Grants Management: Action Needed to Improve the Timeliness of Grant Closeouts by Federal Agencies
Published: 2012-04-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2008,GAO reported that about $1 billion in undisbursed funding remained in expired grant accounts in the largest civilian payment system for grants, PMS, operated by the Department of Health and Human Services Program Support Center. GAO was asked to update its 2008 analysis evaluating: (1) the amount of undisbursed funding remaining in expired grant accounts, including the amounts that have remained unspent for at least 5 years or more and for 10 years or more; (2) issues raised by GAO and federal inspectors general related to timely grant closeout by federal agencies; and (3) actions OMB and agencies have taken to track undisbursed balances in grants eligible for closeout. To do this, GAO analyzed data from two federal payment systems disbursing 79 percent of all civilian federal grant awardsPMS and the ASAP system, which is operated jointly by the Department of the Treasury and the Federal Reserve Bank of Richmond. In addition, GAO also reviewed audit reports that it and federal inspectors general issued; relevant OMB circulars and guidance; and performance reports from federal agencies.
section_title: What GAO Found
paragraphs: At the end of fiscal year 2011, GAO identified more than $794 million in funding remaining in expired grant accountsaccounts that were more than 3 months past the grant end date and had no activity for 9 months or morein the Payment Management System (PMS). GAO found that undisbursed balances remained in some grant accounts several years past their expiration date: $110.9 million in undisbursed funding remained unspent more than 5 years past the grant end date, including $9.5 million that remained unspent for 10 years or more. GAO also found $126 million in grant accounts in the Automated Standard Application for Payments (ASAP) for which there had been no activity for 2 years or more, including $11 million that remained inactive for 5 years or more. However, data from these two systems are not comparable because, unlike PMS, ASAP accounts can include multiple grant agreements between a federal agency and a grantee, only some of which may be eligible for closeout.
GAO and agency inspectors general have raised concerns in audit reports about timely grant closeout. These reports found that some agencies lack adequate systems or policies to properly monitor grant closeout or did not deobligate funds from grants eligible for close out in a timely manner.
OMB issued guidance to certain agencies at the direction of Congress for reporting undisbursed balances in expired grant accounts that instructed agencies to report on expired appropriations accounts rather than grant accounts eligible for closeout. By focusing on grants eligible for closeout, OMB could better direct agency management toward grants in need of more immediate attention. Grant closeout makes funds less susceptible to fraud, waste, and mismanagement; reduces the potential costs in fees related to maintaining grants; and may enable agencies to redirect resources to other projects.
section_title: What GAO Recommends
paragraphs: GAO recommends that OMB revise future guidance to better target undisbursed balances in grants eligible for closeout and instruct agencies to take action to close out grants that are several years past their end date or have no undisbursed balances remaining. OMB staff said that they generally agreed with the recommendGAO recommends that OMB revise future guidance to better target undisbursed balances in grants eligible for closeout and instruct agencies to take action to close out grants that are several years past their end date or have no undisbursed balances remaining. OMB staff said that they generally agreed with the recommendations and will consider them as they review and streamline grant policy guidance.ations and will consider them as they review and streamline grant policy guidance.

section_title: Letter
paragraphs: In 2008, we reported that at the end of calendar year 2006 about   $1 billion in undisbursed funding remained in grant accounts whose  period of availability to the grantee had expired as identified in the largest  civilian payment system for grants. Undisbursed balances are funds that  the federal awarding agency has obligated by entering into a grant  agreement, but the grantee has not drawn down, or the federal awarding  agency has not “disbursed.” Once the grant’s period of availability to the  grantee has expired, the grant can be closed out and the funds  deobligated by the awarding agency. Grant closeout is an important final  point of accountability for grantees that helps to ensure they have met all  financial requirements and have provided final reports, as required.  Closing out of grants also allows agencies to identify and redirect unused  funds to other projects and priorities as authorized or to return unspent  balances to the Treasury. Conversely, failure to close out grants could  allow grantees to draw down funds after the agreed-upon grant end date.  Federal regulations generally require that financial records and other  documents pertinent to a grant are to be retained for a period of 3 years   If a grant account is not  from the date of submission of the final report.closed out within this time frame, there is the risk that agencies may not  be able to obtain the documents needed to make the necessary financial  adjustments and collect any unallowable costs or erroneous payments.
In 2008, we reported that our and inspectors general (IG) past audits of  federal agencies as well as agencies’ annual performance reports had  suggested that failure to close out grants in a timely manner was a long- standing problem. We also found that when federal agencies made timely  grant closeout a high priority and took corrective actions, there were  improvements in grant closeouts and resolution of undisbursed funding.  In 2008, we recommended that the Office of Management and Budget  (OMB) instruct agencies to track undisbursed balances that remain in  grantees’ accounts after the grant funding period has ended and report on  the resolution of this funding in their annual performance reports— Performance and Accountability Reports (PAR) and Agency Financial  Reports (AFR). We stated that tracking undisbursed funding in expired  grant accounts and including the status of grant closeouts in annual  performance reports could raise the visibility of the problem both within  the agency and governmentwide and lead to improvements in the  timeliness of grant closeouts and a reduction in undisbursed balances.  OMB supported the intent of our recommendations, but it did not favor  having agencies track and report on these balances in their annual  performance reports and therefore did not take action.
You asked us to update our previous analysis by evaluating: (1) the  amount of undisbursed funding remaining in expired grant accounts,  including the amounts that have remained unspent for at least 5 years or  more and for 10 years or more; (2) issues raised by us and federal IG  related to timely grant closeout by federal agencies; and (3) what actions  OMB and agencies have taken to track undisbursed balances in grants  eligible for closeout.
To determine the amount of undisbursed balances in expired accounts,  we analyzed data from the quarterly closeout reports provided to users of  the largest civilian federal payment system—the Payment Management  System (PMS) administered by the Department of Health and Human  Services’ (HHS) Program Support Center (PSC)—at the end of fiscal year   Closeout reports list all grant accounts that remain open more than  2011.3 months past the grant end date and for which there has been no  disbursement in the preceding 9 months. These grant accounts are  referred to as “expired grant accounts.” Using PMS data, we determined  the amount of funds that remained in expired accounts for 5 years or  more past the grant end date and the amount that remained in these  accounts for 10 years or more. In addition, for this report we also  analyzed data from “dormant account reports” provided to users of a  second payment system, the Automated Standard Application for  Payments (ASAP), administered by the Department of the Treasury  (Treasury) and the Federal Reserve Bank of Richmond. Dormant account  reports list ASAP accounts for federal grants that had been inactive for   2 years or more. Unlike PMS accounts, ASAP accounts can include  multiple grant agreements between a federal agency and a grantee.  Therefore, these reports cannot be used to identify individual grants  eligible for closeout or the amount of funds that remain undisbursed for an  individual grant agreement. Instead, these reports provide a list of  accounts in need of attention that agencies can use to help identify  unspent funds available for deobligation.
These two payment systems were selected because they provide  payment services to other federal departments and entities and account  for a significant percentage of federal grant disbursements. These two  systems provided payment services to offices from 20 departments and  other federal entities in fiscal year 2011, disbursing about 79 percent of all  civilian federal grant awards. See appendixes II and III for a full list of  PMS and ASAP users. To assess the reliability of the payment system  data used in this report, we (1) reviewed existing documentation on the  systems, including system audits by independent auditors; (2) interviewed  officials responsible for administration of the systems and discussed  potential limitations of the data; and (3) performed electronic testing for  obvious errors in completeness and accuracy. On the basis of our  assessment, we believe that the data are sufficiently reliable for the  purposes of this review. See appendix I for additional details on our  analysis of payment system data, including limitations to our analysis.
To identify issues we and federal IGs have raised related to the timely  closeout of grants, we conducted a web-based search for audit reports  issued by GAO from September 2007 to May 2011 and federal IGs at the  24 Chief Financial Officer Act of 1990 (CFO Act) agencies from January  2008 to June 2011, and contacted officials from each of the IG to ensure  that our web search did not omit any relevant reports. To analyze actions  OMB has taken to track undisbursed balances, we interviewed agency  officials and reviewed related OMB circulars and other guidance related  to grant management and performance reporting. To analyze actions  agencies have taken to track undisbursed balances in expired accounts,  we reviewed the fiscal years 2009, 2010, and 2011 performance reports  for the 24 agencies required to issue audited financial statements under  the CFO Act for information reported on undisbursed balances in grants  eligible for closeout since our 2008 report was issued.
We conducted this performance audit from May 2011 to April 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Federal Grant Awards and Grant Life-Cycle
paragraphs: The federal government uses grants to achieve national priorities through  nonfederal parties, including state and local governments, educational  institutions, and nonprofit organizations. While there can be significant  variation among different grant programs, most federal grants share a  common life cycle for administering the grants: pre-award, award,  implementation, and closeout (see fig. 1). During the award stage, the  federal awarding agency enters into an agreement with grantees  stipulating the terms and conditions for the use of grant funds including  the period of time funds are available for the grantee’s use. Also in the  award stage, the awarding agency opens accounts in one of several  payment management systems through which grantees receive  payments. During the post-award stage, the grantee carries out the  requirements of the agreement and requests payments, while the  awarding agency approves payments and oversees the grantee. Once  the grantee has completed all the work associated with a grant  agreement or the end date for the grant has arrived, or both, the awarding  agency and grantee close out the grant. Closeout procedures ensure that  grantees have met all financial requirements, provided their final reports,  and returned any unspent balances.
Grant closeout procedures, like other stages of the grant cycle, are  subject to a wide range of requirements derived from a combination of  OMB guidance, agency regulations, agency policy, and program-specific  statutes. OMB Circular No. A-110, Uniform Administrative Requirements  for Grants and Agreements with Institutions of Higher Education,  Hospitals, and Other Non-Profit Organizations, and OMB Circular No.   A-102, Grants and Cooperative Agreements with State and Local  Governments, provide OMB guidance to federal agencies on grant  administration. These circulars apply only to federal awarding agencies;  they do not apply directly to grantees. Each federal agency that awards  and administers grants and agreements that are subject to the guidance  in Circulars A-110 and A-102 is responsible for issuing regulations, with  which grantees must comply, that are consistent with the circulars, unless  different provisions are required by federal statute or are approved by  OMB.
Agency regulations issued under the circulars typically impose closeout  procedures upon both the awarding agency and the grantee. Generally,  within 90 days after the completion of the award, grantees must submit all  financial, performance, and other reports as required by the terms and  conditions of the award. Also within this 90-day period, grantees  generally are to liquidate all obligations incurred under the award.  Grantees then are to promptly refund any remaining cash balances to the  awarding agency. Awarding agencies must make prompt payments, often  defined as within 90 days, to grantees for allowable reimbursable costs  under the award being closed out.conditions of the award, the awarding agency must make a settlement for  any upward or downward adjustment to the federal share of costs after  the closeout reports are received. Some federal agencies’ grant policies,  such as HHS’s, further specify that grants are to be closed out within 180  days of the end of the grant funding period.
Also, if allowed by the terms and  While there can be substantial variation among grant programs, figure 2  illustrates how closing out grants could allow an agency to redirect  resources toward other projects and activities or return unspent funds to  Treasury. Generally, if the undisbursed balances that are deobligated from closed grant accounts are still available for incurring new obligations,  the agency may use the funds to enter into new grant agreements.may allow the federal agencies to use existing resources to fund new  grant projects. If the undisbursed amounts are returned to expired  appropriation accounts, the agency may not use the deobligated funds to  make new grants. However, the agency may use the deobligated funds to  make adjustments to obligations that were incurred before the  appropriations account expired. Expired appropriations accounts remain  available for 5 years to make adjustments, after which, the undisbursed  balances are canceled and returned to the Treasury. In other words, the  funds are no longer available for use by the agency. This helps ensure  that federal agency resources are not improperly spent and helps  agencies maintain accurate accounting of their budgetary resources. It  may also reduce future federal outlays relative to the federal  government’s original estimated amount of spending for these programs.
section_title: More Than $794 Million in Undisbursed Balances Remained in Expired Grant Accounts in PMS; More Than $126 Million Also Remained in Dormant Accounts in ASAP
paragraphs: We found that more than $794 million in undisbursed balances remained  in expired PMS accounts, including undisbursed balances that remained  in accounts several years past their expiration date. Roughly three-fourths  of all undisbursed balances in expired grant accounts were from grants  issued by HHS, the largest grant-making agency in the federal  government. Although this represents only a small share (2.7 percent) of  the total funding that was made available for these grants, department  officials told us they are taking action to improve timely closeout. We also  found that more than $126 million in undisbursed balances remained in  dormant grant accounts—accounts for which there had been no activity  for 2 years or more—in ASAP, another large federal payment system.
subsections: section_title: Undisbursed Balances Remained in Expired Grant Accounts in PMS
paragraphs: As of September 30, 2011, we found that $794.4 million in undisbursed  balances remained in PMS, the largest federal civilian payment system in  10,548 expired grant accounts. These are accounts that were more than  3 months past the grant end date and had no activity for 9 months or  more. Undisbursed balances in expired grant accounts were spread  across numerous federal agencies and almost 400 different programs.  (See app. II for a list of PMS customers.) For comparison, the total  amount of undisbursed balances in expired grant accounts in PMS is  more than $200 million less than the amount we previously reported for  calendar year 2006, while the overall amount of grant disbursements  through PMS increased by about 23 percent during this time, from   $320 billion in fiscal year 2006 to $415 billion in fiscal year 2011. Overall,  total undisbursed balances as of September 30, 2011, represent roughly  3.3 percent of the total amount of funds made available for these grants,  down from 7.4 percent at the end of calendar year 2006. However, at  the department or agency level, the total amount of undisbursed balances  in expired accounts as of September 30, 2011, varied from 2.7 percent to  34.8 percent of the total funding made available for these grant accounts  during this period.
OMB guidance and agency regulations generally require grantees to  submit all financial and performance reports and liquidate all obligations  incurred under the award within 3 months (or 90 days) after the  completion of the award; awarding agencies must then make prompt  payments to grantees for allowable reimbursable costs for the award  being closed out. Therefore, based on the information in PMS, these  expired grant accounts should be considered for grant closeout. Failure to  close out a grant in the payment system and deobligate any unspent  balances can allow grantees to continue to draw down federal funds in  the payment system even after the grant’s period of availability to the  grantee has ended, making these funds more susceptible to waste, fraud,  or mismanagement.
As figure 3 shows, we found that undisbursed balances remained in grant  accounts several years past their expiration date. We found that 991  expired grant accounts were more than 5 years past the grant end date;  they contained a total of $110.9 million in undisbursed funding. Of these,  115 expired grant accounts containing roughly $9.5 million remained  open more than 10 years past the grant end date. Federal regulations  generally require that grantees retain financial records and other  documents pertinent to a grant for a period of 3 years from the date of  submission of the final report. The risk increases after several years that  grantees will not have retained the financial documents and other  information for these grants that are needed by federal agencies to  properly reconcile financial information and make the necessary  adjustments to the grant award amount and the amount of federal funds  paid to the recipient, potentially resulting in the payment of unnecessary  and unallowable costs.
While the amount of funds remaining in individual expired grant accounts  ranged from less than $1 to more than $19 million, a small percentage (a  little more than 1 percent) of grant accounts with undisbursed balances of  $1 million or more accounted for more than a third of the total  undisbursed funds in expired grant accounts. Overall, 123 accounts from  eight different federal agencies had more than $1 million in undisbursed  balances at the end of fiscal year 2011. These expired grant accounts  had a combined total of roughly $316 million in undisbursed balances, or  40 percent of the total undisbursed funding in expired grant accounts as  of September 30, 2011 (see fig. 4). Accounts with undisbursed balances  remaining at the end of the agreed-upon grant end date can indicate a  potential grant management problem. Data showing grantees that have  not expended large amounts of funding such as $1 million or more by the  specified grant end date raise concern that grantees have not fully met  the program objectives for the intended beneficiaries within the agreed- upon time frames.
Roughly three-fourths of all undisbursed balances in expired grant  accounts ($594.7 million) in PMS as of September 30, 2011, were from  8,262 HHS-issued grants. HHS is the largest grant-making agency in the  federal government in terms of total dollars awarded and disbursed.  Overall, the total undisbursed balances in expired HHS grant accounts  represented 2.7 percent of the total amount authorized for these  accounts, which is the lowest percentage for any federal department with  undisbursed balances in expired grant accounts included on the  September 30, 2011 PMS closeout report. This indicates that the  grantees have typically spent the vast majority of the funds awarded.  However, the remaining funds add up to hundreds of millions of dollars  that the agency could potentially redirect toward other projects and  activities or return to Treasury. Furthermore, 85 of the 123 expired grant  accounts with $1 million or more remaining at the end of fiscal year 2011  discussed earlier in this report were HHS-issued grants. Of the 10 HHS  operating divisions with accounts in PMS, the Administration for Children  and Families (ACF) and the Centers for Disease Control and Prevention  (CDC) had the largest undisbursed balances at the end of fiscal year  2011 with roughly $321.7 million and $110.1 million, respectively.
While HHS policy generally requires that grants be closed out within 180  days after the grant’s end date, we found more than $265 million in  undisbursed balances in expired grant accounts that remained open 3 or  more years past the grant end date. This includes more than $86 million  in expired grant accounts that were 5 years or more past the grant end  date, of which more than $7 million remained unspent 10 years after the  grant end date (see fig. 5). $70.8 million in undisbursed balances in expired grant accounts that were  5 years or more past the grant end date, including $6.1 million that  remained unspent 10 years after the grant end date.
HHS Grants Policy Directive 4.02 outlines the department’s grants management  requirements for closeout.
section_title: HHS Reports Taking Actions to Address Backlog in Response to Previous Audits
paragraphs: In response to past audit reports, officials from HHS’s Division of Grants   In February  said that they have increased monitoring of grant closeout.2011, HHS established an interagency workgroup—the Accelerated  Closeout Team—led by the Office of Grants and Acquisition Policy and  Accountability to coordinate a departmentwide response in strengthening  financial controls and accelerating the number of grant and contract  closeouts. The Accelerated Closeout Team for grants reviewed and  analyzed PMS data from previous years and used the data to develop a  list of eligible grant awards—focusing specifically on those from fiscal  year 2008. They have a near-term goal of closing out all eligible grants  with a grant end date of 2008. According to HHS, they have identified  tens of millions of dollars in undisbursed balances in PMS available for  deobligation through this initiative. The initiative will conclude later this  year at which point HHS will re-evaluate any additional areas requiring  specific attention. HHS officials said that they are drafting a  departmentwide grants closeout policy to improve the grant closeout  process going forward.
HHS officials said that attention on timely grant closeout in PMS  increased in response to previous audits. Both the HHS Office of  Inspector General and the HHS independent auditor have reported a  backlog of expired HHS grant accounts with undisbursed balances in  PMS. The HHS Inspector General issued four reports from 2008 to 2009  on grant closeout in PMS at four selected operating divisions. Using  PMS data from March 30, 2006, to March 31, 2007, the HHS Inspector  General found between $174 million and $1.3 billion in undisbursed  balances at the four operating divisions in grant accounts that had not  been closed within 180 days of the grant end date as specified in agency  policy. The HHS Inspector General attributed the backlog in grant  closeout in part to lack of staff and resources, inconsistent guidance, and  a lack of supporting documentation and recommended that the agency  use the information in the audit reports to ensure that grants are closed  out in a timely manner and to eliminate the backlog of grants eligible for  closeout. The operating divisions generally concurred with the Inspector  General’s recommendations and described actions that they planned to  take to improve timely closeouts in response.
Findings from HHS’s independent auditor as reported in the agency’s  PARs over several years indicate that timely closeout of grants has been  a long-standing issue at HHS but that the agency has been making  progress. From fiscal year 2006 to fiscal year 2011, the HHS independent  auditor routinely reported on concerns with management controls over  grant closeout, including a backlog of HHS grant accounts in PMS that  were already beyond what the auditor considered a reasonable time  frame for closeout. For example, during its review of fiscal year 2009  grant activity provided from PMS as of March 31, 2009, the independent  auditor identified approximately 644 grant obligations totaling   $40.3 million that were dated prior to fiscal year 2002 that had not been  closed out. The independent auditor concluded at that time that HHS  management needed to increase its emphasis on closeout in order to  reduce the backlog and ensure consistency between PMS and HHS  operating divisions’ separate grant tracking systems, and, as part of the  department’s fiscal year 2011 PAR, the independent auditor noted  significant improvements in this and other financial management  processes.
section_title: Agencies Were Charged Fees to Maintain Thousands of Expired Accounts, Including Accounts with No Undisbursed Balances Remaining
paragraphs: Promptly closing out grants in the payment management system after the  grant end date would help agencies minimize the amount that they are  charged in monthly service fees. PSC, which operates PMS, does not  close out a grant account in PMS until instructed to by the awarding  agency and continues to charge service fees to the awarding agencies.  PMS fees are calculated to allow PSC to fully recover the cost of its PMS  operations. In addition to payment services, PMS also provides a number  of other services to assist users, such as standardized electronic forms  for meeting federal grant reporting requirements, audit support, and  collection services on overdrawn grants and disallowed costs. PSC  provides these additional services for all open accounts, regardless of the  grant account balance. PSC charges federal grant-making agencies  based on two billing rates: a hybrid rate referred to as the “Type I” rate,  which is generally applied to grants awarded to state, local, and tribal  governments, and a flat rate referred to as the “Type II” rate, which is  generally applied to grants awarded to nonprofit agencies, hospitals, and  universities.
We identified more than 28,000 expired grant accounts in PMS with no  undisbursed balances remaining as of the end of fiscal year 2011 for  which the grant-making agency was charged a fee. More than 21,000 of  these expired grant accounts with no undisbursed funds remaining— approximately 79 percent of all such accounts—were for HHS grants with  the remaining amount spread across 11 other federal agencies. The  closeout report made available to PMS users identifies these accounts  using a special status symbol, which indicates that the awarding agency  only needs to submit the closeout code to finalize grant closeout. Until the  code is submitted, these grant accounts continue to cost the awarding  agency through accumulated monthly service fees. According to data  provided by PSC, PMS users were charged a total of roughly $173,000  per month to maintain the more than 28,000 expired grant accounts with  zero dollar balances listed on the yearend closeout report. Roughly  $137,000 of this was charged to HHS operating divisions. Overall, the  total charges for all expired grants with a zero dollar balance would  represent roughly $2 million in fees if agencies were billed for these  accounts for the entire year. While the fees are small relative to the size  of the original grant awards, they can accumulate over time. We found  roughly 9,770—about 34 percent—of the expired grant accounts with no  undisbursed balances remained open 3 or more years past the grant  expiration date. If the grant has otherwise been administratively and  financially closed out, then agencies paying fees for expired accounts  with zero dollar balance are paying for services that are not needed  instead of providing services to grant recipients. The presence of expired  grant accounts with no undisbursed funds remaining also raises concerns  that administrative and financial closeout—the final point of accountability  for these grants, which includes such important tasks as the submission  of financial and performance reports—may not have been completed.
section_title: More Than $126 Million Remained in Dormant Accounts for 2 Years or More in ASAP
paragraphs: As of the end of fiscal year 2011, we found that $126.2 million in  undisbursed balances remained in dormant grant accounts in ASAP,  another large federal payment system. These balances remained in 1,094  dormant grant accounts—accounts for which there had been no activity  for 2 years or more. According to the dormant account report, this  represents roughly 15 percent of the cumulative authorized funding made  available for these accounts. Grant accounts for eight federal  departments and other federal entities that use the ASAP system for  payment services appeared on the report, with undisbursed balances  ranging from roughly $41,000 to more than $40 million, per entity. (See  app. III for a list of ASAP customers.)
Individual accounts in the ASAP system can include multiple grant  agreements between a federal agency and a grantee; therefore, these  reports cannot be used to identify individual grants eligible for closeout or  the amount of funds that remain undisbursed for an individual grant  agreement. However, the existence of undisbursed balances in inactive  accounts can indicate the need for increased attention. This is particularly  true of accounts where there has been no activity for a prolonged period  of time. While nearly three-quarters of the undisbursed balances in  dormant accounts were inactive for 3 years or less, we found roughly   $33 million in 430 accounts that had been inactive for 3 years or more. Of  that $33 million, $11 million in 179 accounts had been inactive for 5 years  or more (see fig. 6).
FMS officials first began issuing “dormant account reports” to all ASAP  users in 2009 in response to the findings in our 2008 report that using  federal payment systems to track undisbursed balances in grant accounts  could help reduce unused funding. ASAP dormant account reports have  evolved over time to improve their usability. Currently, accounts with  undisbursed balances are included in dormant account reports if (1) the  grantee has not drawn down funds for 2 years or more and (2) the  awarding agency has made no changes to the authorized amount of  funding available to the grantee in 2 years or more. Dormant account  reports are generally provided twice a year—once in the fall or winter  followed by a second report in the spring or summer. The first report lists  all of the dormant accounts as of a specific date, and the second report  shows the status of these same accounts several months later, allowing  agencies to track progress toward addressing the dormant accounts that  appeared on the first report. The amounts reported for the end of fiscal  year 2011 represent the first phase of this two-phase cycle.
Unlike PMS, the ASAP system does not provide grant management  operations for users; therefore, it is the agencies’ responsibility to  maintain grant management information such as the grant end date.  However, as with PMS, the separation of grant management and  payment functions makes it is possible for agencies to closeout a grant in  a separate grant management system but fail to close out the grant in the  ASAP system. According to FMS officials, if an ASAP account remains  open, grantees may be able to continue to draw funds so long as there  are funds available in the account. ASAP accounts that have no balances  remaining but remain open are not included in dormant account reports  regardless of their period of inactivity. FMS has encouraged agencies to  close these accounts, but it does not charge users for these accounts or  for other payment system services provided by the ASAP system.  Instead, Congress appropriates funds to FMS to cover the cost of its  operations.
section_title: Audits Continue to Raise Concerns about Timely Grant Closeout
paragraphs: In addition to the HHS audits described earlier, we and agency IGs have  continued to raise concerns about timely grant closeout in federal  agencies and grant programs. As part of our previous report on  undisbursed balances in expired grant accounts issued in 2008, we  reviewed 7 years of past audits and found that both we and federal IGs  issued numerous reports indentifying specific grant programs or awarding  agencies that had undisbursed funding in grants eligible for closeout.  Since that time, we have issued additional reports identifying challenges  related to timely closeout of grants, and the Inspectors General at the  Departments of Agriculture (USDA), Education, Energy (DOE), HHS,  Homeland Security (DHS), and Labor (Labor) have all issued reports  identifying similar challenges in offices or programs within their respective  agencies. These reports identified a lack of adequate systems or policies  in place to properly monitor grant closeout and inadequacies in awarding  agencies’ grant management processes, in part because closeouts are a  low management priority. While they focused on expired grants in specific  offices or grant programs, when taken together, these report findings  indicate that the timely closeout of grants continues to be an issue for  multiple programs and grant-making agencies across the federal  government.
We found that agencies did not have adequate systems and policies in  place to properly monitor grant closeout. For example, in 2011, we  reported that USDA’s draft grant closeout policies for the McGovern-Dole  Food for Education Program did not include time frames for when grant  agreements should be closed. As a result, this put USDA at risk that  grant agreements will not be closed out in a timely fashion, preventing  USDA from ensuring that grantees of the McGovern-Dole Food for  Education Program have met all financial requirements and that unused  or misused funds are promptly reimbursed to USDA. We recommended  that the Secretary of Agriculture formalize policies and procedures for  closing out grant agreements and establishing guidance to determine  when agreements should be closed. USDA agreed with our  recommendations and said it will take steps to address them. Similarly, in  2011 we found that roughly $24 million in Farm Labor Housing program  loan and grant obligations remained undisbursed more than 5 years after  the funds were obligated and that the Rural Housing Service had no  guidelines for deobligation in force.since issued guidance, as we had recommended.
The Rural Housing Service has  We also found that agencies did not deobligate funds from grants eligible  for closeout in a timely manner. For example, in 2012, we reported that  Department of Justice’s (DOJ) Bulletproof Vest Partnership program had  not deobligated about $27 million in balances from grants awarded from  fiscal years 2002 through 2009 whose terms have ended and whose  grantees are no longer eligible for reimbursement. DOJ agreed with our recommendation that the department deobligate undisbursed funds from  Bulletproof Vest Partnership program grants that have closed and said  that in the absence of statutory restrictions stating otherwise, it intends to  use the deobligated, undisbursed funds to supplement appropriations in  fiscal years 2012 and 2013. In another example, we reported in 2010 that  recipients of 58 percent of Department of the Interior’s Office of Insular  Affairs project grants failed to submit final closeout reports on time, which  can delay the deobligation of any unspent grant funds from the project  account. The Department of Interior agreed with our recommendations  to improve the Office of Insular Affairs’ ability to manage grants.
Federal IGs identified similar issues at their agencies. For example, in  September 2009 the Inspector General at Labor reported that funds were  not deobligated when a grant expired because of delays in grant  closeouts. Also, grants from the Employment and Training Administration  and the Veteran’s Employment and Training Service were not closed  within 12 months of their expiration because of a large backlog of grants  in need of close out. Service reported in April 2009 that it deobligated the $2.75 million in  response to a finding from the department’s inspector general, making the  funds available for other research projects and preventing the potential  misuse of funds. IGs also reported that system updates and a lack of  timely information led to problems at DHS and the Department of  Education, respectively.
Department of Labor, Office of the Inspector General, Management Advisory Comments  Identified in an Audit of the Consolidated Financial Statements for the Year Ended  September 30, 2009, 22-10-006-13-001 (Washington, D.C.: 2010).
Federal IGs reported that grant closeout procedures have been viewed as  a low priority for federal agencies and that agencies have devoted limited  staff resources to other grant management functions, including the  issuance of new grant awards. Lack of attention and staffing contribute to  delays in grant closeout and the timely deobligation of funds. For  example, DOE’s Inspector General found that one of DOE’s regional  offices was not closing out Small Business Innovation and Research  Phase II grants in a timely manner in part because staff focused their  attention instead on active awards. The Inspector General found expired  grants had been completed for more than 3 years but had not been  closed out. In addition, the Inspector General found questionable or  unallowable costs during their review of grant closeout. Because grantees  are only required to maintain annual audit and expense reports to support  progress on projects and costs incurred and other information for 3 years,  the supporting cost data may not be available for review, resulting in the  payment of unnecessary and unallowable costs.
These findings are consistent with the results of a survey of IGs and other  investigative agencies by the National Procurement Fraud Task Force’s  Grant Fraud Committee, a committee chaired by the Inspector General  for DOJ, which aims to detect and prevent grant fraud. Many respondents  to the survey suggested that grant awarding agencies are often focused  on awarding grant money and do not devote sufficient resources to the  oversight of how those funds are spent. Survey respondents noted that  awarding agencies often inadequately monitor grantee activities by,  among other things, not properly closing out grants in a timely manner.
section_title: Absence of Clear Guidance Has Resulted in a Lack of Consistent Governmentwide Reporting on Undisbursed Balances in Expired Grant Accounts
paragraphs: OMB has not issued governmentwide guidance on tracking or reporting  undisbursed balances for grants eligible for closeout, as we  recommended in 2008. OMB did issue instructions for tracking and  reporting on undisbursed grant balances to a small number of affected  federal agencies in 2010 and 2011 as required by law. However, this  guidance included grant accounts that were still available for  disbursement and was not limited only to those grant accounts eligible for  closeout. We found that agencywide information on undisbursed balances  in grant accounts eligible for closeout is largely lacking.
subsections: section_title: OMB Has Not Issued Governmentwide Guidance on Tracking or Reporting Undisbursed Balances in Grants Eligible for Closeout
paragraphs: In 2008, we recommended that OMB instruct all executive departments  and independent agencies to annually track the amount of undisbursed  balances in expired grant accounts and report on the status and  resolution of the undisbursed funding in their annual performance reports.  In our report, expired grant accounts were defined as the grants that  remained open after the end of the grant period and were eligible for  closeout. Our previous work found that reporting on the status of grant  closeouts in annual performance reports, such as agency PARs, can  raise the visibility of the problem within federal agencies, lead to  improvements in grant closeouts, and reduce undisbursed balances.  These reports enable the president, Congress, and the American people  to assess agencies’ accomplishments for each fiscal year by comparing  agencies’ actual performance against their annual performance goals,  summarizing the findings of program evaluations completed during the  year, and describing the actions needed to address any unmet goals,  among other things.
OMB responded at the time that it supported the intent of our  recommendations to strengthen grants management by explicitly  requiring federal agencies to track and report the amount of undisbursed  grant funding remaining in expired grant accounts and that it believed  agencies should design processes with strong internal controls to  promote effective funds management for all types of obligations. OMB’s  comments did not indicate a commitment to implement our  recommendations. OMB stated that, during its regular review, it would  consider revising the grant management guidance in Circulars No. A-102  and No. A-110 to include such instructions. As of December 2011, these  Circulars, as well as No. A-11, Preparation, Submission and Execution of  the Budget, and No. A-136, Financial Reporting Requirements, do not  include any guidance or instructions to agencies on tracking or reporting  on undisbursed balances in grants eligible for closeout in agencies’  performance reports.
section_title: In Response to Legislation, OMB Instructed Select Agencies to Report on Undisbursed Balances but Not on the Amount in Grant Accounts Eligible for Closeout
paragraphs: Section 537 of the Commerce, Justice, Science, and Related Agencies  Appropriations Act of 2010 required that the Director of OMB instruct  departments, agencies, and other entities receiving funds under the act to  track undisbursed balances in expired grant accounts. The legislation  specifically required that OMB instruct affected agencies to report on the  following information:  1.  details on future action the department, agency, or instrumentality will  take to resolve undisbursed balances in expired grant accounts,  2.  the method that the department, agency, or instrumentality uses to  track undisbursed balances in expired grant accounts,  3.  identification of undisbursed balances in expired grant accounts that  may be returned to the Treasury of the United States, and  4.  in the preceding 3 fiscal years, details on the total number of expired  grant accounts with undisbursed balances (on the first day of each  fiscal year) for the department, agency, or instrumentality and the total  finances that have not been obligated to a specific project remaining  in the accounts.
These legislative reporting requirements were similar to what we  recommended in 2008. Subsequently, the same reporting requirements  were carried forward for fiscal year 2011 by the Full-Year Continuing  Appropriations Act, 2011 and for fiscal year 2012 by Section 536 of the  Commerce, Justice, Science, and Related Agencies Appropriations Act,  2012, affecting select agencies 2012 PAR and AFR submissions due in  November 2012.
In 2010 and 2011, as required by these laws OMB issued implementing  instructions to affected federal agencies’ financial officers and budget  officers. Four agencies—the Department of Commerce (DOC), DOJ,  National Aeronautics and Space Administration (NASA), and National  Science Foundation (NSF)—provided responses in their annual  performance reports. However, in its instructions, OMB equated  “expired grant accounts” with expired appropriation accounts. Specifically,  OMB’s guidance referenced the definition of expired appropriations found  in Circular No. A-11 in defining expired grant accounts as “including  budget authority that is no longer available for new obligations but is still  available for disbursement.”
The performance period for active grant agreements can last multiple  years during which time authorized disbursements may be made from  expired appropriation accounts. Under OMB’s definition, agencies were  instructed to report all undisbursed funding in expired appropriation  accounts which could include active grant accounts as well as grant  accounts eligible for closeout. In contrast, in this and other reports, we  defined expired grant accounts as accounts that remain open after the  specified grant end date, or expiration date, and are eligible for close  out. government has obligated by entering into a grant agreement but that  should no longer be disbursed to grantees because the period of  availability to the grantee has ended.
See GAO-08-432 and GAO, Federal Grants: Improvements Needed in Oversight and  Accountability Processes, GAO-11-773T (Washington, D.C.: June 23, 2011). appropriations in the agency’s two research-related appropriations  accounts. The amount reported included funds available for disbursement  on only active grant agreements. Similarly, officials from DOJ and NASA  also confirmed to us that the number they reported in their 2010  performance reports represented balances in expired appropriations  accounts and not the amount of funding that remained in grant accounts  eligible for close out. Furthermore, according to DOJ officials, most DOJ  grants, with the exception of grants funded through the American  Recovery and Reinvestment Act (Recovery Act), are funded with no-year  appropriations that do not enter into an expired phase and therefore fall  outside the scope of OMB’s guidance.
Agency officials told us that the purpose of gathering information on  grants funded with expired appropriations was unclear. Federal agencies  are generally required to include detailed information on the overall  budgetary resources made available to the agency, including amounts in  expired appropriation accounts, as well as the status of those resources  at the end of the fiscal year. Agency officials said that the information on  undisbursed balances reported in their PAR or AFR was derived at least  in part from these publicly available budgetary reports and is generally  readily available; however, information on undisbursed balances in grant  accounts that have reached their end date and are eligible for closeout is  generally not publicly available or otherwise provided to OMB and  Congress.
OMB issued largely identical instructions to select agencies for reporting  on undisbursed balances in expired grant accounts in their 2011  performance reports. While NASA and NSF took different approaches in  reporting compared to the prior year, DOJ reported on the amount of  undisbursed funding in expired appropriations. DOC reported  undisbursed balances, but could not confirm whether all of its grant- making bureaus reported expired appropriations or grant accounts. NASA  officials said that the number reported in their 2011 PAR represented the  amount of undisbursed balances in grant accounts that have reached  their end date and are eligible for closeout. Based on this understanding  of the guidance, NASA reported in its 2011 PAR that in 2009 there were  about 1,650 expired grants with $18 million in undisbursed balances. In  comparison, when reporting on amounts in expired appropriations in their  previous year’s PAR, NASA reported over 2,100 expired grants with $58  million in undisbursed balances for 2009. In its 2011 PAR, NSF reported  on neither the amount of grants funded with expired appropriations nor on  the amount of undisbursed balances in grant accounts that have reached  their end date and are eligible for closeout. Instead, NSF reported the  amount of funding that was deobligated as a result of successfully closing  out grants. For example, NSF reported that in fiscal year 2011, the  agency closed out a total of 18,648 grants. As a result, $35,204,328 in  undisbursed balances were deobligated and retained for adjustments to  existing obligations and an additional $5,610,546 was deobligated and  returned to Treasury.illustrates how closing out grants allows an agency to redirect unspent  funds or return the funds to Treasury as appropriate. It does not,  however, provide information on the number of grants past their grant end  date or the balances remaining in these grant accounts.
section_title: Consistent Reporting on Grant Closeout in Performance Reports Lacking
paragraphs: In our review of CFO Act agencies’ annual performance reports for fiscal  years 2009 to 2011, we found that systematic, agencywide information on  undisbursed balances in grant accounts eligible for closeout is largely  lacking in part because OMB guidance does not provide explicit  instructions to agencies to track undisbursed balances for grants that are  eligible for close out. Other than the four agencies receiving explicit  instructions from OMB and the information reported by independent  auditors, we found only one federal agency—the Environmental  Protection Agency (EPA)—reported agencywide information on the  timeliness of grant closeout. EPA developed an agencywide performance  metric—the percentage of eligible grants closed out—in part as a  response to our prior findings that the agency had a large backlog of  grants in need of closeout.out 99.5 percent of eligible grants from 2009 and earlier and 93.4 percent   In its 2011 AFR, EPA reported that it closed  of grants that expired in the prior fiscal year. As part of our prior work we  concluded that while EPA’s performance measure did not assess  compliance since it did not reflect the 180-day closeout standard, the  measure was a valuable tool for determining if grants were ultimately  closed. EPA does not provide information in its AFR on the amount of  undisbursed funds that remain in expired grants. While we have noted  progress in EPA’s recovery of funds from expired grants in our prior work,  we have also observed that EPA’s budget justification documents do not  describe the amount of deobligated funding available for new obligations;  such information could be useful to Congress because the availability of  these funds could partially offset the need for new funding. We found  that information on timely grant close out in other agencies’ performance  reports was limited to sections of the performance reports prepared by  independent auditors, where two agencies’ auditors raised concerns  related to timely grant closeout.
section_title: Conclusions
paragraphs: Our analysis shows that there has been an improvement in closing out  expired grant accounts with undisbursed balances in PMS since our 2008  report. Undisbursed balances in these accounts declined from roughly   $1 billion at the end December 2006 to a little more than $794 million at  the end of September 2011, despite a significant increase in annual grant  disbursements through PMS during this time. However, more work needs  to be done to further improve the timeliness of grant closeout and reduce  undisbursed balances. In our 2008 report, we found that agencies can  improve their grant closeout process when they direct their attention to  the issue and make timely grant closeout a high priority. Since this time,  HHS has increased attention on grant closeout, and both the agency and  its independent auditor have reported that progress has been made  toward addressing the agency’s existing backlog of grant accounts in  PMS eligible for closeout. The dormant account report developed by  Treasury offers further encouragement by raising agencies’ awareness of  undisbursed balances in inactive grant accounts in the ASAP system.
We have found that agencies can raise the internal and external visibility  of the issue of undisbursed balances and improve performance by  reporting on undisbursed balances in grants that are eligible for closeout  in agencies annual performance reports. However, the number of  agencies that have voluntarily provided this information in their  performance reports is limited. We therefore reiterate our previous  recommendation, not yet implemented, that OMB should instruct all  executive departments and independent agencies to report on the status  and resolution of the undisbursed funding in grants that have reached the  grant end date in their annual performance reports, the actions taken to  resolve the undisbursed funding, and the outcomes associated with these  actions.
OMB’s implementation of Section 537 of the Commerce, Justice,  Science, and Related Agencies Appropriations Act of 2010 and  subsequent legislation creates a framework for such reporting. However,  interviews with agency officials and variations in agencies’ responses to  OMB’s instructions indicate that additional clarification is needed,  particularly to the definition of “expired grant accounts,” if this information  is to be effectively used by agency management, OMB, and Congress to  address the backlog of grants in need of closeout. The definition included  in guidance issued by OMB equates “expired grant accounts” with grants  funded with expired appropriations and therefore includes active grant  agreements still in the implementation phase for which the agency would  have valid reasons to make future disbursements. By instead focusing on  undisbursed balances obligated to grant agreements that have reached  the end of their period of performance and are eligible for closeout, OMB  could better direct agency management focus toward a subset of grants  in need of more immediate attention. OMB could also better direct agency  management’s focus by putting an emphasis on grants that have not  been closed out several years past their expiration date. As time passes,  these funds become more susceptible to improper spending or  accounting as monitoring diminishes over time.
OMB’s guidance currently does not address grants with no undisbursed  balances remaining. The presence of tens of thousands of expired grant  accounts in PMS with no undisbursed funds remaining raises concerns  that these accounts are not receiving sufficient attention. Reducing the  number of accounts with zero balances remaining would help ensure that  administrative and financial closeout—the final point of accountability for  these grants—is being completed. It would also minimize the amount  agencies pay in potential fees for maintaining these accounts, which can  accumulate over time.
section_title: Recommendations for Executive Action
paragraphs: In addition to the previous recommendation reiterated above, we  recommend that the Director, OMB, take the following three actions:
Revise the definition of “undisbursed balances in expired grant  accounts” in future guidance issued to agencies, including those  required to report under Section 536 of the Commerce, Justice,  Science, and Related Agencies Consolidated Appropriations Act,  2012, to focus on undisbursed balances obligated to grant  agreements that have reached the grant end date and are eligible for  closeout, as described in this report.  Instruct agencies with undisbursed balances still obligated to grants  several years past their grant end date to develop and implement  strategies to quickly and efficiently take action to close out these  grants and return unspent funds to the Treasury when appropriate.  Instruct agencies with expired grant accounts in federal payment  systems with no undisbursed balances remaining to develop and  implement procedures to annually identify and close out these  accounts to ensure that all closeout requirements have been met and  to minimize any potential fees for accounts with no balances.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Administrator of the National  Aeronautics and Space Administration; the Attorney General; the Director  of the National Science Foundation; the Acting Director of the Office of  Management and Budget; and the Secretaries of Commerce, Health and  Human Services, and Treasury. OMB staff provided the following  comments via e-mail: “OMB is in general agreement with GAO’s  recommendation in regards to providing better guidance for agencies in  the management and closeout of expired grants with undisbursed  balances. We are in the process of reviewing and streamlining our grant  policy guidance to the agencies and will consider these  recommendations.” The Chief Financial Officer and Assistant Secretary  for Administration at DOC and the Assistant Secretary for Legislation at  HHS responded with written comments, which we have reprinted in  appendixes IV and V. Staff at the other agencies provided technical or  clarifying comments, which we incorporated as appropriate, or had no  comments.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Administrator of the  National Aeronautics and Space Administration; the Attorney General; the  Director of the National Science Foundation; the Acting Director of the  Office of Management and Budget; and the Secretaries of Commerce,  Health and Human Services, and Treasury. We will also make copies  available to others upon request. In addition, the report will be available at  no charge on the GAO website at http://www.gao.gov.
If you have any questions about this report, please contact Stanley J.  Czerwinski at (202) 512-6806 or czerwinskis@gao.gov or Beryl H. Davis  at (202) 512-2623 or davisbh@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix VI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives for this report were to evaluate: (1) the amount of  undisbursed funding remaining in expired grant accounts including the  amounts that have remained unspent for 5 years or more and for 10  years or more, (2) issues raised by GAO and federal inspectors general  (IG) related to timely grant closeout by federal agencies, and (3) what  actions the Office of Management and Budget (OMB) and agencies have  taken to track undisbursed balances in grants eligible for closeout.
To address the first objective, we analyzed data from two federal payment  systems: the Payment Management System (PMS) administered by  Department of Health and Human Services’ (HHS) Program Support  Center (PSC) and the Automated Standard Application for Payments  (ASAP) system administered jointly by the Department of the Treasury  (Treasury) and the Federal Reserve Bank of Richmond. Federal payment  systems facilitate the transfer of cash payments from federal awarding  agencies to grantees. Some agencies make grant payments directly to  grantees using their own proprietary payment systems, while others enter  into arrangements with payment systems that serve multiple agencies to  make payments on their behalf. The PMS and ASAP systems were  selected for review based on the following criteria:  1.  These payment systems provide payment services to other federal  departments and entities. In 2011, offices from 13 federal  departments and other federal entities used PMS for making grant  disbursements, and offices from 9 federal departments and other  federal entities used ASAP for grant disbursements. See appendixes  II and III for a full list of federal entities that use PMS and ASAP for  payment services.  2.  These payment systems account for a significant percentage of  civilian federal grant disbursements. Based on fiscal year 2010 data,  the most recently available at the time of our selection, PMS made  about $411 billion in grant disbursements, or 68 percent of all civilian  federal grants disbursements in fiscal year 2010, and ASAP made  payments of an additional $45 billion in grant disbursements, or 7  percent of all civilian federal grant disbursements in that year. In 2011,  PMS and ASAP disbursed $415 billion and $62 billion in federal grant  funding, respectively, or 79 percent of all civilian federal grant  disbursements in fiscal year 2011.
subsections: section_title: Analysis of Expired Grant Account Data from PMS
subsections: section_title: Description of PMS
paragraphs: PMS is a centralized grant payment and cash management system,  operated by HHS’s Program Support Center (PSC) in the Division of  Payment Management (DPM). According to DPM, the main purpose of  PMS is to serve as the fiscal intermediary between awarding agencies  and the recipients of grants and contracts. Its main objectives are to  expedite the flow of cash between the federal government and recipients,  transmit recipient disbursement data back to the awarding agencies, and  manage cash flow advances to grant recipients. PSC personnel operate  PMS, making payments to grant recipients, maintaining user/recipient  liaison, and reporting disbursement data to awarding agencies. Awarding  agencies’ responsibilities include entry of authorization data into PMS,  program and grant monitoring, grant closeout, and reconciliation of their  accounting records to PMS information. Awarding agencies pay PSC a  service fee for maintaining accounts and executing payments through  PMS. PMS continues to charge agency customers a servicing fee until an  account is closed.
To update our previous analysis of undisbursed balances in expired grant  accounts and provide a degree of comparability, we replicated the  methodology used in our 2008 report. Namely, to determine the amount  of undisbursed balances in expired grant accounts, we analyzed PMS  data from closeout reports PSC makes available to PMS customers each  quarter. These closeout reports list all expired grant accounts that,  according to the data system, have not completed all of their closeout  procedures. An account is considered expired in PMS if (1) the grant end  date is more than 3 months old and (2) the latest date of disbursement  was at least 9 months old. PMS does not close a grant account until  instructed to do so by the awarding agency. For each grant account, the  report includes such information as the identification number, the amount  of funding authorized for the grant, the amount disbursed, and the  beginning and end dates for the grant. The grant end date is a mandatory  field completed by the awarding agency.
PSC provided us with the PMS quarterly closeout report for the end of  fiscal year 2011 (September 30, 2011). PSC appended to the closeout  data an additional field showing the applicable number from the Catalog  of Federal Domestic Assistance (CFDA) for each grant account. We used  the CFDA number provided by PSC to help determine which accounts to  exclude from our analysis. The purpose of these exclusions was to avoid  including accounts that would distort the calculation of undisbursed funds  in expired PMS grant accounts and to provide comparability with our  previous findings. Our criteria for excluding accounts were consistent with   We excluded a total of 115  the methodology we used in our 2008 report.grant programs—both HHS and non-HHS—based on the following:
We excluded accounts from our analysis that did not have a defined  end date. The purpose of the PMS closeout report is to alert awarding  agencies of accounts in PMS that remain open after their posted end  date. If a grant does not have a defined end date, such as the  Temporary Assistance for Needy Families, then HHS staff consider  the PMS closeout report merely as a reminder to the awarding agency  of the open account and that PMS continues to charge fees on this  open account.
We excluded expired accounts associated with the following HHS  block grant programs: Community Mental Health Services Block  Grant, Preventive Health and Health Services Block Grant, Substance  Abuse and Preventive Treatment Block Grant, Maternal and Child  Health Services Block Grant, Social Services Block Grant, Low  Income Housing Energy Assistance Block Grant, and Community  Services Block Grant. An independent audit of PMS stated that (1) the  funds for these block grants continued to be available to the grantees  until the obligation/expenditure period expired, and (2) traditional financial reporting requirements do not apply to these programs.
We excluded grant accounts with a negative undisbursed balance,  meaning that total payments to the grantee exceed the authorized  amount. According to PSC officials, an overadvancement on a PMS  account can occur if the awarding agency reduces a grant’s  authorization limit below the amount already paid to the grantee  because the awarding agency determines that the grant recipient is  entitled to a lesser amount than the agency originally authorized.  Agencies use their accounting systems to send authorization  transactions to PMS. If an agency’s authorization transaction will  create an overadvanced account in PMS, the transaction is sent to an  exception file for review. The agency must override the exception to  transmit an authorization transaction that causes an overadvanced  account. According to officials from PSC, agencies will do so (1) if  they want PSC to initiate a collection action to recover the  overadvanced amount or (2) for grantees with multiple grant accounts  in PMS that are “pooled,” to redistribute charges to open grant  accounts to correct the overadvanced grant.
We excluded accounts that were excluded in our 2008 analysis  because the CFDA number and program description had been  deleted from the Catalog before 2000 (the last Catalog entry would  have been in 1999) or we could not find any information on the CFDA  number either in CFDA or in the CFDA Historical Index, which  provides the history of all CFDA numbers.
We excluded accounts if we could not associate them with a grant  program. For instance, we found some PMS accounts that, based on  the most recent CFDA, were for nongrants.
We included expired accounts that were associated with grants or  cooperative agreements that had a time limit for spending the funds. We  also included accounts for letters of credit. According to PSC officials,  almost all accounts in PMS are grants or cooperative agreements with the  exception of a few letters of credit. The recipient of a letter of credit may  not be required to meet the same performance reporting requirements as  the recipient of a grant, but, as with grants, they are required to meet  certain reporting requirements, such as submitting a Federal Financial  Report (SF-425). Letters of credit, according to PSC officials, also have  end dates in PMS comparable to grants and follow the same the same  closeout procedures in PMS. PSC informed us that it would not be able to  exclude letters of credit from the data they provide us.
For reporting purposes, we separated data into two sets of expired grant  accounts: (1) one set consisted of expired accounts for which all of the  funds made available had been disbursed and (2) a second set of  accounts that included expired accounts with a positive undisbursed  balance. To obtain an estimate of the total amount of fees paid for  maintaining accounts with no undisbursed balances remaining, we  requested data from PSC for all accounts that appear on the year-end  fiscal 2011 closeout report (i.e., as of September 30, 2011) with a unique  accounting status symbol indicating that no undisbursed balances  remained and that the awarding agency only needed to submit the final  closeout code to PSC to finalize grant closeout. According to data  provided by PSC, PMS users were charged a total of roughly $173,000  per month to maintain more than 28,000 expired grant accounts with no  undisbursed balances remaining listed on the year-end closeout report.  Roughly $137,000 of this was charged to HHS operating divisions. The  closeout report provided by PSC does not provide information on when  the authorized funds in these accounts were fully disbursed. However,  more than 9,000 of these grants were more than 3 years past their end  date. For illustrative purposes, we multiplied the monthly fees for these  accounts by 12 to obtain a rough approximation of what the total annual  fees charged for these accounts would be assuming that all accounts with  no undisbursed balances remaining balance as of September 30, 2011,  had a zero dollar balance for the entire fiscal year.
To test the reliability of PMS closeout data, we (1) reviewed existing  documentation related to PMS, including the most recent audit of the  design and operating effectiveness of the system’s controls, (2)  interviewed officials responsible for administration of the database on  data entry and editing procedures and the production of closeout reports,  and (3) conducted electronic testing for obvious errors in completeness  and accuracy. An independent auditor assessed internal controls for PMS  in 2011 and reported that, with one exception, the controls were suitably  designed to provide reasonable assurance the control objectives would  be achieved if the controls operated effectively. We discussed with HHS  officials data entry and editing procedures, the production of closeout  reports, and any known limitations associated with the data. According to  HHS officials, no-cost extensions that extend the grant period without  changing the authorized amount of funding may not be reflected in PMS  data. As a result, PMS closeout reports may include grants that have  received an extension and are therefore not eligible for closeout. No  obvious errors in completeness and accuracy were identified during  electronic testing. After conducting these assessment steps, we found  that the PMS closeout data were sufficiently reliable for the purposes of  this report.
section_title: Analysis of Dormant Grant Account Data from ASAP
subsections: section_title: Description of ASAP System
paragraphs: ASAP is an electronic payment system implemented jointly by the  Department of the Treasury’s (Treasury) Financial Management Service  (FMS) and the Federal Reserve Bank of Richmond. ASAP allows grantee  organizations receiving federal funds to draw from accounts  preauthorized by federal agencies. In addition to grants, ASAP is also  used to make payments to financial agents that are performing financial  services for FMS and other federal agencies. For example, ASAP can be  used for reimbursing financial institutions for payments made by federal  agencies through debit cards. Agencies establish and maintain accounts  in ASAP to facilitate the flow of funds to organizations. Unlike PMS grant  accounts, which represent an individual grant agreement between a  federal agency and grantee, accounts in ASAP can represent multiple  grant agreements between an awarding agency and a grantee. Individual  grant agreements within these accounts may have reached their grant  end date, while others may not have. Therefore, the ASAP system cannot  be used to determine which individual grants are eligible for closeout.
FMS officials began issuing “dormant account reports” to all ASAP users  in 2009 as a response, Treasury officials told us, to the findings in our  2008 report that using federal payment systems to track undisbursed  balances in grant accounts can help reduce unused funding. Dormant  account reports provide information on all inactive ASAP accounts,  including accounts for nongrant programs. For the purposes of this report,  our focus was on accounts for grant programs only. The first dormant  account report focused only on undisbursed balances in accounts where  the grantee had not drawn down funds for a prolonged period of time.  However, the criteria used by FMS for generating dormant account  reports have evolved over time to improve the usability of the reports. For  the dormant account report provided to us for the end of fiscal year 2011,  accounts with undisbursed balances were included if: (1) the grantee had  not drawn down funds for at least 2 years, and (2) the awarding agency  had made no changes to the authorized amount of funding available for at  least 2 years. For each grant account, the report includes information  such as the identification number, the account balance, the cumulative  amount of funding authorized to the grantee, and the date of the last  payment request. The grant account end date is an optional field  completed by the awarding agency. FMS did not include accounts with no  balance remaining on this report, but has encouraged agencies to close  these accounts if they are no longer active. FMS does not charge users  for these accounts or for other payment system services provided by the  ASAP system and instead receives appropriations to cover the cost of its  operations.
According to FMS officials, dormant account reports are generally  provided twice a year, allowing agencies to track progress on addressing  inactive accounts. The first report lists all of the dormant accounts as of a  specific date, and the second report shows agencies’ progress toward  addressing dormant accounts included on the first report. For this report,  we reviewed the most recently available dormant account report for the  end of fiscal year 2011. This report listed all ASAP accounts that have  not had any activity (i.e., no payment requests and no funding added or  removed) since September 30, 2009.
To test the reliability of ASAP dormant account report data, we:   (1) reviewed existing documentation related to the ASAP system,   (2) interviewed officials responsible for administration of the database on  data entry and editing procedures and the production of dormant account  reports, and (3) conducted electronic testing for obvious errors in  completeness and accuracy. We discussed with FMS officials internal  control testing and other quality review procedures for the ASAP system  as well as dormant account reports. We also discussed missing data in  certain fields on the dormant account report identified during electronic  testing to ensure that omissions did not indicate potential errors. After  conducting these assessment steps, we found that the data from dormant  account reports were sufficiently reliable for the purposes of this report.
section_title: Review of Audits by GAO and Federal IGs and of Agencies’ Performance and Accountability Reports Issued Since 2008
paragraphs: To address our second objective, we collected and reviewed audit reports  issued by GAO from September 2007 to May 2011 and by the offices of  inspectors general at the 24 Chief Financial Officers Act (CFO Act)  agencies from January 2008 to June 2011, which since the issuance of  our 2008 report, had focused on undisbursed funds in expired accounts.  We reviewed IG reports from the 24 CFO Act agencies in order to provide  coverage of the major grant-making agencies and because this approach  updated the review we performed as part of the work on our 2008 report,  which included IG reports issued between 2000 and 2006. Based on our  review for this report, we identified IG reports on HHS, Departments of  Energy and Homeland Security, and the Environmental Protection  Agency with findings of weaknesses related to undisbursed grant  balance, or grant closeout. We then interviewed IG officials at these four  agencies to discuss their findings and any plans to conduct future audits  on undisbursed grant funds. We also interviewed IG officials from four  additional agencies—the Department of Commerce (DOC), Department  of Justice (DOJ), National Aeronautics and Space Administration (NASA),  and National Science Foundation (NSF)—where agency management  had reported on undisbursed balances in expired grant accounts in the  agencies’ 2010 and 2011 annual performance reports, as described  below. Finally, we followed up with each of the IG Offices at the remaining  16 CFO Act agencies via e-mail to ensure we had obtained any relevant  reports and to determine if they had any plans to conduct future audits  related to undisbursed grant funds, or grant closeouts. As a result of this  follow up, we identified two additional IG reports related to timely grant  closeout at the Departments of Agriculture and Labor.
To analyze actions agencies have taken to track undisbursed balances in  expired accounts, we reviewed annual performance reports for all 24  agencies required to issue audited financial statements under the CFO  Act from fiscal years 2009 to 2011. The 24 CFO Act agencies were  responsible for the vast majority—more than the 95 percent—of grant  programs identified in the CFDA database as of June 2, 2011. We  performed a keyword search to determine if the agency, its office of  inspector general, or the independent auditor had reported on  undisbursed balances in expired grant accounts or the timely closeout of  grant accounts. We also reviewed the Performance and Accountability  (PAR) and Agency Financial Reports (AFR) of four entities receiving  funds under the Commerce, Justice, Science, and Related Agencies Act  provision of P.L.111-117 for compliance with relevant reporting  requirements in Section 537.
section_title: Review of Relevant OMB Circulars and Federal Regulations
paragraphs: To address our third objective, we reviewed relevant OMB guidance and  regulations from federal grant-making agencies. Specifically, we reviewed  the OMB Circulars No. A-102, Grants and Cooperative Agreements with  State and Local Governments, and No. A-110, Uniform Administrative  Requirements for Grants and Other Agreements with Institutions of  Higher Education, Hospitals, and Other Non-Profit Organizations. Each  federal agency that awards and administers grants and cooperative  agreements that are subject to the guidance in Circulars A-102 and A-110  is responsible for issuing regulations that are consistent with the circulars,  unless different provisions are required by federal statute or are approved  by OMB. We reviewed regulations from federal grant-making agencies  that have codified governmentwide grants requirements, as identified on  OMB’s website, to determine (1) the length of time prescribed for closing  out federal grants and (2) the length of time federal grantees are required  to retain records related to grant awards.
To identify federal governmentwide guidance related to federal agency  performance reporting, we reviewed OMB Circular No. A-11, Preparation,  Submission and Execution of the Budget and Circular No. A-136,  Financial Reporting Requirements. We also reviewed two memoranda  related to tracking undisbursed balances in expired grant accounts issued  by OMB in October 2010 and August 2011 to select agencies receiving  funding under the Commerce, Justice, Science, and Related Agencies  appropriations act, as required by law. OMB to discuss the purpose and scope of their guidance and officials at  the four agencies that reported undisbursed balances in expired grant  accounts in 2010 and 2011 annual performance reports—DOC, DOJ,  NASA, and NSF—to discuss their implementation of OMB’s instructions.
Pub. L. No. 111-117 and Pub. L. No. 112-10.
section_title: Appendix II: Federal Agencies Using the Payment Management System (PMS) for Grant Payments (as of June 2011)
paragraphs: Appendix II: Federal Agencies Using the  Payment Management System (PMS) for Grant  Payments (as of June 2011)
section_title: Appendix III: Federal Agencies Using the Automated Standard Application for Payments (ASAP) System for Grant Payments (as of June 2011)
paragraphs: Appendix III: Federal Agencies Using the  Automated Standard Application for Payments  (ASAP) System for Grant Payments (as of   June 2011)
section_title: Appendix IV: Comments from the Department of Commerce
section_title: Appendix V: Comments from the Department of Health and Human Services
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the individuals named above, Phyllis L. Anderson, Assistant  Director, Thomas M. James, Assistant Director, Thomas J. McCabe,  Analyst-in-Charge, and Andrew Y. Ching, Travis P. Hill, Jennifer Leone,  Omari A. Norman, Susan Ragland, Cynthia M. Saunders, and Michael  Springer made major contributions to this report.