Grants Management: Oversight of Selected States' Disbursement of Federal Funds Addresses Timeliness and Administrative Allowances
Published: 2013-04-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Grant programs in which states are awarded federal grants but then pass funds on to subrecipients--entities within states' jurisdiction--are referred to as "pass-through grants." These relationships pose challenges for the management of grant programs, as the multiple levels add complexity to the flow of funds, administration, and oversight.
As requested, GAO examined management and oversight of pass-through grants. This report addresses (1) requirements and oversight related to the timeliness of federal grant funds from states to subrecipients and the portion states may withhold for their administration, (2) select states' practices in disbursing federal grant funds to subrecipients and the extent to which select federal granting agencies have identified compliance issues with these requirements, and (3) the views of subrecipients on the impact of selected states' practices in disbursing grant funds. To conduct this study, GAO selected states and programs based on characteristics affecting pass-through grants management. GAO reviewed documentation on government-wide regulations and selected federal pass-through grant programs; reviewed monitoring reports and audits of state pass-through entities; and interviewed federal and state officials, as well as subrecipients and others with relevant expertise. Findings cannot be generalized to all states and programs, but our work provides insights related to pass-through grants management.
GAO makes no recommendations in this report. OMB and selected federal granting agencies provided technical comments, which were incorporated as appropriate.
section_title: What GAO Found
paragraphs: As pass-through grant funds flow to subrecipients, they are subject to government-wide and program-specific policies, two of which are particularly relevant to disbursement issues for states as they pass funds on to subrecipients. Pass-through grants are typically first awarded to states, local governments, or other entities and then further awarded to subrecipients. The Cash Management Improvement Act governs the exchange of funds between the federal government and the states and is applicable to timeliness in the grant disbursement process. In addition, the Office of Management and Budget's (OMB) Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations , provides general guidance on the roles and responsibilities of the federal awarding agencies and primary recipients of government funds regarding audit requirements of grantees. Specific program policies can provide additional requirements for individual grant programs related to disbursement of funds. For example, as with the programs we reviewed, authorizing legislation may contain statutory limits on the amount of funds that states and local governments can withhold from the grant awards for their own administrative expenses. To ensure states comply with federal requirements and agency regulations for disbursing federal grant funds, federal agencies monitor aspects of pass-through grants related to administrative costs that states withhold and timeliness of reimbursement. According to their monitoring procedures, selected federal agencies also review the results of states' "single audits"--annual audits performed on many recipients of federal funds.
Selected states' pass-through grant disbursement practices varied for the three programs GAO reviewed, but generally complied with federal requirements. For example, states had some flexibility in determining whether a grant would be distributed on a reimbursement basis or through a cash advance. For the programs and states GAO reviewed, GAO found that states generally worked within the federal parameters of their grant programs and reimbursed the subrecipients within the time allowed in their grant agreements.
Subrecipients in GAO focus groups reported minimal issues with timeliness of federal funds' reimbursement and administrative funds that states withheld. In addition, these subrecipients did not report instances in which federal requirements related to reimbursement timeliness or administrative funds withheld were not followed and therefore were not impacted by these requirements not being met.

section_title: Letter
paragraphs: Federal grant programs are delivered through a complex set of  mechanisms and often involve multiple layers of government and  nonprofit entities. In fiscal year 2012, at least $79.6 billion in federal  grant funding was passed through states to local governments and  nonprofit organizations that partner with the federal government to deliver  services, such as improving local infrastructure, providing community job  training, or running drug treatment programs. This network of grantors  and grantees provides many services critical to the nation’s interest, and  by leveraging the funds and expertise of entities within the granting  network, these services can be delivered more efficiently. Over the last  several years, current economic conditions have placed financial strain on  all governmental sectors—federal, state, and local—as well as nonprofit  organizations, and the efficient management of these grant programs at  all levels is critical. Further, for grant programs to be successful it is  important to ensure financial and programmatic controls are implemented  while maintaining the viability of the entities within the granting network.
Grant programs in which states are awarded federal grants but then pass  funds on to one or more levels of recipients—referred to as “pass-through  grants”—provide a useful approach to involving key partners, but they  also present administration challenges. These pass-through grants use  entities such as local governments and nonprofit organizations that are  located where services are needed to deliver the services and allow  states flexibility to determine the specific purposes and needs to which  grant funds should be directed. With these grant programs, federal  agencies partner with grantees not solely to deliver services, but also to  determine which subrecipients receive funds and aid in program  administration. With multiple levels involved, administrative challenges  can include transfer of funds, funding of grant administration at various  levels, and oversight of the subrecipients to which funds are passed.  Further, subrecipients are to address both state and federal requirements  of grant programs.
You raised questions related to pass-through grants management,  particularly the disbursement of federal funds to subrecipients, and asked  us to review the issue. As a result, we are reporting on (1) government- wide and select agencies’ requirements and oversight related to the  timeliness of federal grant funds from states to subrecipients and the  portion of funds states may withhold for their own administration, (2)  select states’ practices in disbursing federal grant funds to subrecipients  and the extent to which select federal granting agencies have identified  compliance issues with these requirements, and (3) the views of  subrecipients on the impact of selected states’ practices in disbursing  grant funds.
To achieve our objectives, we identified, reviewed, and discussed with the  Office of Management and Budget (OMB) federal government-wide  regulations or efforts related to cash disbursement and program  administrative allowances. We selected three federal granting agencies— the Department of Justice (DOJ), the Department of Health and Human  Services (HHS), and the Department of Housing and Urban Development  (HUD)—to obtain information on the extent to which they identified  compliance issues with federal requirements. We selected these granting  agencies because they provide a range of grant funding, including  significant pass-through grant programs. We then selected three federal  pass-through programs to gain information on the federal pass-through  grant process, reviewed documentation on the selected programs, such  as program and monitoring guidance, and discussed application of this  guidance with agency officials. We selected programs within these  agencies that were of a typical size for that agency. We also selected  programs about which we have reported previously to leverage resources  and use existing information in program descriptions and information on  administration of these grant programs. Table 1 identifies the grant  programs and provides additional information on these programs.
We selected three states for review—Illinois, Massachusetts, and  Tennessee—to maximize the likelihood of presenting diversity in how the  grant programs were administered. These states were selected based on  criteria including geographic location, per capita granting amount,  population, and recommendations from experts such as specialists in  grant administration. Illinois is an example of a large state in the Midwest  Census region that has a relatively low per capita granting amount.  Massachusetts is a medium-sized commonwealth in the Northeast  Census region that has a relatively high per capita granting amount.  Tennessee is a medium-sized state in the South Census region with an  average per capita granting amount. In addition to the recommendations,  we reviewed survey data from the Urban Institute’s 2010 study on  nonprofits’ perception of grant and contract administration, which included  rankings of the quality of states’ grant administration based on survey  responses. We conducted site visits to each of these states to review  documentation and speak with granting and financial control officials to  determine their policies and procedures for distributing grant funds. We  also conducted focus groups of nonprofit and local government  subrecipients to aid in identifying concerns with the granting process.  While the programs and states we reviewed present differences in the  management of pass-through grants, they do not represent a  generalizable sample, thus information we obtained from them cannot be  generalized to all federal agencies and related grant programs or state  recipients. However, they provided insights and examples related to pass- through grants management. Appendix I contains more details on our  scope and methodology, including how we selected focus group  participants.
We conducted this performance audit from May 2012 to April 2013 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
paragraphs: Some federal grant programs—referred to as pass-through grants—are  awarded with a specific requirement that a portion of grant funds be  distributed by the initial grant recipient (such as a state or local  government) to entities within that grantee’s jurisdiction to carry out  services.distribute funds to entities within the jurisdiction, known as subrecipients.  For purposes of this report, we focus on grants where state agencies are  the prime recipient. Congress may establish a grant program as a pass-  The initial recipients of the funds, known as prime recipients,  through program in its authorizing legislation and there can be multiple  benefits to this structure. Pass-through grants can balance federal  interests with state flexibility, as well as leverage the financial and  program resources of prime recipients and subrecipients.
Pass-through grant funds flow to subrecipients in various ways. Pass- through grants are first awarded to prime recipients, such as states, local  governments, or other entities, and then awarded to subrecipients. In  some cases, entities that are subrecipients for certain grant programs can  be prime recipients for other grant programs. Figure 1 broadly illustrates  the flow of pass-through funds and shows how different types of entities  can be the prime recipient.
Federal grants passed through prime recipients are to complete the  normal steps in a grant life cycle (see figure 2). In addition, prime  recipients conduct their own granting process to award funds to  subrecipients, mirroring many of the same steps as in the federal  agency’s grant life cycle. This process typically involves subrecipients  applying for grant funds and, if grant funds are awarded, entering into a  grant agreement with the prime recipient. After prime recipients enter into  agreements with subrecipients, funds may be distributed to the  subrecipient. Funds for many grants to subrecipients are distributed on a  reimbursable basis, with the subrecipient incurring an expense and then  reporting that expense to the prime recipient who then reimburses the  subrecipient. Significant gaps in the time or amount of funding provided  could lead to financial instability of the subrecipient.
States, as prime recipients, may exercise flexibility in many aspects of  pass-through grant administration. In many cases, states are able to  determine the funding priorities and set the award process. States may  also set their own monitoring plans and schedules within federal  requirements. Broadly, a subrecipient is accountable to the prime  recipient for use of the federal funds provided by the pass-through grant,  and therefore subrecipients send much of the reporting information to  states. In general, federal agencies have requirements to monitor how the  prime recipient monitors its subrecipients.
There is no comprehensive estimate of the amount of federal grant funds  awarded from prime recipients to subrecipients. USASpending.gov  provides information reported by recipients on funds they awarded to  subrecipients for grants greater than or equal to $25,000, but grants of  less than $25,000 are not required to be included. According to  USASpending.gov data for fiscal year 2012, $79.6 billionas being redistributed to subrecipients.
section_title: Both Government- wide Policies and Specific Program Policies Govern Distribution of Pass- Through Grant Funds
paragraphs: All federal grant programs are subject to a common foundation of  governing rules and government-wide requirements, and two are  particularly relevant to entities that pass funds on to subrecipients. The  Cash Management Improvement Act (CMIA) governs the exchange of  funds between the federal government and the states, and is applicable  to timeliness in the grant disbursement process, while OMB’s Circular No.  A-133, Audits of States, Local Governments and Non-Profit  Organizations, outlines the requirements for an annual audit in  accordance with the Single Audit Act; such an audit encompasses  compliance with requirements such as determining the extent of  compliance with CMIA and policies on allowances for administrative  expenses.
CMIA provides the general rules for efficient transfer of federal financial  assistance between the federal government and states. CMIA requires  that state and federal granting agencies minimize the time elapsing  between the transfer of funds from the U.S. Treasury and the state’s  payout of funds for federal assistance program purposes. For pass- through grants, this means that the prime recipient is generally not  allowed to draw down its grant funds and retain these funds. Rather, the  grant funds must be drawn when a distribution to subrecipients is needed.  States may enter into a “Treasury-State Agreement” with the Department  of the Treasury (Treasury). This agreement outlines the draw-down and  distribution practices for the states for selected large grant programs.
OMB’s Circular No. A-133 provides general guidance on the roles and  responsibilities of the federal awarding agencies and primary recipients of  government funds regarding audit requirements of grantees and   The circular sets forth guidance implementing the Single  subrecipients. Audit Act, which requires certain entities receiving federal awards under  more than one federal program to undergo a single audit, which is  intended to promote the efficient and effective use of audit resources.  Additionally, the circular sets forth standards for obtaining consistency  and uniformity among federal agencies for the audits of states, local  governments, and nonprofit organizations expending federal awards  totaling $500,000 or more annually. Among other responsibilities, the  circular gives:  federal awarding agencies the responsibility to advise recipients of  requirements imposed on them by federal laws, regulations, and the  provisions of contracts or grants, and primary recipients the responsibility to identify subrecipient awards;  advise subrecipients of requirements imposed on them by federal  laws, regulations, and the provisions of contracts or grant agreements  as well as any supplemental requirements; and monitor the  implementation of the grants.
Similarly, federal agencies monitor and oversee certain aspects of pass- through grants as part of their monitoring procedures.
OMB is responsible for developing government-wide guidance to help ensure that grants  are managed properly and that the funds are spent in accordance with applicable laws  and regulations. OMB instructions or information issued to federal agencies are referred to  as “circulars.” These circulars apply to recipients of federal pass-through awards and they  give instructions to federal agencies on implementing policies within their purview,  including those that apply to grant programs. In addition, these circulars lay out guidance  applicable to grants management in the areas of administration, audits, and cost  principles.
As part of an entity’s single audit, the independent auditor is to test  compliance with CMIA. The auditor examines compliance in areas such  as whether the state minimized the time between receipt of federal funds  and expenditure, whether there are internal controls in place to help  ensure that timely payments are made, and whether any interest earned  by the state was reported and remitted. The auditor is to test compliance  by comparing a sample of the state’s reimbursement requests to  determine if they conform to the procedures in the state’s Treasury-State  Agreement.
The independent auditors performing single audits may also review the  allowances states withhold for administrative costs before passing funds  on to subrecipients. OMB’s Circular A-133 single audit compliance  supplement states that for programs where a maximum percentage or  amount is allowed for the grantees’ administrative costs (such as the  three programs we reviewed), auditors are to verify that administrative  costs were accurately recorded and that these costs do not exceed the  allowed amount. As a result of their work, auditors can identify issues with  excess administrative funds withheld; however, generally, auditors do not  test all transactions or programs, as they use a risk-based approach in  their testing.
subsections: section_title: Federal Agencies Vary In Certain Pass-Through Grant Management Requirements
paragraphs: In addition to government-wide requirements, program-specific  requirements—found in a grant program’s authorizing legislation,  appropriation, or implementing regulations—can provide specific  requirements for individual grant programs related to disbursement of  funds. For example, as with the three programs we reviewed, the  authorizing legislation may contain statutory limits on the amount of  administrative funds that states and local governments are allowed to  withhold from the grant awards for their own administrative expenses.  The three programs we reviewed did not set specific requirements for the  timing of payments from prime recipients to subrecipients. OMB guidance  states that the CMIA and Treasury-State Agreements would set these  policies.
The three programs we reviewed varied in the amount of grant funds the  authorizing statute permits a prime recipient to use for its own  administrative expenses prior to distributing funds to subrecipients:
The Edward Byrne Memorial Justice Assistance Grant (Byrne JAG)  program allows the prime recipient to withhold up to 10 percent for  administrative expenses without regards to the award amount.
The Community Services Block Grant (CSBG) program allows the  prime recipient to withhold up to 5 percent—or $55,000, whichever is  greater—for administrative expenses. The grant program also allows  for an additional amount to be withheld for special projects, which the  state may retain for activities such as training and technical  assistance, but the state may also distribute these funds to existing  recipients or other recipients to meet state goals, so long as the  combined administrative expenses and special project funds do not  exceed 10 percent of the total funds made available to the state.
The state-administered Community Development Block Grant (CDBG)  allows the prime recipient to withhold $100,000 plus 3 percent of the  state’s CDBG grant plus program income for administrative expenses.  The program requires that any funds spent for administration in  excess of $100,000 must be matched by the state. The state may also  opt to use up to 3 percent of the grant plus program income for  technical assistance, but the combination of administrative and  technical assistance cannot exceed $100,000 plus 3 percent of the  amount granted to the state plus program income.
section_title: Federal Monitoring Efforts Include Methods to Identify Issues of Distributing Funds to Subrecipients
paragraphs: As part of program monitoring procedures to help ensure states comply  with federal requirements and agency regulations, federal agencies  oversee aspects of pass-through grants related to the administrative  funds states withhold and the timeliness of reimbursement practices.  Federal agencies can establish their own monitoring procedures and  develop their own monitoring tools, and our review of the three selected  agencies’ procedures indicated the agencies address both of these  issues in their monitoring tools and guidance:
At HHS, monitoring plans allow for on-site monitoring to occur for the  CSBG grant at approximately five states each year. Additional  monitoring visits may be conducted if problems are identified during  the course of program administration. Monitors review compliance  with CMIA as well as the amount of administrative fees withheld.
At HUD, grantees may receive on-site monitoring or desk reviews, off- site agency reviews of documents submitted by the grantee. Some  states receive on-site monitoring annually, while other states have a  longer gap between these site visits, determined by a risk-based  scoring method. CDBG program monitoring protocols include  requirements for reviewing the amount of administrative funds  withheld. HUD also requires grantees to submit an annual  performance report, including financial information, which is used to  aid in identifying any potential payment issues.
At DOJ, monitoring procedures provide for some on-site monitoring  reviews in addition to annual desk reviews of its grantees. The  frequency of on-site monitoring reviews is based on several factors,  including risk assessment, resource availability, and whether the state  has had a recent audit. DOJ monitoring reviews are to look at the  states’ timing of its fund distributions, which is generally done by  reviewing a sample of drawdown transactions.
The three selected federal agencies also include a review of the results of  states’ single audits as part of their monitoring procedures for periodic  reviews. Reviewing single audit reports can help identify potential internal  control issues or any program-specific issues from past audits. For  example, DOJ financial monitoring protocols require the monitoring staff  to review the most recent single audit to determine if there are findings  related to department programs, which could identify cash disbursement  delays or excess administrative funds withheld. Protocols specific to the  CSBG program require monitoring staff to review the single audit report  as well as financial documentation used to support that audit and  documentation of any actions taken to resolve audit findings. Agency  officials we spoke with said that reviews of single audits are helpful parts  of the monitoring process, but they rarely see specific issues with delayed  reimbursement or excess administrative funds withheld by the state  identified in the single audit. Circular A-133 requires audited entities to  respond to findings with actions they plan to take and deadlines for  completing these actions.
section_title: Selected States’ Pass- Through Grant Disbursement Practices Vary, but Generally Comply with Federal Requirements
paragraphs: While states are required to meet the government-wide requirements and  specific program requirements, they can set their own practices for  distributing funds to subrecipients. For example, the reimbursement  cycle—how frequently states reimburse subrecipients for grant  expenses—can vary across and within states. States have some flexibility  in determining whether a grant will be distributed on a reimbursement  basis or through a cash advance. For the selected programs in the  selected states, the frequency with which subrecipients were allowed to  request a reimbursement ranged from whenever the subrecipient needed  funds to once a quarter. For example, in Tennessee, all selected grant  programs allowed subrecipients to request reimbursements once a  month. In Massachusetts, CSBG subrecipients received a portion of their  grant on a monthly basis, while recipients of the Byrne JAG program were  generally allowed to request reimbursements once a quarter. Table 2  shows this variation across the selected states and grant programs we  reviewed.
The states’ procedures allow for subrecipients to receive grant  reimbursements once an approved receipt of invoice or payment request  is received. According to state officials we interviewed, subrecipients  generally receive payment within 30 days, particularly since the payments  are delivered through electronic fund transfer. However, according to  these state officials, if reimbursement delays occur, they are generally  related to a lack of documentation required for approval.
States may withhold a portion of a grant to help defray the costs of  managing the grant, and the states we reviewed exercised some flexibility  in their use of these funds. Allowable administrative costs can generally  include areas such as personnel or accounting costs. For pass-through  grants, the state may be able to use these funds for expenses related to  monitoring subrecipients. States may specify how they intend to use  administrative funds in documents submitted to the granting agency. The  states and programs we reviewed varied in how they described their use  of administrative funds. For example, as noted earlier, according to HHS  documents, up to 5 percent of a state’s CSBG funds can be reserved for  administrative expenses, including monitoring activities. Furthermore,  state plans may provide more specific information regarding the use of  administrative funds. For instance, in the CSBG program for  Massachusetts, a portion of the 5 percent allocated for CSBG  administrative expenses and monitoring activities is earmarked for staff  salaries and associated fringe benefits. Another portion is earmarked for  direct administrative expenditures, such as office supplies, travel, and  state overhead.
Federal program officials we spoke with said most states use the  maximum administrative funds allowed. They noted that they had seen  some states in the past use less than the maximum—using these funds  for service delivery instead—but they have seen these states begin to  withhold the maximum amount. Most state program officials we spoke  with said that they did withhold the full amount allowed for these costs.  However, in Tennessee, CSBG granting officials said they did not always  use the 5 percent allowed for special projects, but they plan to use the full  5 percent in the future.
For the selected programs and states we reviewed, we found that states  worked within the federal requirements of their grant programs and  reimbursed the subrecipients within the time allowed in their grant  agreements. State agency officials for the selected federal programs in  each of the three selected states told us they had not received any  complaints from their subrecipients regarding timeliness of grant  reimbursements. Each of the three states had established procedures  and used automated systems to reimburse its subrecipients. In addition,  we learned that the states withheld administrative funds for federal grant  programs appropriately, in accordance with the amounts set by the  programs.
Our review of the most recent federal agency monitoring reports for the  three programs reviewed in Illinois, Massachusetts, and Tennessee  showed that monitors found no issues related to excessive administrative  allowances or delays in fund disbursement. Monitoring reports were  completed for all selected states between 2008 through 2012. For the  Byrne JAG and state-administered CDBG program, all selected states  had at least one on-site review during this time period. For the CSBG  program, HHS conducted one on-site review of our selected states and is  currently drafting a report of the review. In addition, recent single audit  results for these three states do not indicate significant noncompliance  related to administrative allowances or fund disbursements. We reviewed  single audit reports for fiscal years 2009 through 2011 and identified one  finding where a state (Illinois) took longer to reimburse a subrecipient  than allowed—the auditor identified three reimbursement payments that  were three or fewer days late. We found no instances of excess  administrative funds being withheld.
In addition, single audit reports may identify noncompliance related to  other aspects of the pass-through grants process, such as reporting and  subrecipient monitoring. For example, concerning reporting, in  Tennessee’s 2010 Single Audit report, the state’s Department of Human  Services—the state agency that administers the CSBG program for  HHS—either did not submit federally required financial reports or did not  submit them on a timely basis. The federal government requires these  financial reports to be filed as one method to monitor the programs  funded by the CSBG program. Similarly, in the same report, for the state- administered CDBG program, the state’s Department of Economic and  Community Development did not file quarterly reports to HUD in a timely  manner. Concerning subrecipient monitoring, Tennessee’s 2011 Single  Audit report indicated that the Department of Human Services did not  have procedures in place to ensure that subrecipients were audited when  required.
section_title: Subrecipients in Focus Groups Reported Minimal Issues with Timeliness of Federal Funds’ Reimbursement and Administrative Funds that States Withheld
paragraphs: Subrecipients in our focus groups did not report instances in which  federal requirements related to reimbursement timeliness or  administrative funds withheld were not followed, and therefore were not  impacted by these requirements not being met; however, they did identify  other grant management issues. Some subrecipients who commented on  the timeliness of reimbursement said they were reimbursed in a timely  manner. Other subrecipients we interviewed said they were aware of the  requirements for administrative funds withheld by states for their pass- through grant program. Nevertheless, even though their states generally  complied with federal regulations, some subrecipients we interviewed  expressed concerns related to reimbursement timeliness and  administrative funds withheld. While these concerns generally did not  identify instances of noncompliance with federal requirements, they did  illustrate how the pass-through grant process, subrecipients’ perceptions  of the process, and state practices can potentially impact subrecipients.  For instance, although their states withheld administrative funds within  federal law, a few subrecipients we spoke with expressed frustration over  the amounts withheld because they did not feel their organizations were  being adequately reimbursed for their own administrative expenses. In  2010, we reported finding differences in the rate at which state and local  governments reimburse nonprofit organizations in select states. In  particular, we found that these differences, including whether nonprofit  organizations are reimbursed at all, depend largely on the policies and  procedures of the state and local governments that award federal funds to  nonprofit organizations.
In addition, states may have their own processes to manage the  disbursement of state grant funds, which can affect subrecipients. For  example, subrecipients we spoke to in Illinois cited a delay in receiving  reimbursements of grant funds from their state general fund, which some  subrecipients said negatively affected the services they provide.  According to Illinois state officials, because the state has insufficient cash  to meet all obligations and has set priorities for paying monies from the  Illinois general fund, there can be up to a 9-month delay in disbursing  state grant funds that originate from the state’s general fund. According to  a quarterly report issued by the Illinois Comptroller’s Office, as of  December 31, 2012, pending vouchers from the state’s general fund  dated back to August 2012. While these funds are not federal grant funds,  delays of this nature could affect a subrecipient’s ability to deliver  services, particularly if the subrecipient is a smaller organization. As  subrecipients, nonprofit organizations often receive grants from multiple  sources to fund their services, and absent a sufficient safety net, such  delays in funding could hinder a nonprofit organization’s ability to continue  to effectively partner with the federal government to provide services to  vulnerable populations. According to one subrecipient we interviewed,  despite having foundation funds to help mitigate cash flow issues, his  organization had to cut programs that served vulnerable populations— programs funded, in part, by pass-through grants—because of issues  with the state funding for these services.
In focus groups we held with subrecipients, several other concerns were  raised that can be linked to the multiple layers involved in managing pass- through grants. For example, the award process for pass-through grants  involves two steps—allocating funding to states and awarding funds to  subrecipients—which subrecipients said could extend the time it takes to  receive a grant and cause funding uncertainty for a subrecipient.  Furthermore, although monitoring serves as an important tool for internal  control, distinct federal and state monitoring requirements may lead to  additional responsibilities for subrecipients. For example, some  subrecipients we interviewed said they may have to report the same or  similar information to multiple granting entities, resulting in duplicative or  redundant reporting. Federal agencies may require states, as part of their  responsibilities as pass-through entities, to conduct monitoring site visits  of subrecipients; however, the three federal agencies we selected may  also conduct site visits to select subrecipients. Some subrecipients in our  focus groups that are required to have a single audit expressed frustration  that state monitors are looking at much of the same information contained  in the single audit. Some subrecipients in our focus groups said they  dedicate a significant amount of time to each step of the monitoring  process, so duplicative or redundant reporting may reduce the amount of  time they can devote to service delivery. We have additional work under  way for the Senate Committee on Homeland Security and Governmental  Affairs that looks more closely at federal grants management reform  efforts, including what actions have been taken to address challenges  such as communicating with grantee recipients. We plan to issue the  results from this work later this spring.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretaries of HHS and HUD, the  Attorney General, and the Director of OMB for review and comment. Each  agency provided technical comments, which were incorporated as  appropriate.
We are sending copies of this report to the appropriate congressional  committees and the Secretaries of HHS and HUD, the Attorney General,  and the Director of OMB. The report also is available at no charge on the  GAO website at http://www.gao.gov.
If you or your staff has any questions concerning this report, please  contact me at (202) 512-6806 or czerwinskis@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 are listed in appendix II.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to report on (1) government-wide and select  agencies’ requirements and oversight related to the timeliness of federal  grant funds from states to subrecipients and the portion of funds states  may withhold for their own administration, (2) select states’ practices in  disbursing federal grant funds to subrecipients and the extent to which  select federal granting agencies have identified compliance issues with  these requirements, and (3) the views of subrecipients on the impact of  selected states’ practices in disbursing grant funds.
To determine the government-wide and select agencies’ requirements  governing the timeliness of federal grant funds from states to  subrecipients and the portion of funds states may withhold for their own  administration, we identified Office of Management and Budget’s (OMB)  circulars related to grants management and reviewed these circulars to  determine the extent that they related to pass-through grants. We  discussed these circulars with OMB officials. We selected three federal  pass-through grant programs to illustrate how federal agencies manage  pass-through grant programs, including requirements for distribution and  monitoring practices. To select these programs, we examined data on  grant programs from USASpending.gov to determine the amount federal  agencies awarded in grant funds across the agency and the amount of  grant funds awarded by grant program. We identified programs that had  significant pass-through requirements with a range of subrecipients. We  also identified programs in which we had conducted past work in order to  leverage resources. Table 3 presents the programs we selected and the  criteria for this selection.
To determine states’ practices in disbursing federal grant funds to  subrecipients, we identified three states to illustrate variation in states’  management of pass-through grants. We based the decision on state  population, the amount of federal grants awarded to the state, and the  census region (as shown in table 4). We also considered the per capita  grant amount for each state, recommendations of subject matter experts  and stakeholders in the field of grant administration, and results from a  2010 Urban Institute study on nonprofit organizations’ perceptions of   With the subject matter expert  states’ grant administration practices.recommendation and the survey results, we identified states with a range  of reputations in grant administration.
We conducted site visits at each of these three states, interviewing state  financial control officials, such as staff from the state auditor or state  comptroller office, to identify state procedures for managing grant funds.  We also interviewed administrators of the three selected programs to  determine their procedures for administering the selected grant programs.  We reviewed monitoring reports for select states’ administration of the  selected programs. We also reviewed 3 years worth of single audit  reports for the select states to identify potential cash management issues.  While the programs and states we reviewed present differences in the  management of pass-through grants, they do not represent a  generalizable sample, thus information we obtained from them cannot be  generalized to all federal agencies and related grant programs or state  recipients. However, they provide insights and examples related to pass- through grants management.
To determine the impact on recipients of state practices in disbursing  grant funds, we convened focus groups of subrecipients in each of the  three states we visited. In each state, we conducted two focus groups:  one of subrecipients from local governments and one of subrecipients  from nonprofit organizations. The primary criterion for selecting  participants was that they were subrecipients of federal grants. To identify  these subrecipients, we used sources including the Single Audit  Clearinghouse, referrals from state agency officials or nonprofit  organizations, and state-specific sources of information on grantees.  Each focus group had from 4 to 8 participants and there were a total of 34  participants across the three states. At these focus groups, we discussed  how federal and state management of pass-through grants positively  impacted their organizations as well as suggestions for improvement. We  also reviewed external literature and discussed concerns with stakeholder  groups including the National Council of Nonprofits and the National  Association of State Auditors, Comptrollers, and Treasurers.
We conducted this performance audit from May 2012 to April 2013 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.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, Carol Patey, Assistant Director;  Veronica Mayhand; Sarah McGrath; Jeffrey Niblack; Robert Robinson;  Cynthia Saunders; Albert Sim; Sabrina Streagle; and Michelle Wong  made key contributions to this report.