olympics and Habitat for Humanity. 

 12In some states, younger youths are not eligible to take the GED due to age restrictions, 

and some youths are not academically prepared to take the tests. Some programs offer 

alternative degrees, such as adult education diplomas; some programs are accredited high 

schools and can offer high school diplomas or credits; and many youths return to their 

home high schools to earn their diplomas. 

Page 15 GAO-06-140 Defense Management
Figure 5: Number of GEDs Earned by Challenge Students

Each month of the post-residential phase, each Challenge Program 

graduate, or that individual’s mentor, reports on the graduate’s postresidential activities. Following the 12-month post-residential phase, each 

Challenge Program site reports graduate placements in continuing 

education, the military, or the labor force. These placements are verified 

with schools, the military, and employers and are documented. Program 

representatives are not always able to contact all graduates for placement 

information and therefore placement data reflect only the students 

contacted, not all graduates. Education placements include returning to 

high school or going to a post-secondary or vocational-training institution, 

which students may be attending full- or part-time. Some Challenge 

Program graduates also enter the military, into either the active or the 

reserve forces. Post-residential employment placements can be full- or 

part-time, and they include those graduates who are self-employed. 

Graduates can have placements in more than one of these categories. For

example, an individual might be attending school and working part-time. 

Challenge Program sites continue to update their placement records after 

the 12-month follow-up period when they come in contact with former 

students. During the longitudinal study, for example, the contractor has 

been able to update placement data based on information received from 

Page 16 GAO-06-140 Defense Management
state program officials and graduates. Figure 6 shows post-residential 

placement trends for the past 3 reporting years. The total numbers of 

graduates placed in these 3 years are 2,407 in 2003; 3,698 in 2004; and 4,086 

in 2005. 

Figure 6: Post-Residential Placement Data, 2003-2005 

Notes: Program representatives are not always able to contact all graduates for placement 

information and therefore placement data reflect only the students contacted, not all graduates. 

a

According to DOD, data for 2005 are preliminary, may change, and have not yet been officially 

published in an annual report. 

b

Miscellaneous placements include caregivers, volunteers, homemakers, incarcerated, or individuals 

who are unable to hold an approved placement due to disability and/or hospitalization. Graduates

must care for an individual or work as a volunteer for a minimum of 30 hours per week to be 

considered placed as a caregiver or volunteer. 

Page 17 GAO-06-140 Defense Management
Although Reserve Affairs and NGB have expressed concern about the 

current program funding level and have suggested increasing both the cost 

basis used to determine funding needs and the federal cost share, we 

found that neither Reserve Affairs nor NGB has performed analyses to 

support the need for such changes. Good budget practices, included in the 

Office of Management and Budget’s Federal Financial Accounting 

Standards,13 state that agencies should determine actual costs of their 

activities on a regular basis and that reliable cost information is crucial for 

effective management of government operations. Without better cost and 

financial information, DOD cannot justify future funding requests or a 

change in the cost-share ratio. 

Reserve Affairs and 

NGB Have Not 

Analyzed Data to 

Determine Actual 

Program Costs or the 

Need to Adjust the 

Federal and State 

Cost Share 

Other than calculating how inflation has affected program costs, NGB has 

not analyzed data on actual program costs. Since 1993, NGB has used a 

cost of $14,000 per student as the basis for determining the amount of 

funds needed to cover program operating costs. In 2003, NGB calculated

that if that amount were adjusted for inflation, it would be $18,000. The 

results of our survey of all Challenge Programs showed that in 2004, states 

actually spent between $9,300 and $31,031 per graduate with an average of 

$15,898 per graduate.14 In addition, our survey showed that, on average, 

states estimated that the program should be funded at approximately 

$16,900 per target graduate to cover all of the services in the cooperative 

agreements, although the estimates ranged from $14,000 to $31,800.15 Most 

Challenge Program officials also told us that increasing the cost per 

student funding level for the program without increasing the federal cost 

share would negatively impact their programs because their states would 

be unlikely to come up with the additional state match money. Because 

costs vary between states due to regional differences in salary levels, staff 

benefits, and facility costs, Reserve Affairs has asked NGB to determine a 

new funding formula for the program based on individual state needs. At 

 13Office of Management and Budget, Statement of Federal Financial Accounting 

Standards, Number 4, Managerial Cost Accounting Concepts and Standards for the

Federal Government, (Washington, D.C.: July 31, 1995). 

14We calculated this number with information provided to us by individual states on our 

survey. According to our calculations, in 2004, the Fort Gordon, Georgia Program spent

$9,300 per graduated student and Alaska spent $31,031 per graduated student. In order to

cover the high personnel costs in Alaska and to provide program enhancements, the state 

contributes more than its required 40 percent share. 

15 Five programs said that the current funding level of $14,000 per graduate was sufficient: 

Ft. Gordon, Georgia; Camp Beauregard, Louisiana; Montana; New Mexico; and Puerto Rico.

Page 18 GAO-06-140 Defense Management
the time of our review, NGB had not yet done this and Reserve Affairs has 

not given NGB a deadline for completion. 

In addition to expressing a desire to change the amount of funding per 

student, Reserve Affairs, NGB, and participating states have suggested that 

the cost-share ratio be changed from its current 60 percent federal share to

a 75 percent federal share because they believe that the current 40 percent 

state share is sometimes difficult for states to meet; however, neither 

Reserve Affairs nor NGB has analyzed states’ financial situations or the 

impact of adjusting the federal and state cost share. Challenge Program 

officials told us that increasing the federal cost share of the program 

would be beneficial because it would enable states to expand their 

existing programs; give states more flexibility in funding their programs; 

and allow programs to restore to students some services that had been

eliminated due to budgetary constraints. Although we did not analyze how

changing the cost basis or the cost-share ratio would affect specific states, 

we prepared hypothetical examples for illustrative purposes. Table 1 

shows how changing the cost basis and the cost-share ratio would affect

federal and state required funding levels. 

Table 1: Hypothetical Examples Showing How Changing the Cost Basis or Cost-Share Ratio Would Affect Yearly Challenge 

Program Funding Amounts

Per individual program Total Challenge Program 

Typical

number of 

students per 

program

State cost 

share per 

program

Federal cost 

share per 

program

Total

number of 

students in 

programa

Total

required

state cost 

share 

Total

required

federal cost

share

Total

program

 costb

Current funding situation 

of $14,000 per student 

and 60 percent federally 

funded 

200 $1,120,000 $1,680,000 7,000 $39,200,000 $58,800,000 $98,000,000

Change in cost basis to 

$16,900c

 per student and 

60 percent federally 

funded 

200 $1,352,000 $2,028,000 7,000 $47,320,000 $70,980,000 $118,300,000

Change in funding ratio 

to 75 percent federally 

funded with cost basis of 

$14,000 per student 

200 $700,000 $2,100,000 7,000 $24,500,000 $73,500,000 $98,000,000

Change in cost basis to 

$16,900c

 per student and 

75 percent federally 

funded 

200 $845,000 $2,535,000 7,000 $29,575,000 $88,725,000 $118,300,000

Source: GAO analysis.

Page 19 GAO-06-140 Defense Management
a

Approximate number of students currently in program. 

b

This amount does not include NGB overhead costs. 

c

This amount is based on the average amount that states estimated in our survey would cover all of 

the services outlined in the cooperative agreements. 

In our survey, states reported varying views on whether they were 

experiencing difficulty in meeting their share of program costs. We did 

not verify the basis for their responses. Our survey showed that some 

states are able to provide funds above the required match; some states 

provide only the required match; and some states are unable to provide a 

match based on $14,000 per student and therefore fund the program at a 

lower level and receive less money from NGB. For example, California is 

able to provide additional support beyond the required match through 

additional money provided from the state general fund and funding from 

the program’s local school district. In 2004, California spent 

approximately $20,200 per graduate. Oregon, on the other hand, funds its 

program primarily through state education money. Due to recent state 

budget difficulties, Oregon cannot fund the program at $14,000 per 

student. In 2004, Oregon spent approximately $12,600 per graduate. 

According to the National Guard Bureau, all 29 programs are providing the 

services required by the cooperative agreements, and several states have 

added program enhancements such as field trips or vocational classes. 

However, some states reported that they reduced nonrequired services to

stay within their budgets. For example, they implemented pay and hiring

freezes; eliminated the student stipend; and eliminated program 

enrichment activities, such as field trips and vocational classes. Some 

states told us that additional funding, provided by a change in the costshare ratio or an increase in the per student funding amount, would allow 

them to restore some of these services. 

Page 20 GAO-06-140 Defense Management
Although NGB has several mechanisms in place for overseeing the 

Challenge Program, it lacks a complete oversight framework, making it 

difficult to measure the effectiveness of the program. A complete 

oversight framework, as suggested by the Government Performance and 

Results Act of 1993 (the Results Act)16 and Standards for Internal Control 

in the Federal Government,

17 includes performance goals and measures 

against which to objectively measure performance as well as a mechanism 

for tracking findings of audits or reviews and responding to those findings. 

Currently, NGB does not require participating states to establish 

performance goals for individual programs and therefore does not have a 

firm basis for evaluating program outcomes and DOD’s return on 

investment. In accordance with the cooperative agreements, U.S. property 

and fiscal officers in each state are required to conduct full audits of state 

Challenge Programs at least every 3 years. However, these audits have not 

been conducted as required; and, when audits are conducted, copies of the 

results are not provided to NGB for review. Without regular audits and 

access to results, NGB cannot be assured that programs are using federal 

funds appropriately and that audit findings are addressed. 

NGB conducts several oversight activities for the Challenge Program. In 

accordance with the DOD Instruction18 and cooperative agreements 

governing the Challenge Program, NGB is responsible for the overall

administration of the program, including program oversight. NGB uses 

both informal and formal mechanisms to oversee the program. On an 

informal basis, NGB frequently communicates with state program 

directors via e-mail and telephone calls. In addition, according to NGB, if 

a program director has a problem or an issue that he or she feels NGB 

needs to be involved with, he or she will initiate contact. Formal oversight 

of the program is conducted by NGB through AOC Solutions with yearly 

operational evaluations and biennial resource management reviews of all

29 Challenge Programs. The purpose of the operational evaluations is to 

assess the programs’ compliance with the cooperative agreements and the 

implementation of the eight core components. The resource management 

reviews focus on assessing programs’ financial accountability and 

The National Guard 

Bureau Lacks a 

Complete Framework 

for Oversight of the 

Challenge Program, 

Making It Difficult to 

Measure Program 

Effectiveness 

The National Guard 

Bureau Conducts Several 

Oversight Activities and 

Recently Implemented a 

Mechanism for Tracking 

Audit Findings 

 16 Pub. L. No. 103-62 (1993). 

17GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: November 1999). 

18Department of Defense, Instruction 1025.8, National Guard Challenge Program, March

20, 2002. 

Page 21 GAO-06-140 Defense Management
reviewing resources including staffing levels and salaries; food service 

costs; and physical inventory of property. 

Both the operational evaluations and the resource management reviews 

have identified areas for improvement and, according to NGB, changes 

were made to the program. For example, the operational evaluation of 

one state program conducted in fiscal year 2004 reported that program 

staff was calling the students inappropriate names. According to NGB, a 

staff member was dismissed as a result of this finding. Another 

operational evaluation of a different program conducted in fiscal year 2005 

found that over 90 percent of the community service hours accumulated 

by the students were for kitchen patrol. The cooperative agreements state 

that work in the dining facility may not be counted towards community 

service hours. According to NGB, this program has completely revamped 

its community service program and students now participate in such 

activities as visiting with residents of the local veterans’ home and caring 

for a historic cemetery. 

Until recently, NGB did not have a formal mechanism for tracking the 

findings of the reports conducted by AOC Solutions. During our review, 

we discussed with NGB the importance of keeping track of review findings 

in order to adequately respond to these findings, in accordance with 

Standards for Internal Control in the Federal Government. In response 

to our review, in October 2005, NGB provided new guidance to AOC 

Solutions regarding the operational evaluations and resource management 

reviews, which required, among other things, AOC Solutions to review 

findings from previous evaluation reports to determine whether corrective 

actions have been taken where warranted. In addition, officials at NGB 

told us that they currently monitor responses to audit and review findings 

informally with individual program directors. 

The National Guard 

Bureau Does Not Require 

Participating States to 

Establish Performance 

Goals for the Challenge 

Program 

Although NGB requires state Challenge Programs to report on certain 

outcome measures, such as GED attainment and number of graduates, 

NGB does not require states to establish any performance goals in these 

areas to measure the effectiveness of the program. The establishment of 

performance goals is consistent with the principles of effective 

management as set forth in the Results Act and would allow NGB to better 

evaluate the overall performance of the program and to assess DOD’s 

return on its investment. Without clear and agreed upon performance 

goals, there is no objective yardstick against which to fully measure 

program performance and thereby assess DOD’s return on investment. 

Page 22 GAO-06-140 Defense Management
Although it may not be reasonable to have the same performance goal for 

all state programs, it would be appropriate for each state program to 

negotiate a performance goal for defined performance areas such as 

increases in standardized test scores or physical fitness levels. Similar 

state programs, overseen by the Department of Labor, set individual 

negotiated levels of performance for specified core performance 

measures. These measures are used to provide information for 

systemwide reporting and evaluation for program improvement. For 

example, state Workforce Investment Act19 programs negotiate 

performance measures for youth ages 14 to 18 in three areas: attainment of

basic skills; attainment of high school diplomas or their equivalents; and 

placement in education, the workforce, or the military. For the area of 

diploma attainment, the goals range from 42.8 percent of participants in 

Louisiana to 68 percent of participants in New Hampshire. 

Currently, Challenge Program states are required to submit state plans 

annually. These state plans are required to contain long-term and annual 

performance goals and are to be updated annually. However, NGB has not 

provided guidance on specific performance areas where states should 

focus their goals; therefore, states may not have goals in the same 

performance areas, making it difficult for NGB to compare performance 

across programs. For example, California’s state plan contains a goal to 

acquire additional sources of funding through grants and charitable 

contributions. Oregon’s state plan, on the other hand, contains a goal 

stating that 80 percent of graduates from the residential portion of the 

program will be placed in education, the military, or employment but does

not contain any goal related to acquiring additional sources of funding. In 

addition, states are not currently held accountable to the goals that they 

do set since the evaluation process does not measure the states’ 

performance against their goals. NGB told us that beginning in January 

2006, states would be held accountable to the goals outlined in their state

plans. 

 19The Workforce Investment Act of 1998 was passed with the goal of consolidating, 

coordinating, and improving employment, training, literacy, and vocational rehabilitation 

programs in the United States, Pub. L. No. 105-220 (1998). Youth programs under the

Workforce Investment Act seek to assist youth with employment and educational goals and 

the services needed to achieve those goals. 

Page 23 GAO-06-140 Defense Management
Although the cooperative agreements governing the Challenge Program 

currently require U.S. property and fiscal officers to perform full audits of 

state Challenge Programs at least every 3 years, and prior to January 2005, 

the cooperative agreements required full audits every year, these audits 

have not been conducted as required. For example, according to NGB, out 

of a required 29 audits, only 14 were conducted in 2003, and only 7 audits 

were conducted in 2004. According to property and fiscal officers that we 

spoke with, audits were not conducted due to the lower priority placed on

these audits compared to other audits that needed to be conducted within 

the state and a lack of staff to conduct the audits. Because the property 

and fiscal officers are responsible for ensuring that federal dollars are 

appropriately spent, if these audits are not conducted, it may be difficult to

ensure that federal interests are adequately protected. 

U.S. Property and Fiscal 

Officers Have Not 

Conducted Required 

Audits and Audit Results 

Are Not Provided to NGB 

When the property and fiscal officers do conduct audits of the Challenge 

Program, they are not currently providing copies of the audit results to 

NGB because, according to the Chief of Property and Fiscal Affairs at 

NGB, there is no specific requirement to do so. Standards for Internal 

Control in the Federal Government states that agencies need to ensure 

that the findings of audits and reviews are promptly resolved. If NGB does 

not review these audits, it cannot ensure that audit findings are resolved or 

identify trends across programs that may require action at a programwide 

level. According to officials at NGB, the audits remain internal to the state

and the property and fiscal officer works directly with the state Challenge 

Program site to resolve any issues. In addition, if any audit findings 

require action from NGB, the state property and fiscal officer will contact 

NGB and ask for assistance. NGB needs to be aware of all audit findings, 

including those reported by the property and fiscal officers to effectively 

manage the Challenge Program. 

We reviewed the most recent property and fiscal officer audits for each 

Challenge Program participating state and found that they did identify 

areas that needed improvement. For example, an audit conducted of one 

program in fiscal year 2004 found unspent program dollars totaling 

approximately $180,000 that needed to be returned to the NGB. According 

to a follow-up report by the property and fiscal officer, this money was 

returned to NGB. Another audit conducted during fiscal year 2003 found

that oversight of budget expenditures for one program was not adequate 

to ensure accurate, timely, and complete accounting of expenditures and 

recommended that key management controls over the program be 

identified, documented, published and tested. A follow-up audit of the 

program found that this recommendation was implemented. 

Page 24 GAO-06-140 Defense Management
Reserve Affairs has not adopted a formal strategy for pursuing nondefense 

funding, while some participating states have obtained alternative funding

support for their programs as a result of their own efforts. Because 

Reserve Affairs has not made a formal business case to request funds from

nondefense agencies, these agencies are unable to determine whether or 

not they are able to fund the Challenge Program. As a result, Reserve 

Affairs is potentially missing out on additional sources of funding that 

could enhance the program. Some participating states have obtained 

alternative funding support to enhance or maintain services provided to 

Challenge Program students. 

Reserve Affairs has not made a formal business case to request funds from

nondefense agencies and therefore these agencies are unable to determine 

whether or not they are able to fund the Challenge Program. Although the 

authorizing legislation for the Challenge Program allows the Secretary of

Defense to use nondefense funding sources in support of the program, 

Reserve Affairs has not adopted a formal strategy for pursuing nondefense 

funding. Rather, Reserve Affairs has primarily adopted informal strategies 

to contact agencies outside DOD to inform them about the Challenge 

Program and seek opportunities for partnerships. For example, Reserve 

Affairs officials have sent information via e-mail to officials at federal 

agencies with programs targeting at-risk youth (i.e. Department of Justice 

(DOJ), Department of Labor (DOL), and Department of Education (ED)) 

to inform them about the Challenge Program. These e-mails did not 

include specific requests for program funding. In addition, in July 2003, 

Reserve Affairs presented senior DOL officials with a proposal for forming 

an interagency partnership with the Challenge Program, but did not ask 

for a commitment of funding from DOL in a specified amount. 

Additionally, officials from these agencies have been invited to events 

sponsored by the National Guard Youth Foundation in support of the 

Challenge Program. Lastly, Reserve Affairs officials told us that they 

participate or have participated on a number of interagency councils and

working groups that represent at-risk youth such as the President’s Crime 

Prevention Council, the White House Federal Interagency Working Group 

Reserve Affairs Lacks 

a Formal Approach 

for Securing 

Alternative Funding 

Support for the 

Challenge Program, 

While Some 

Participating States 

Have Obtained 

Alternative Funding 

Support as a Result of 

Their Efforts 

Nondefense Agencies Are 

Unable to Determine If 

They Can Fund the 

Challenge Program 

without a More Formal 

Request for Funding 

Page 25 GAO-06-140 Defense Management
on Service, the Corporation for National and Community Service, the 

National Civilian Community Corps, the Math Science Initiative, and the 

Juvenile Justice and Delinquency Prevention Council.20 

Officials from DOJ, DOL, and ED noted that their agencies have general 

authority to provide funds to other programs if the transferred funds were 

used to support a program consistent with their agency’s interests. It is 

not unprecedented for an agency to transfer funds to the Challenge 

Program. In fiscal years 2000 and 2001, DOD and DOJ signed an 

interagency agreement under which DOJ agreed to provide $5 million in 

2000 and $7,483,500 in 2001 to the Challenge Program.21 As DOJ concluded 

in this situation, and as officials at DOJ, DOL and ED stated, the transfer of 

funds to another agency must be consistent with the purpose and legal 

requirements of the program from which funds would be transferred. 

Moreover, these officials stated that sufficient funding must be available in 

the program from which the funds would be transferred, and making such 

a transfer must be in the interest of the agency. 

Officials at DOJ, DOL, and ED stated that Reserve Affairs needed to 

present more specific information to them before they could make a 

determination as to whether funds could be provided to the Challenge 

Program. These officials stated that an executive branch agency that 

wishes to make a request for funding from another executive branch 

agency could make such a request in any number of ways, either formally 

or informally. At a minimum, they noted, any such request should contain 

the amount of funding sought and a sufficiently detailed description of the 

program to allow the agency receiving the request to determine whether it

would be an appropriate use of funds. At the time of our review, none of 

the agency officials we met with were aware of any specific request from 

Reserve Affairs concerning this matter. Until Reserve Affairs makes a 

 20As of 1997 and 2000, respectively, the President’s Crime Prevention Council and the White 

House Federal Interagency Working Group on Service no longer hold meetings.

21Specifically, the interagency agreement was signed between the Department of Defense 

and the Department of Justice, Office of Justice Programs, Office of Juvenile Justice and

Delinquency Prevention. The authority for this transfer of funds was found in the Juvenile 

Justice and Delinquency Prevention Act of 1974, as amended (codified at 42 U.S.C. §5665). 

According to the interagency agreement signed in 2001, the funds were to be used to fund

up to eight new Challenge Programs; reduce negative behaviors of program youth including

delinquency, violence, substance use, school suspensions and expulsions, and unplanned

teen pregnancies; and to engage up to 200 youth in each of the program sites in 

constructive programming. 

Page 26 GAO-06-140 Defense Management
more formal request for funding, other agencies will be unable to 

determine if they are able to provide funds for the Challenge Program. 

Some Participating States 

Have Obtained Alternative 

Funding Support to 

Enhance or Maintain 

Services Provided to 

Challenge Program 

Students 

Under cooperative agreements with NGB, states are not required to seek 

funding support beyond the required federal and state contributions; 

however, some states have made efforts to obtain alternative funding 

support for their programs to enhance or maintain the services provided to 

Challenge Program students. Under authorizing legislation for the 

Challenge Program, states may accept, use, and dispose of gifts or 

donations of money, other property, or services for the Challenge 

Program. Reserve Affairs and NGB officials said that they encouraged 

states to seek out additional funding sources for their programs if they 

want to enhance the services provided to program students. 

To assist state programs in their efforts to obtain that additional support, 

NGB, through its contractor Dare Mighty Things, shares information 

among state programs on strategies for successfully organizing a 501 (c) 

(3) corporation,22 developing a fundraising policy that focuses on the longterm vision of the Challenge Program, accessing and sharing a grant writer 

with other programs, applying for National School Lunch Program funds, 

and educating state legislators to secure funding support. By providing 

information and examples of programs that are currently implementing 

these strategies, other state Challenge Programs have the information 

available to them on how to obtain additional funding support for their 

programs. In our review of the program, we found that some states had 

identified strategies for soliciting additional funding support from 

nonprofit organizations. For example, in the annual plans submitted to 

NGB, some states developed specific strategies for obtaining additional 

funding support such as setting a goal for the number of grants they would 

apply for and establishing a 501 (c) (3) corporation to raise funds on 

behalf of the program. 

We saw further evidence of states’ efforts to obtain additional funding 

support through our site visits and in our survey of the 29 Challenge 

Program sites. For example, in one state we visited, the Challenge site 

was also a charter school, which allowed the program to receive 

 22According to the Internal Revenue Code, a 501 (c) (3) corporation is an organization 

exempt from taxation, and organized and operated exclusively for religious, charitable, 

scientific, testing for public safety, literary, or educational purposes (26 U.S.C. §501 (c)

(3)). 

Page 27 GAO-06-140 Defense Management
additional funding from the local school district. Moreover, in four states 

we visited, the state legislatures provided additional funding beyond the 

required state match of 40 percent to pay for additional staffing costs or 

facilities. According to our survey of all Challenge Programs, 28 out of 29 

programs identified receiving some type of funding support beyond the 

required federal and state contributions to pay for program expenditures 

incurred during 1999 through 2004. These programs identified receiving 

additional funding from the states’ general fund beyond the required state 

match as well as support from other state agencies such as the state 

Department of Education. Additionally, the programs we surveyed relied

on funding assistance from other federal agencies such as the Department 

of Agriculture, which provides funding under the National School Lunch 

Program; nonprofit organization grants; the programs’ private 501 (c) (3) 

corporation; and donations from private individuals. 

Results from our site visits and national survey also showed that state 

Challenge Programs rely on donations of goods and services to support 

the program. For example, states we visited relied on donations from 

private citizens, corporations, schools, and the states’ National Guard units 

for such items as computers and software, exercise equipment, books, 

uniforms, and shoes. Some programs also received support from the 

surrounding community in the form of donated services such as 

transportation assistance and medical services from local doctors and 

nurses. Our survey further showed that 21 out of 29 programs received 

some form of donated goods and services. Program officials we met 

stated that donations of goods and services were vital to programs 

because many times they do not have funds available to acquire equipment

or services for the program. Donations of goods and services can enhance 

the basic program beyond the military-based training and academics 

required under the cooperative agreements adding little or no cost to the

program. 

Despite the success that many states had in obtaining additional funding 

support and donations of goods and services for their programs, some 

states reported obstacles in securing supplemental funding. For example, 

the cooperative agreements governing the Challenge Program do not allow 

states to use Challenge Program funds to hire full-time grant writers. 

Lastly, some programs we visited expressed concern that if they received 

funding support outside the federal and state required contributions, then 

their state governments might reduce their allocations. 

Page 28 GAO-06-140 Defense Management
Although Reserve Affairs, NGB, and participating states have suggested 

the current cost basis of $14,000 per student is not sufficient to sustain the 

program and that the cost-share ratio should be changed, Reserve Affairs 

and NGB have done little analysis to show what the actual costs of the 

program are and how changing the cost-share ratio for the program would 

impact participating states. Without better cost and financial information, 

DOD cannot justify future funding requests or a change in the cost-share 

ratio. 

Until NGB establishes clear and agreed upon performance goals, there is 

no objective yardstick against which to fully measure program 

performance. Without these performance goals in place, NGB does not 

have a firm basis for evaluating program outcomes and DOD’s return on 

investment. 

Although property and fiscal officers are required to conduct full audits of 

the Challenge Program at least every 3 years, these audits have not been 

conducted due to competing priorities at the state level and a lack of staff. 

Without these audits, it may be difficult to ensure that federal interests are 

adequately protected. Also, because NGB does not receive copies of 

audits conducted by property and fiscal officers, it cannot know what the 

findings of these audits were and if changes were made to the programs 

based on these findings. 

Until Reserve Affairs makes a more formal request for funding, other 

agencies will be unable to determine if they can provide funds for the 

Challenge Program. Without a more formal process that outlines the 

amount of funding needed and a detailed description of the Challenge 

Program and its specific funding needs, Reserve Affairs is potentially 

missing out on additional sources of funding that could enhance the 

program. 

To improve the management and oversight of the National Guard Youth 

Challenge Program, we recommend that the Secretary of Defense, direct 

the Under Secretary of Defense for Personnel and Readiness, in 

consultation with the Assistant Secretary of Defense for Reserve Affairs 

and the Chief of the National Guard Bureau, to take the following three 

actions: 

Conclusions 

Recommendations for 

Executive Action 

• Determine the actual costs of the Challenge Program, including states’ 

ability to fund their share of the program, and use this information, as 

Page 29 GAO-06-140 Defense Management
appropriate, to support funding requests or a request to change the costshare ratio. 

• Establish performance goals to measure the effectiveness of the Challenge 

Program. 

• Direct U.S. property and fiscal officers to conduct audits as required and 

require that copies of audit results are provided to the appropriate office 

at the National Guard Bureau in order to ensure that the results of audits 

are promptly reviewed and resolved.

To strengthen efforts at obtaining alternative funding in support of the 

National Guard Youth Challenge Program, we recommend that the 

Secretary of Defense direct the Undersecretary of Defense for Personnel 

and Readiness, in consultation with the Assistant Secretary of Defense for 

Reserve Affairs, to develop more formal strategies for requesting 

alternative funding support for the Challenge Program. Such strategies 

may include submitting requests for funding that include the amount of 

funding requested and a sufficiently detailed description of the proposed

program to allow potential providers of funds, such as nondefense 

agencies, to determine whether it would be an appropriate use of their 

funds. 

In written comments on a draft of this report, DOD concurred with our 

recommendations. In its overall comments, DOD asserts that our report 

reaffirms that the program met its congressional mandate to improve the 

life skills and employment potential of participants by providing militarybased training and supervised work experience. Further, DOD’s 

comments state that our report validates the core program components of 

assisting participants to receive a high school diploma or its equivalent; 

developing leadership skills; promoting fellowship and community service; 

developing life coping and job skills; and improving physical fitness, health

and hygiene. DOD also states that it appreciates GAO’s confirmation that 

it is properly executing the program. 

We do not agree with DOD’s characterization of our report. Whereas our 

report provides background data on program performance and mentions 

that DOD has reported positive outcomes from the Challenge Program, we 

do not assess whether or not DOD met its congressional mandate; we do 

not validate the program’s core components, nor do we confirm that DOD 

is properly executing the program, as DOD’s comments suggest. Rather 

our objectives were to examine: (1) historical trends of the National Guard 

Youth Challenge Program, including program expenditures, participation, 

and performance; (2) the extent to which Reserve Affairs and the NGB 

Agency Comments 

and Our Evaluation 

Page 30 GAO-06-140 Defense Management
have determined actual program costs and the need to adjust the federal

and state cost-share; and (3) the extent to which the NGB has provided 

oversight of the program. We also determined the extent to which Reserve 

Affairs and participating states have made an effort to obtain alternative 

funding support for the Challenge Program. 

In response to our recommendation to determine the actual costs of the 

Challenge Program, including the ability of states to fund their share, DOD 

concurred, but claims that the matching fund requirement makes the 

program vulnerable to state budget cuts. DOD also contends that until 

recently, sluggish state revenues made the cost share requirement more 

burdensome and inhibited the ability of both the NGB and the states to 

focus on determining the actual costs of the Challenge Program. DOD 

claims that the budget shortfalls required the states to reduce and/or 

eliminate program services and that, with state revenues slowly closing 

their budget gaps, restoring funding for needed program services is being 

considered. DOD also notes that it is currently working on a new funding 

formula for the program. 

Although DOD’s comments suggest that adequate funding was not 

available for needed services, through our survey and other work, we 

found that all 29 programs were able to provide the services required by 

the cooperative agreements, and several states reported they added 

program enhancements such as field trips or vocational classes. However, 

some states reported that they reduced nonrequired services to stay within 

their budgets. Furthermore, the basis for DOD’s comment regarding the 

effect of the matching fund requirement and the level of state revenues on 

the program is unclear. As we reported, neither Reserve Affairs nor NGB 

has compiled or analyzed data on actual program costs, states’ financial 

situations, or the impact of adjusting the federal and state cost share. We 

continue to believe that any future funding request, or a request to change 

the cost share requirement, should be based on an analysis of the actual

costs of the program. 

DOD’s comments are printed in their entirety in appendix III. 

We are sending copies of this report to the Secretary of Defense and 

interested congressional committees. We will also make copies available 

to others upon request. This report will be available at no charge on 

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

Page 31 GAO-06-140 Defense Management
If you or your staff have any questions regarding this report, please 

contact me at (202) 512-9619 or pickups@gao.gov. Contact points for our 

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

last page of this report. GAO staff who made key contributions to this 

report are listed in appendix IV. 

Sharon L. Pickup 

Director, Defense Capabilities and Management 

Page 32 GAO-06-140 Defense Management
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To examine historical trends of the National Guard Youth Challenge 

Program, including program expenditures, participation, and performance, 

we interviewed officials from the Office of the Assistant Secretary of 

Defense for Reserve Affairs; the National Guard Bureau (NGB); and the 

contractor that monitors and evaluates state programs, AOC Solutions. 

We reviewed other documentation provided by Reserve Affairs and NGB, 

such as program funding summaries. We also reviewed the Challenge 

Program’s annual reports submitted to Congress from 1994 through the 

present, excluding 1997,1

 which provided us background information on 

the program. For data on participation and performance outcomes, 

including general education development credential attainment, 

community service hours, and post-residential placements, we relied on 

the Data Management and Reporting System (DMARS) that is used by 

NGB to collect participant information and track individual and program 

activities. DMARS was implemented for the 2003 reporting year, and the

contractor has performed procedures to clean up the data as far back as 

2000. We conducted data reliability tests on the program’s annual reports 

and data management system to conclude that the data are sufficiently 

reliable for our purposes. We did not compare the costs or outcomes of 

this program to other similar youth programs currently funded by the 

federal government since that was not within the scope of this

engagement.

To assess the extent to which Reserve Affairs and NGB determined actual 

program costs and analyzed states’ ability to fund their share of the 

program, we interviewed officials at Reserve Affairs and NGB as well as 

officials at state programs. We reviewed and analyzed internal budget 

documents prepared by state programs and submitted to NGB annually as 

well as documents prepared by individual program directors that 

discussed the funding situation in their state. We also reviewed and 

analyzed good budget practices as described in federal financial 

accounting standards. Using a semi-structured questionnaire, we 

interviewed eight state Challenge Program directors and their budget 

officers in seven states and discussed sources of funding for their 

programs, actual costs of operating their programs, and the types of 

services that are provided to program participants given the available 

funding. States selected for site visits or telephone interviews are shown 

in table 2. There were a number of factors which affected the judgmental

 1

According to NGB, there was no annual report published for 1997 because program

officials were not sure whether or not Congress would permanently authorize the program.

Page 33 GAO-06-140 Defense Management
Appendix I: Scope and Methodology 

sampling of these state programs. States were chosen because of their 

length of time in the program, size, geographic location, experience of the 

program’s director, and whether or not there were multiple programs in 

the state. Additionally, in July 2005, we surveyed all 29 participating 

Challenge Programs and asked them about the actual costs of their 

programs and their assessment of their states’ ability to fund the programs. 

This survey had a response rate of 100 percent. 

Table 2: States Selected for Site Visits or Interviews 

Source: GAO.

To assess the extent to which NGB has provided oversight of the 

Challenge Program, we interviewed officials at Reserve Affairs and NGB 

as well as program officials at the state level. To determine the oversight

responsibilities of federal and state officials involved in the program, we 

reviewed and analyzed pertinent laws, the Department of Defense’s (DOD) 

Instruction governing the program, and the NGB Master Cooperative 

Agreement, which defines the terms and conditions of the program in each 

state. We also interviewed the independent contractor hired by NGB to 

conduct yearly and biennial on-site program reviews, AOC Solutions. We 

obtained access to its data management system and analyzed the program 

evaluations and resource management reviews it completed on behalf of 

NGB since 2003. We also reviewed and analyzed individual state 

program’s annual plans and NGB’s strategic plan to identify the types of 

goals set by the Challenge program. We consulted previous GAO work 

regarding performance measurement and evaluations, identified best 

practices for establishing and measuring performance goals, and reviewed

Standards for Internal Control in the Federal Government and the 

Government Performance and Results Act of 1993. We interviewed 

representatives of the U.S. Property and Fiscal Officer’s Office in six states

as well as the NGB Chief of Property and Fiscal Affairs to determine the 

State Program Name

Arizona Arizona Project Challenge 

California California Grizzly Youth Academy 

Illinois Illinois Lincoln's Challenge Academy 

Maryland Maryland Freestate Challenge Academy 

Oregon Oregon National Guard Youth Challenge Program 

South Carolina Camp Long 

South Carolina Columbia 

Wisconsin Wisconsin National Guard Challenge Academy 

Page 34 GAO-06-140 Defense Management
Appendix I: Scope and Methodology 

time frame for completing audits and mechanisms for reporting, tracking, 

and resolving issues that arise out of the PFO audits. 

To determine the extent to which Reserve Affairs and participating states 

have obtained alternative funding support for the program, we reviewed 

relevant laws, policies, and reports to determine the relevant authorities 

for receiving and transferring funds between federal agencies. We also 

interviewed federal officials at Reserve Affairs and the Departments of 

Labor, Education, and Justice to determine the extent to which these 

agencies discussed the possibility of transferring funds to DOD in support 

of the Challenge program. To determine states’ efforts at obtaining 

alternative funding support for their program’s operations, we conducted a 

survey of all 29 participating programs to collect information about their 

sources of funding for the program, how funding is distributed across 

different program operational functions, the sources and types of donated

goods and services, and descriptions of strategies programs use to obtain 

alternative funding support. Using a semi-structured questionnaire, we 

interviewed eight state Challenge Program directors and members of their 

staff in seven states and discussed sources of funding for their programs, 

the strategies these specific programs use for obtaining alternative funding 

support and donations, and the difficulties these states face in seeking out 

other funding. 

We provided a draft of this report to officials at DOD for their review and 

incorporated their comments where appropriate. We conducted our work 

from January 2005 to October 2005 in accordance with generally accepted 

government auditing standards. 

Page 35 GAO-06-140 Defense Management
Appendix II: National Guard Youth Challenge Appendix II: National Guard Y Program Sites outh Challenge 

Program Sites 

State Program name 

Calendar year first 

class began

Number of 

graduates in 2004

Alaska Alaska Military Youth Academy 1994 192

Arizona Arizona Project Challenge 1993 182

Arkansas Arkansas National Guard Youth Challenge Academy 1993 181

California California Grizzly Youth Academy 1998 204

Florida Florida Youth Challenge Academy 2001 227

Georgia Georgia - Fort Gordon Youth Challenge Academy 2000 276

 Georgia - Fort Stewart Youth Challenge Academy 1993 444

Hawaii Hawaii National Guard Youth Challenge Academy 1994 207

Illinois Illinois Lincoln's Challenge Academy 1993 785

Kentucky Kentucky Bluegrass Challenge Academy 1999 160

Louisiana Louisiana Youth Challenge Program - Camp Beauregard 1993 407

 Louisiana Youth Challenge Program - Camp Minden 2002 214

 Louisiana Youth Challenge Program - Gillis W. Long 1999 331

Maryland Maryland Freestate Challenge Academy 1993 224

Michigan Michigan Youth Challenge Academy 1999 174

Mississippi Mississippi National Guard Youth Challenge Program 1994 404

Montana Montana Youth Challenge Program 1999 144

New Jersey New Jersey Youth Challenge Program 1994 178

New Mexico New Mexico Youth Challenge Academy 2001 197

North Carolina North Carolina Tarheel Challenge Academy 1994 200

Oklahoma Oklahoma Thunderbird Youth Academy 1993 221

Oregon Oregon National Guard Youth Challenge Program 1999 221

Puerto Rico Puerto Rico Youth Challenge Program 1999 208

South Carolina South Carolina Youth Challenge Academy - Camp Long 2002 108

 South Carolina Youth Challenge Academy - Columbia 1998 257

Texas Texas Seaborne Challenge Corps 1999 188

Virginia Virginia Commonwealth Challenge Program 1994 140

West Virginia West Virginia Mountaineer Challenge Academy 1993 175

Wisconsin Wisconsin National Guard Challenge Academy 1998 154

Total Graduates 7,003

Source: GAO analysis of data from AOC Solutions, Inc. for NGB Classes 21 and 22. 

Note: The Wyoming Youth Challenge Program received start-up funds in 2005, and will begin its first 

class in January 2006. Nevada does not have a Challenge Program site but sends approximately 24

youths per year to the Arizona site. Until fiscal year 2005, the District of Columbia sent 60 youths per 

year to the Maryland site.

Page 36 GAO-06-140 Defense Management
Appendix III: Comments from the Department Appendix III: Comments from the of Defense 

Department of Defense 

Page 37 GAO-06-140 Defense Management
Appendix III: Comments from the Department 

of Defense 

Page 38 GAO-06-140 Defense Management
Appendix III: Comments from the Department 

of Defense 

Page 39 GAO-06-140 Defense Management
Appendix IV: 

A

GAO Contact and Staff 

cknowledgment 

Page 40 GAO-06-140

Appendix IV: GAO Contact and Staff 

Acknowledgment 

Sharon L. Pickup (202) 512-9619 

In addition to the individual named above, Harold Reich, Karyn Angulo, 

Leslie Bharadwaja, Susan Ditto, K. Nicole Harms, Wilfred Holloway, 

Jessica Kaczmarek, Stanley Kostyla, Julia Matta, Renee McElveen, and 

John Van Schaik made key contributions to this report. 

Defense Management

GAO Contact 

Acknowledgments 

(350643) 
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