Grants Management: EPA Needs to Strengthen Oversight and Enhance Accountability to Address Persistent Challenges
Published: 2003-10-01T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Environmental Protection Agency (EPA) has faced persistent challenges in managing its grants, which, at about $4 billion annually constitute over one-half of the agency's total budget. EPA awards grants to thousands of recipients to implement its programs to protect human health and the environment. Given the size and diversity of EPA's programs, its ability to efficiently and effectively accomplish its mission largely depends on how well it manages its grant resources and builds accountability into its efforts. In our comprehensive report on EPA's management of its grants, released last week, we found that EPA continues to face four key grants management challenges despite past efforts to address them--(1) selecting the most qualified grant applicants, (2) effectively overseeing grantees, (3) measuring the results of grants, and (4) effectively managing its grant staff and resources. The report also discusses EPA's latest competition and oversight policies and its new 5-year plan to improve the management of its grants. This testimony, based on our report, focuses on the extent to which EPA's latest policies and plan address (1) awarding grants competitively, (2) improving oversight of grantees, and (3) holding staff and managers accountable for fulfilling their grants management responsibilities.
section_title: What GAO Found
paragraphs: Late in 2002, EPA launched new efforts to address some of its long-standing grants management problems. It issued two policies--one to promote competition in awarding grants and one to improve its oversight of grants. Furthermore, in April 2003, EPA issued a 5-year grants management plan to address its long-standing grants management problems. These policies and plan focus on the major grants management challenges we identified but will require strengthening, enhanced accountability, and sustained commitment to succeed. EPA's September 2002 competition policy should improve EPA's ability to select the most qualified applicants by requiring competition for more grants. However, effective implementation of the policy will require a major cultural shift for EPA managers and staff because the competitive process will require significant planning and take more time than awarding grants noncompetitively. EPA's December 2002 oversight policy makes important improvements in monitoring grantees, but it does not build in a process for effectively and efficiently analyzing the results of its monitoring efforts to address systemic grantee problems. Specifically, EPA does not (1) use a statistical approach to selecting grantees for review, (2) collect standard information from the reviews, and (3) analyze the results to identify and resolve systemic problems with grantees. As a result, EPA may not be using its oversight resources as efficiently as it could. With improved analysis, EPA could better identify problem areas and assess the effectiveness of its corrective actions to more efficiently target its oversight efforts. EPA's 5-year grants management plan recognizes the importance of accountability, but it does not completely address how the agency will hold all managers and staff accountable for successfully fulfilling their grants management responsibilities. For example, the plan calls for developing performance standards for staff overseeing grantee performance, but it does not call for including grants management performance standards in their managers' and supervisors' performance agreements. Unless all managers and staff are held accountable for grants management, EPA cannot ensure the sustained commitment required for the plan's success. Our report, Grants Management: EPA Needs to Strengthen Efforts to Address Persistent Challenges, GAO-03-846 , details EPA's historically uneven performance in addressing its grants management challenges. Over the years, EPA's past actions to improve grants management have had mixed results because of the complexity of the problems, weaknesses in policy design and implementation, and insufficient management attention to overseeing grants. While EPA's latest policies and new 5-year grants management plan show promise, it is too early to tell if these will succeed more than past actions. If EPA is to better achieve its environmental mission, it must more effectively manage its grants. Our report contains specific recommendations to address critical weaknesses in EPA's new oversight policy and plan. EPA stated that it agreed with GAO's recommendations and it will implement them as part of its 5- year grants management plan.

section_title: Letter
paragraphs: We are pleased to be here to discuss the Environmental Protection  Agency’s (EPA) management of its grants. My testimony is based on our  report released in September 2003, which was requested by the Chairman  of the House Committee on Transportation and Infrastructure and  Representative Anne Northup.
To support its mission of protecting human health and the environment, in  fiscal year 2002, EPA awarded grants to a variety of recipients, including  state and local governments, tribes, universities, and nonprofit  organizations. Given the size and diversity of EPA’s programs, its ability to  efficiently and effectively accomplish its mission largely depends on how  well it manages its grant resources and builds accountability into its  efforts. As of September 30, 2002, EPA had 4,100 grant recipients.
As you know, over the years, EPA has faced persistent challenges in  managing its grants, which at about $4 billion annually, constitute over  one-half of its total budget. In our June 2003 testimony before this  Subcommittee and in our report, we identified four key management  challenges EPA continues to face, despite past efforts to address them.These challenges are (1) selecting the most qualified grant applicants, (2)  effectively overseeing grantees, (3) measuring the results of grants, and (4)  effectively managing grant staff and resources. We also reported that  EPA’s past efforts to improve its management had mixed results because  of the complexity of the problems, weaknesses in design and  implementation, and insufficient management attention. EPA must resolve  these problems in order to improve its management of grants.
Late in 2002, EPA launched new efforts to address some of its long- standing grants management problems. Specifically, it issued two new  policies—one in September 2002 to promote competition in awarding  grants and one in December 2002 to improve its oversight of grants.  Furthermore, in April 2003, EPA issued a 5-year grants management plan  to address its long-standing grants management problems. We found that  these policies and plan focus on the major grants management challenges  we identified but will require strengthening, enhanced accountability, and  sustained commitment to succeed.
For our testimony today, you asked us to comment on the extent to which  EPA’s new policies and plan address the challenges concerning (1)  awarding grants competitively, (2) improving oversight of grantees, and  (3) holding staff and managers accountable for fulfilling their grants  management responsibilities.  For our report, we, among other things,  obtained and analyzed EPA’s 1,232 in-depth reviews of grantee  performance conducted in calendar year 2002 to identify the challenges  EPA faces in managing its grants.  We also examined EPA’s new policies  and plan and interviewed EPA officials responsible for key aspects of the  plan.
In summary, we found the following:
EPA’s September 2002 competition policy should improve EPA’s ability  to select the most qualified applicants by requiring competition for  more grants. However, effective implementation of the policy will  require a major cultural shift for EPA managers and staff because the  competitive process will require significant planning and take more  time than awarding grants noncompetitively.
EPA’s December 2002 oversight policy makes important improvements  in monitoring grantees, but it does not build in a process for effectively  and efficiently analyzing the results of its monitoring efforts to address  systemic grantee problems. Specifically, EPA does not (1) use a  statistical approach to selecting grantees for review, (2) collect  standard information from the reviews, and (3) analyze the results to  identify and resolve systemic problems with grantees. As a result, EPA  may not be using its oversight resources as efficiently as it could. With  improved analysis, EPA could better identify problem areas and assess  the effectiveness of its corrective actions to more efficiently target its  oversight efforts.
EPA’s April 2003 grants management plan recognizes the importance of  accountability but it does not completely address how the agency will  hold all managers and staff accountable for successfully fulfilling all  their grants management responsibilities. For example, the plan does  not call for including grants management performance standards in  managers’ and supervisors’ performance agreements. Unless all  managers and staff are held accountable for grants management, EPA  cannot ensure the sustained commitment required for the plan’s  success.
We made recommendations in our report to the EPA Administrator to  strengthen grants management by more systematically overseeing  grantees and by holding all managers and staff in headquarters and the  regions accountable for fulfilling their grants management responsibilities.  We also recommended that EPA report on the progress of its efforts in its  annual report to Congress. EPA agreed with our recommendations and  stated it will implement them as part of its 5-year grants management plan.
subsections: section_title: Background
paragraphs: EPA administers and oversees grants primarily through the Office of  Grants and Debarment, 10 program offices in headquarters, and program  offices and grants management offices in EPA’s 10 regional offices. Figure  1 shows EPA’s key offices involved in grants activities for headquarters  and the regions.
The management of EPA’s grants program is a cooperative effort involving  the Office of Administration and Resources Management’s Office of Grants  and Debarment, program offices in headquarters, and grants management  and program offices in the regions. The Office of Grants and Debarment  develops grant policy and guidance. It also carries out certain types of  administrative and financial functions for the grants approved by the  headquarters program offices, such as awarding grants and overseeing the  financial management of these grants. On the programmatic side,  headquarters program offices establish and implement national policies  for their grant programs, and set funding priorities. They are also  responsible for the technical and programmatic oversight of their grants.  In the regions, grants management offices carry out certain administrative  and financial functions for the grants, such as awarding grants approved  by the regional program offices, while the regional program staff provide  technical and programmatic oversight of their grantees.
As of June 2003, 109 grant specialists in the Office of Grants and  Debarment and the regional grants management offices were largely  responsible for administrative and financial grant functions. Furthermore,  1,835 project officers were actively managing grants in headquarters and  regional program offices. These project officers are responsible for the  technical and programmatic management of grants. Unlike grant  specialists, however, project officers generally have other primary  responsibilities, such as using the scientific and technical expertise for  which they were hired.
In fiscal year 2002, EPA took 8,070 grant actions totaling about $4.2  billion. These awards were made to six main categories of recipients as  shown in figure 2.
EPA offers two types of grants—nondiscretionary and discretionary:
Nondiscretionary grants support water infrastructure projects, such as  the drinking water and clean water state revolving fund programs, and  continuing environmental programs, such as the Clean Air Program for  monitoring and enforcing Clean Air Act regulations. For these grants,  Congress directs awards to one or more classes of prospective  recipients who meet specific eligibility criteria; the grants are often  awarded on the basis of formulas prescribed by law or agency  regulation. In fiscal year 2002, EPA awarded about $3.5 billion in  nondiscretionary grants. EPA has awarded these grants primarily to  states or other governmental entities.
Discretionary grants fund a variety of activities, such as environmental  research and training. EPA has the discretion to independently  determine the recipients and funding levels for grants. In fiscal year  2002, EPA awarded about $719 million in discretionary grants. EPA has  awarded these grants primarily to nonprofit organizations, universities,  and government entities.
The grant process has the following four phases:
Preaward. EPA reviews the application paperwork and makes an  award decision.
Award. EPA prepares the grant documents and instructs the grantee on  technical requirements, and the grantee signs an agreement to comply  with all requirements.
Postaward. After awarding the grant, EPA provides technical  assistance, oversees the work, and provides payments to the grantee;  the grantee completes the work, and the project ends.
Closeout of the award. EPA ensures that all technical work and  administrative requirements have been completed; EPA prepares  closeout documents and notifies the grantee that the grant is  completed.
As part of its oversight of grantee performance, EPA conducts in-depth  reviews to analyze grantees’ compliance with grant regulations and  specific grant requirements. EPA conducts two types of in-depth reviews.  Administrative reviews, conducted by the grants management offices, are  designed to evaluate grantees’ financial and administrative capacity. In  contrast, programmatic reviews, conducted by the program offices, are  designed to assess the grantees’ activities in five key areas: (1) assessing  progress of work, (2) reviewing financial expenditures, (3) meeting the  grant’s terms and conditions, (4) meeting all programmatic, statutory, and  regulatory requirements, and (5) verifying that equipment purchased under  the award is managed and accounted for. Both administrative and  programmatic reviews are conducted either at the grantee’s location (on- site) or at EPA’s office or another location (off-site). Furthermore, to  determine how well offices and regions oversee grantees, EPA conducts  internal management reviews of headquarters and regional offices.
section_title: EPA’s Competition Policy Shows Promise but Requires a Major Cultural Shift
paragraphs: EPA’s September 2002 competition policy requires that most discretionary  grants be competed. These grants totaled about $719 million of the $4.2  billion in grants awarded in fiscal year 2002. The policy applies to most  discretionary grant programs or individual grants of more than $75,000.The policy also promotes widespread solicitation for competed grants by  establishing specific requirements for announcing funding opportunities  in, for example, the Federal Register and on Web sites. EPA has also  appointed a grant competition advocate to coordinate this effort.
EPA’s competition policy faces implementation barriers because it  represents a major cultural shift for EPA staff and managers, who  historically awarded most grants noncompetitively and thereby have had  limited experience with competition, according to the Office of Grants and  Debarment. The policy requires EPA officials to take a more planned,  rigorous approach to awarding grants. That is, EPA staff must determine  the evaluation criteria and ranking of these criteria for a grant, develop the  grant announcement, and generally publish it at least 60 days before the  application deadline. Staff must also evaluate applications—potentially  from a larger number of applicants than in the past—and notify applicants  of their decisions. These activities will require significant planning and  take more time than awarding grants noncompetitively. Office of Grants  and Debarment officials anticipate a learning curve as staff implement the  policy and will evaluate the policy’s effectiveness in 2005, including the  $75,000 threshold level. While the policy and subsequent implementing  guidance have been in effect for a number of months, it is too early to tell  if the policy has resulted in increased competition over the entire fiscal  year. EPA officials believe that preliminary results indicate that the policy  is increasing the use of competition.
section_title: EPA Needs A More Systematic Approach to Strengthen Oversight
paragraphs: EPA’s December 2002 oversight policy makes important improvements in  monitoring grantees, but it does not enable the agency to identify and  address systemic problems with grant recipients. Specifically, EPA cannot  develop systemic information because the policy does not (1) incorporate  a statistical approach to selecting grantees for review; (2) require a  standard reporting format for in-depth reviews to ensure consistency and  clarity in reporting review results; and (3) identify needed data elements  or develop a plan for analyzing data in its grantee compliance database to  identify and act on systemic grantee problems. Therefore, EPA cannot use  data from these reviews to determine the overall compliance of grantees  or be assured that it is using its resources to effectively target its oversight  efforts. With a more rigorous statistical approach to selecting grantees,  standard reporting format, and a plan for using information from in-depth  and other reviews, EPA could identify problem areas and develop trends  to assess the effectiveness of corrective actions in order to better target its  oversight efforts.
subsections: section_title: EPA Needs to Incorporate a Statistical Approach to Selecting Grantees for Review
paragraphs: EPA’s new policy allows each office to determine what criteria it will use  to select at least 10 percent of its grant recipients for in-depth review.  However, because this policy does not employ a statistical method to  selecting grantees for review, it limits the usefulness of these reviews as a  tool to determine the overall compliance of grant recipients. Furthermore,  EPA cannot determine whether 10 percent or any other percentage is the  appropriate number of reviews. With a statistical approach, EPA could  increase the efficiency and effectiveness of its oversight of grantees by (1)  adjusting the number and allocation of its in-depth reviews to match the  level of risk associated with each type of grant recipient and (2) projecting  the results of its reviews to all EPA grantees.
section_title: EPA Needs to Require a Standard Reporting Format for In-depth Reviews
paragraphs: EPA’s in-depth reviews can provide valuable information that the agency  can use to identify problems and implement corrective actions. However,  EPA does not have a standard reporting format to ensure consistency,  clarity, and usefulness in reporting review results. Consequently, EPA is  not able to effectively and efficiently analyze these data to determine  systemic grantee problems.
Although EPA was requiring offices to conduct in-depth review of grantees  in 2002, it did not systematically collect and analyze information from  these reviews as part of its oversight efforts. We requested that EPA  provide us with its in-depth reviews conducted in 2002 so we could do the  analysis. Many of the documents EPA provided were, not in fact, in-depth  reviews, but various types of other oversight documents. We sorted  through these documents to identify the in-depth reviews using a data  collection instrument. Through this approach, we identified 1,232 in-depth  reviews. Using a data collection instrument, we collected and analyzed  information from each of these in-depth reviews on, among other things,  problems with grantees, and significant actions taken against grantees.  The full results of our analysis are presented in our report.
According to our analysis of EPA’s 1,232 in-depth reviews in 2002, EPA  grant specialists and project officers identified 1,250 problems in 21 areas.  Tables 1 and 2 show the most frequently identified problems for the 189  administrative and 1,017 programmatic reviews we examined. For  example, 73 of 189 administrative reviews found problems with grantees’  written procedures, while 308 of the 1,017 programmatic reviews  identified technical issues.
The differences in types of problems frequently identified, as shown in  tables 1 and 2, reflect differences in the focus of administrative and  programmatic reviews. Table 3 describes the nature of these problems.
Despite the importance of standard information, our analysis of EPA’s  2002 in-depth reviews shows that EPA officials across the agency report in  various formats that do not always clearly present the results of the  review. For example, some EPA officials provided a narrative report on  the results of their reviews, while others completed a protocol that they  used in conducting their review. In 349 instances, the project officer or  grant management specialist did not clearly explain whether he or she had  discovered a problem.
section_title: EPA Needs to Develop a Plan for Using Information in Its Grantee Compliance Database
paragraphs: EPA has recognized the importance of the information in its in-depth  reviews by establishing a grantee compliance database to store the  reviews, forming a database work group, and collecting a limited amount  of data from its in-depth reviews. However, as of August 29, 2003, EPA had  not yet developed data elements or a plan for using data from all its  oversight efforts—in-depth reviews, corrective actions, and other  compliance efforts—to fully identify systemic problems and then inform  grants management officials about oversight areas that need to be  addressed.
As our analysis of EPA’s 2002 in-depth reviews showed, valuable  information could be collected from them for assessing such issues as the  (1) types of grantees having problems, (2) types of problem areas needing  further attention, (3) types of reviews—on-site or off-site—that provide  the best insights into certain problems areas, and (4) corrective actions  required or recommended to resolve problems.
section_title: A Systematic Approach to Collection and Analysis of Compliance Information Would Enhance Oversight
paragraphs: With a statistical approach to selecting grantees for review, standard  reporting format, and a plan for using information from in-depth and other  reviews, EPA could identify problem areas and develop trends to assess  the effectiveness of corrective actions to better target its oversight efforts.  In particular, according to our analysis of EPA’s 2002 in-depth reviews,  administrative reviews identify more problems when conducted on site,  while the number of problems identified by programmatic reviews does  not differ by on-site or off-site reviews. However, nearly half of the  programmatic reviews, which constituted more than 80 percent of the  2002 reviews, were conducted on-site. Since on-site reviews are resource  intensive because of travel costs and staff used, a systematic analysis  could enable EPA to better target its resources. Similarly, EPA could  incorporate other information into its grantee compliance database, such  as Inspector General reports, to identify problem areas, and target  oversight resources. In addition, EPA could use the database to track the  resolution of problems.
section_title: EPA Faces Challenges to Enhancing Accountability
paragraphs: Successful implementation of EPA’s 5-year grants management plan  requires all staff—senior management, project officers, and grant  specialists—to be fully committed to, and accountable for, grants  management. Recognizing the importance of commitment and  accountability, the plan has as one of its objectives the establishment of  clear lines of accountability for grants oversight. The plan, among other  things, calls for (1) ensuring that performance standards established for  grant specialists and project officers adequately address grants  management responsibilities in 2004; (2) clarifying and defining the roles  and responsibilities of senior resource officials, grant specialists, project  officers, and others in 2003; and (3) analyzing project officers’ and grant  specialists’ workload in 2004.
In implementing this plan, however, EPA faces challenges to enhancing  accountability. First, although the plan calls for ensuring that project  officers’ performance standards adequately address their grants  management responsibilities, agencywide implementation may be difficult.
Currently, project officers do not have uniform performance standards,  according to officials in EPA’s Office of Human Resources and  Organizational Services. Instead, each supervisor sets standards for each  project officer, and these standards may or may not include grants  management responsibilities. It could take up to a year to establish and  implement a uniform performance standard, according to these officials.  Instead, the Assistant Administrator for the Office of Administration and  Resources Management is planning to issue guidance this month including  grants management responsibilities in individual performance agreements  for the next performance cycle beginning in January 2004. Once individual  project officers’ performance standards are established for the  approximately 1,800 project officers, strong support by managers at all  levels, as well as regular communication on performance expectations and  feedback, will be key to ensuring that staff with grants management duties  successfully meet their responsibilities.
Although EPA’s current performance management system can  accommodate the development of performance standards tailored to each  project officer’s specific grants management responsibilities, the current  system provides only two choices for measuring performance—  satisfactory or unsatisfactory—which may make it difficult to make  meaningful distinctions in performance. Such an approach may not  provide enough information and dispersion in ratings to recognize and  reward top performers, help everyone attain their maximum potential, and  deal with poor performers. GAO has identified key practices that federal  agencies can use to establish effective performance management systems,  which include making distinctions in performance.
Furthermore, it is difficult to implement performance standards that will  hold project officers accountable for grants management because (1)  grants management is often a small part of a wide range of project officers’  responsibilities, (2) some project officers manage few grants, and (3)  project officers’ grants management responsibilities often fall into the  category of “other duties as assigned.” To address this issue, EPA officials  are considering, among other options, whether the agency needs to  develop a smaller cadre of well-trained project officers to oversee  grantees, rather than rely on the approximately 1,800 project officers with  different levels of grants management responsibilities and skills. Some  EPA officials believe that having a cadre may help the agency more  effectively implement revised grants management performance standards  because fewer officers with greater expertise would oversee a larger  percentage of the grants.
Second, EPA will have difficulty achieving the plan’s goals unless, not only  project officers, but all managers and staff are held accountable for grants  management. The plan does not call for including grants management  standards in all managers’ and supervisors’ agreements. Senior grants  managers in the Office of Grants and Debarment as well as other Senior  Executive Service managers have performance standards that address  grants management responsibilities, but middle-level managers and  supervisors, who oversee many of the staff that have important grants  management responsibilities, do not.  According to Office of Grants and  Debarment officials, they are working on developing performance  standards for all managers and supervisors with grants responsibilities.
Third, it may be difficult to hold all managers and staff accountable  because the Office of Grants and Debarment does not have direct control  over many of the managers and staff who perform grants management  duties—particularly the approximately 1,800 project officers in  headquarters and regional program offices. The division of responsibilities  between the Office of Grants and Debarment and program and regional  offices will continue to present a challenge to holding staff accountable  and improving grants management, and will require the sustained  commitment of EPA’s senior managers.
section_title: Conclusions
paragraphs: If EPA is to better achieve its environmental mission, it must more  effectively manage its grants programs—which account for more than half  of its annual budget. EPA’s new policies and 5-year grants management  plan show promise, but they are missing several critical elements  necessary for the agency to address past grants management weaknesses.  Specifically to improve EPA’s oversight of grantees, our report  recommends that EPA’ (1) incorporate appropriate statistical methods to  identify grantees for review; (2) require EPA staff to use a standard  reporting format for in-depth review so that the results can be entered into  the grantee compliance database and analyzed agency wide; and (3)  develop a plan, including modifications to the grantee compliance  database, to integrate and analyze compliance information from multiple  sources. These actions would help EPA identify systemic problems with  its grantees and better target its oversight resources.
To enhance accountability, our report further recommends establishing  performance standards for all managers and staff responsible for grants  management and holding them accountable for meeting these standards.  Until EPA does so, it cannot be assured that is fulfilling its grants  management responsibilities.
While EPA’s 5-year grants management plan shows promise, we believe  that, given EPA’s historically uneven performance in addressing its grants  management challenges, congressional oversight is important to ensure  that EPA’s Administrator, managers, and staff implement the plan in a  sustained, coordinated fashion to meet the plan’s ambitious targets and  time frames. To help facilitate this oversight, our report recommends that  EPA annually report to Congress on its progress in improving grants  management.
Mr. Chairman, this concludes my prepared statement. I would be happy to  respond to any questions that you or Members of the Subcommittee may  have.
section_title: Contacts and Acknowledgments
paragraphs: For further information about this testimony, please contact John B.  Stephenson at (202) 512-3841. Individuals making key contributions to this  testimony were Andrea Wamstad Brown, Carl Barden, Christopher  Murray, Paul Schearf, Rebecca Shea, Carol Herrnstadt Shulman, Bruce  Skud, Kelli Ann Walther, and Amy Webbink.
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