Grants Management: Actions Needed to Address Persistent Grant Closeout Timeliness and Undisbursed Balance Issues
Published: 2016-04-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2008 and 2012, GAO reported on hundreds of millions of dollars in undisbursed balances in expired grant accounts in the largest civilian payment system for grants, PMS. GAO was asked to update this work. GAO examined: (1) the extent to which there are undisbursed balances remaining in expired grant accounts in PMS; (2) the reasons selected agencies give for their grant accounts remaining open past their end dates; and (3) the extent to which OMB monitors agency progress with regard to tracking and reporting undisbursed balances in expired grant accounts. To do this, GAO analyzed PMS data as of September 30, 2015; reviewed audit reports issued by GAO and federal inspectors general, agency performance reports, and OMB guidance; and interviewed agency officials from OMB, HHS, Commerce, Justice, NASA and NSF.
section_title: What GAO Found
paragraphs: GAO found approximately $994 million in funding remained in expired grant accounts in the Payment Management System (PMS), operated by the Department of Health and Human Services (HHS), at the end of fiscal year 2015. PMS identifies expired grant accounts for users as those accounts more than 3 months past their grant end date that have not had payment activity for 9 months. PMS makes payments for 12 federal entities and about 77 percent of all federal civilian grant payments. GAO’s analysis of the September 30, 2015, PMS data indicated the following:
The total undisbursed balance increased by approximately $200 million from what GAO reported for the end of fiscal year 2011. However, the number of expired grant accounts with undisbursed balances decreased to 8,832 in 2015 compared to 10,548 in 2011.
More than half the accounts exceeded their expiration date by 1 to 3 years.
A relatively small number of expired grant accounts represented more than half of the total undisbursed balance—151 grants represented $514.7 million in undisbursed balances.
HHS grant accounts in PMS comprised approximately $651 million (66 percent) of the identified undisbursed balances in expired grant accounts.
The number of expired grant accounts with no undisbursed balance that PMS flagged for closeout dropped to 5,906 from the more than 28,000 accounts GAO reported for the end of fiscal year 2011. HHS accounts made up 66 percent of the 5,906 expired accounts flagged for closeout, which is inconsistent with HHS policy.
Agency officials told GAO that closeout delays can occur for a number of reasons, including grantee failure to submit final financial and performance reports and agency failure to review, process, and reconcile grantees’ final reporting in a timely manner.These agency officials included staff from HHS, the largest PMS user, and the Departments of Commerce (Commerce) and Justice (Justice), the National Aeronautical and Space Administration (NASA), and the National Science Foundation (NSF), which previously reported undisbursed balances for expired grants. These agencies have implemented various internal policies to elevate the issue of timely grant closeout internally, including developing internal working groups that set grant closeout goals and analyzing the number of expired grants not yet closed out.
Since 2010, Congress has required the Office of Management and Budget (OMB) to specifically instruct Commerce, Justice, NASA, and NSF to track and provide information onbalances in expired grant accounts. OMB has not issued this guidance since 2011, and NASA and Commerce have not reported on these balances since 2011 and 2012, respectively. OMB staff did not think that it was necessary to restate the requirements given the language in these agencies’ appropriations acts. OMB updated its guidance on grant closeout in December 2013. However, OMB did not specify procedures for tracking and reporting undisbursed balances in expired grant accounts.
section_title: What GAO Recommends
paragraphs: GAO recommends that OMB resume instructing agencies to report undisbursed balances for expired grant accounts as required under their respective appropriations acts and that NASA and Commerce resume reporting on these balances. GAO also recommends that HHS require its grant-making operating divisions to identify grants expired more than 1 year past their period of performance end date and close those grants or determine why they are not closed, consistent with agency policy. OMB and the agencies agreed with the recommendations.

section_title: Letter
paragraphs: Grants are an important tool the federal government uses to achieve  diverse national objectives for the American people. In 2008 and 2012,  we reported on the existence of significant undisbursed balances in grant  accounts that remained open past their period of performance end date.  For example, in 2012 we reported on almost $800 million in undisbursed  balances in expired grant accounts at the end of fiscal year 2011 in the  largest civilian payment system. Undisbursed balances occur when the  grant recipient has not drawn down or the awarding agency has not  disbursed all the authorized federal grant funds by the period of  performance end date. Grant closeout is an important final point of  accountability and is necessary for effective management of expired  grants. Effective and efficient grant closeout processes allow awarding  agencies to make better use of unspent funds or return these funds to the  Department of the Treasury (Treasury). Also, the existence of unspent  funds can hinder the achievement of national objectives by leaving  projects incomplete. Reducing undisbursed balances in expired grant  accounts is crucial to making the best and most efficient use of federal  funds to support a grant program’s mission and, ultimately, national  priorities.
In 2008, we stated that tracking undisbursed balances in expired grant  accounts, including the status of grant closeouts on annual performance  reports, could raise the visibility of this issue both within the agency and  government-wide. 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. While OMB generally agreed with the intent of this  recommendation, it did not take action or commit to having agencies  report these balances in agency performance reports.
In 2012, we again found the presence of undisbursed balances in expired  grants and recommended 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  generally agreed with this recommendation but did not require agencies  to report undisbursed balances in expired grant accounts. OMB did,  however, issue a Controller’s Alert in 2012 that instructed agencies to  take appropriate action to close out grants in a timely manner.
You asked us to update our previous work on grant closeout issues. This  report reviews: (1) the extent to which undisbursed balances remain in  expired grant accounts in the federal government’s largest civilian  payment system—the Payment Management System (PMS)  administered by the Department of Health and Human Services’ (HHS)  Program Support Center (PSC); (2) the reasons selected agencies give  for their grant accounts remaining open past their end dates; and (3) the  extent to which OMB monitors agency progress with regard to tracking  and reporting on undisbursed balances in expired grant accounts.
To determine the amount of undisbursed balances in expired grant  accounts, we analyzed data from closeout reports provided to PMS users  at the end of fiscal year 2015. Closeout reports list all grant accounts that  remain open more than 3 months past their period of performance end  date and have had no disbursement activity in the preceding 9 months.  These grant accounts are referred to as “expired grant accounts.” Using  the PMS data, we determined the amount of funds that remained in  expired grant accounts for varying lengths of time, from less than 1 year  to more than 10 years.
We selected PMS because it provides payment services to other federal  departments and entities and accounts for a significant percentage of  federal grant disbursements. PMS provided payment services to 12  departments and agencies in fiscal year 2015 and disbursed  approximately 77 percent of all civilian federal grant awards. To assess  the reliability of the PMS data used in this report, we (1) reviewed existing  documentation on the systems, including the most recent system audit by  independent auditors; (2) interviewed officials responsible for the  administration of the system 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 the payment system  data, including limitations to our analysis.
To identify the reasons selected agencies give for their grant accounts  remaining open past their end dates, we reviewed available data on grant  closeout from selected agencies. These agencies included HHS, the  largest user of PMS, and the Departments of Commerce (Commerce)  and Justice (Justice), the National Aeronautical and Space Administration  (NASA), and the National Science Foundation (NSF), which, as we  reported on in our 2012 report, are the agencies that reported on  undisbursed balances in expired grant accounts in their 2010 and 2011  annual performance reports. We also reviewed annual performance  reports and inspectors general (IG) reports from all 24 Chief Financial  Officer Act (CFO Act) agencies in order to provide coverage of the major  grant-making agencies. In addition, we interviewed officials at selected  agencies responsible for grant closeout to better understand obstacles to  closing out grant accounts in a timely manner.
To determine the extent to which OMB monitors agency progress with  regard to tracking and reporting on undisbursed balances in expired grant  accounts, we reviewed OMB guidance related to grant management. In  addition, we reviewed reporting requirements established for selected  agencies in appropriations legislation in fiscal years 2010 through 2016  and agency performance reports for those agencies OMB is required to  instruct to report undisbursed balances in expired grant accounts. In  addition, we interviewed staff from OMB and officials from Commerce,  Justice, NASA, and NSF to understand their perspectives on reporting  this information in agency performance reports.
We conducted this performance audit from April 2015 to April 2016 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 the Closeout Stage
paragraphs: The federal government uses grants to achieve national priorities through  nonfederal parties, including state and local governments, educational  institutions, and nonprofit organizations. Grant programs are established  through legislation and vary in numerous ways including type, size, nature  of recipients, and types of programs they fund. While there is significant  variation among different grant program goals and grant types, most  federal grants follow a common life cycle comprising four stages for  administering the grants: (1) pre-award stage; (2) award stage; (3)  implementation; and (4) closeout (see figure 1). During the award stage,  the federal awarding agency enters into an agreement with the grantee  stipulating the terms and conditions for the use of grant funds including  the period funds are available for the grantee’s use. The awarding agency  also opens accounts in a federal payment management system through  which the grantee receives payments. During the implementation stage,  the grantee carries out the requirements of the agreement and requests  payments, while the awarding agency approves payments and oversees  the grantee. The grantee and the awarding agency close the grant once  the grantee has completed all the work associated with a grant  agreement, the grant period of performance end date (or grant expiration  date) has arrived, or both. The closeout stage includes preparation of final  reports, financial reconciliation, and any required accounting for property.  Closeout procedures ensure that the grantee has met all financial  requirements, provided all final reports, and returned any unspent  balances.
section_title: OMB’s Uniform Guidance and Grant Closeout
paragraphs: All stages of the grant life cycle, including grant closeout, are subject to a  wide range of requirements derived from a combination of OMB  guidance, agency regulations, agency policy, and program-specific  statutes. OMB is responsible for developing government-wide policies to  ensure that grants are managed properly and the grant funds are spent in  accordance with applicable laws and regulations. For decades, OMB has  published circulars to aid grant-making agencies on various subjects,  including administration, audit, record keeping, and allowability of costs.  In December 2013, OMB consolidated its grants management circulars  into a single document, Uniform Administrative Requirements, Cost  Principles, and Audit Requirements for Federal Awards, (Uniform  Guidance) to streamline its guidance, promote consistency among  grantees, and reduce administrative burden on nonfederal entities. The  Uniform Guidance includes revised rules that set the standard  requirements for financial management of federal awards across the  federal government. In December 2014, OMB, along with federal grant- making agencies, issued a joint interim final rule implementing OMB’s  Uniform Guidance for new grant awards made on or after December 26,  2014. Federal agencies that award and administer grants and  agreements are responsible for issuing regulations—with which grantees  must comply—that are consistent with the Uniform Guidance, unless  different provisions are required by federal statute or are approved by  OMB.
Agency regulations issued under the Uniform Guidance typically impose  closeout procedures upon both the grantee and the awarding agency. To  close an awarded grant, the grantee and the awarding agency must  complete certain actions within the time frames specified by agency  regulations and the Uniform Guidance (see figure 2). Generally, within  90 calendar days from the period of performance end date, the grantee  must submit all financial, performance, and other reports as required by  the terms and conditions of the award and liquidate all permissible  expenses incurred under the award. Grantees then are to promptly  refund any remaining balances to the awarding agency and account for  any real and personal property acquired with federal funds or received  from the federal government. The awarding agency must make prompt  payments to the grantee for allowable reimbursable costs under the  award being closed out. If required by the terms and conditions of the  award, the awarding agency must also make a settlement for any upward  or downward adjustments to the federal share of costs after the closeout  reports are received. Upon the receipt and acceptance of all required final  reports from the grantee, the awarding agency should complete all  closeout actions within 1 year. Some federal agencies’ grant policies  require less than the 1 year closeout period allowed by the Uniform  Guidance. For example, HHS’s grant policies specify that all closeout  actions must be completed within 180 days of the receipt and acceptance  of all required grantee final reports, allowing for a maximum of 270 days  for the total closeout process.
Closing out grants could allow an agency to redirect resources toward  other projects and activities or return unspent funds to the Treasury (see  figure 3). 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. This  may allow the federal agencies to use existing resources to fund new  grant projects. If the undisbursed balances 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, or liquidate existing, 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. At  this point, these funds are no longer available for agency use. This helps  ensure that federal agency resources are properly 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: Tracking and Closing Out Grants in Federal Payment Systems
paragraphs: One way agencies can track whether grants are closed out and  undisbursed grant balances are deobligated in a timely manner is through  federal payment systems. Some agencies make grant payments directly  to grantees using their own payment systems, while others enter into  arrangements with payment systems that serve multiple agencies to  make payments on their behalf. Payment systems represent an important  control point for managing federal grant funds. After a grant agreement  reaches the period of performance end date, an agency may need to  close out a grant in multiple systems including in its payment system, the  agency’s general ledger, or in a separate grant management system.  Failure to close out a grant in the payment system could prevent the  timely deobligation of unspent funds and limit agencies’ ability to regain  budget authority that could be used for other purposes.
The largest civilian federal payment system is the Payment Management  System (PMS). Operated by HHS’s Program Support Center (PSC), PMS  allows grantees and awarding agencies to manage all payment-related  activities, including grant payment requests, drawing down federal funds  from preauthorized grant accounts, and disbursement reporting.  Grantees request payments from PMS, which then transmits authorized  payments to either the Federal Reserve Bank or Treasury for deposit into  the grantee’s bank account. Each PMS account represents a different  grant agreement with a specified period of performance end date. To help  federal grant-making agencies identify and close out grant accounts in a  timely manner, PSC makes available a quarterly “closeout” report. The  closeout report lists expired grant accounts that meet the following  conditions: (1) remain open more than 3 months past the grant period of  performance end date and (2) not having any disbursements in the  preceding 9 months.
section_title: Appropriations Acts for Selected Agencies Continue to Call Attention to Undisbursed Balances in Expired Grant Accounts
paragraphs: Appropriations acts for selected agencies have called attention to the  issue of undisbursed balances in expired grant accounts. For example,  Section 530 of the Commerce, Justice, Science, and Related Agencies  Appropriations Act of 2016 required the Director of OMB to instruct any  affected agencies receiving funds under that act to track undisbursed  balances in expired grant accounts and report on their efforts to address  the issue in their annual performance plans and performance and  accountability reports. Further, Section 530 requires OMB to instruct the  affected agencies to report on their methods to track undisbursed  amounts in expired grants and future actions to resolve the issue, the  amount of the undisbursed balances that may be returned to the U.S.  Treasury, the total number of expired accounts with undisbursed  balances in the preceding 3 fiscal years, and the total finances remaining  in expired accounts that have not been obligated to a specific project.
section_title: GONE Act Will Affect Reporting on Expired Grants
paragraphs: On January 28, 2016, the Grants Oversight and New Efficiency Act  (GONE Act) was signed into law. This law requires that not later than  180 days after enactment the Director of OMB instruct the head of each  agency, in coordination with the Secretary of HHS, to provide a report to  Congress and the Secretary on grants for which the grant’s period of  performance has been expired for more than 2 years, including those with  undisbursed balances and with zero dollar balances remaining in the  accounts. The report, to be delivered by December 31, 2017, is also to  describe the challenges leading to delays in grant closeout and explain  why each of the 30 oldest grant awards has not been closed out. It is  expected that this identification will help lead to a reduction in the number  of expired grants that have not been properly closed out from the financial  payment systems, improve financial accountability over grant programs,  and save taxpayer money on costs associated with maintaining the grants  in open status.
section_title: Approximately $994 Million in Undisbursed Balances Remained in Expired Grant Accounts in the Payment Management System
subsections: section_title: Undisbursed Balances Increased While the Number of Expired Grant Accounts Decreased Since 2011
paragraphs: As of September 30, 2015, $993.5 million in undisbursed balances  remained in 8,832 expired grant accounts in PMS (see figure 4). The  total undisbursed balances comprised about 0.2 percent of the $479  billion disbursed through PMS in fiscal year 2015, unchanged from the  percentage of the $415 billion disbursed through PMS in fiscal year 2011.  The undisbursed balances comprised about 3 percent of the amount  authorized for these expired grant accounts, similar to the percentage we  found in 2011. Among the departments and agencies that are  customers of PMS, the undisbursed balances as a percentage of the  authorized amounts available for these expired grant accounts ranged  from less than 1 percent to 31 percent. These expired grant accounts  should be considered for closeout based on OMB’s Uniform Guidance,  which specifies that within 90 calendar days from the period of  performance end date, grantees must submit all financial, performance,  and other reports as required by the terms and conditions of the award.
Grantees must also liquidate all permissible expenses incurred under the  award. Moreover, within 1 year of receiving the final reports, awarding  agencies should close out grant accounts that are past their period of  performance end date (expired grant accounts).
As figure 4 shows, in 2015, the undisbursed balances increased to  $993.5 million while the number of expired grant accounts decreased to  8,832, in comparison with 2011. The distribution of expired grant  accounts and their associated undisbursed balances categorized by the  number of years the accounts exceed their grant expiration dates were  roughly similar for 2015 and 2011. More than half of the accounts  exceeded their expiration date by 1 to 3 years. However as of September  30, 2015, we found expired grant accounts exceeding their grant  expiration date by at least 10 years almost doubled to 223 accounts with  undisbursed balances increasing fourfold to $39.1 million. Given the  general 3 year federal record retention period, there is an increased risk  that these grant accounts expired for 10 years or more may not have the  necessary financial documents and other information available for  account reconciliation.
section_title: Expired Grant Accounts with Large Undisbursed Balances Comprised a Small Share of Total Expired Accounts, but a Large Share of Total Undisbursed Balances
paragraphs: As of September 30, 2015, 151 expired grant accounts with undisbursed  balances of $1 million or more comprised approximately 2 percent of the  8,832 expired grant accounts (see figure 5). However, grants in this  category had a total of $514.7 million in undisbursed balances that made  up 52 percent of the $993.5 million in PMS undisbursed balances, an  increase from $316 million or about 40 percent in 2011. This indicates  that targeting efforts to close out a small number of expired grant  accounts with high undisbursed balances could reduce the total  undisbursed balance significantly. It is worth noting that many of the  expired grant accounts did not have large undisbursed balances—about  half of the expired grant accounts had undisbursed balances of less than  $10,000.
section_title: About $651 Million of Undisbursed Balances in Expired HHS Grant Accounts Comprised More than Half of Those in PMS
paragraphs: As of September 30, 2015, $651.3 million in undisbursed balances in  expired HHS grant accounts made up 66 percent of the total $993.5  million in undisbursed balances in PMS (see figure 6). This is down from  HHS’s 75 percent of the total $794 million in undisbursed balances in  2011.
HHS had 7,158 expired grant accounts (81 percent of all expired PMS  grant accounts in the data we analyzed), a decrease from 8,262 accounts  in 2011. These accounts comprised the bulk of the expired grant  accounts among the 11 federal agencies and departments that are PMS  customers. Similar to all PMS expired grant accounts and undisbursed  balances, about half of expired HHS grant accounts and undisbursed  balances exceeded their expiration dates by 1 to 3 years. In 2015,  expired HHS grant accounts exceeding their expiration dates by at least  10 years increased to $16.3 million in undisbursed balances and 129  accounts. HHS’s undisbursed balance as a percentage of the authorized  amount available for these expired grant accounts, increased to 3.3  percent, up from 2.7 percent in 2011. These expired grant accounts far  exceeded HHS’s 270-day window for closing out grants after the grant  expiration date as outlined in HHS’s Grant Policy Administration  Manual.
section_title: Administration for Children and Families’ $324 Million in Undisbursed Balances in Expired Grant Accounts Comprised the Largest Share of HHS’s Undisbursed Balances
paragraphs: Of the 11 HHS sub-organizations with grant accounts in PMS, the  Administration for Children and Families (ACF) continued to make up a  large proportion of the expired HHS grant accounts and undisbursed  balances in 2015 (see appendix II for HHS sub-organizations). However,  in comparison to 2011, ACF’s proportion of the total expired HHS grant  accounts decreased. ACF’s $324.4 million in undisbursed balances, up  slightly from $321.7 million in 2011, made up about half of HHS’s  undisbursed balances in 2015, compared to 54 percent in 2011 (see  figure 7). In 2015, ACF’s 2,395 expired grant accounts decreased to  about one-third of HHS’s total, as compared to the 53 percent in 2011.  Despite the drop in the number of expired grant accounts, a significant  number of expired accounts remain open. HHS and ACF grant managers  have failed to appropriately monitor expired grant accounts and adhere to  HHS closeout policies.
section_title: Expired Grant Accounts Flagged by PMS for Closeout Continue to Incur Fees
paragraphs: As of September 30, 2015, PMS data identified 5,906 expired grant  accounts which had no undisbursed balance remaining as ready for  closeout processing pending instructions from the awarding agency to  finalize the process. The percentage of expired grant accounts ready for  immediate closeout varied across all PMS customers. According to PMS  officials, the 5,906 accounts incurred about $29,000 in fees for the month  of September 2015, a significant reduction from the 28,000 accounts with  fees totaling about $173,000 that we reported for 2011. In 2015, 3,922  expired HHS grant accounts made up 66 percent of the 5,906 grants  PMS flagged for closeout, down from 79 percent (more than 21,000) in  2011.
Promptly closing out expired grants in the PMS system would minimize  the monthly service fees charged to the agencies. As HHS’s Program  Support Center (PSC) does not close out grant accounts until instructed  to do so by the awarding agency, expired accounts flagged by PMS for  closeout continue to incur fees until they are closed. PMS fees are set to  recover operating costs. PSC uses two billing rates for federal grant- making agencies—one rate generally applies to grants awarded to state,  local, and tribal governments and the second rate generally applies to  grants awarded to nonprofit agencies, hospitals, and universities.  Agencies are billed monthly for all open accounts making it difficult to  disaggregate the fees attributable to different types of grantees and those  attributable to expired accounts with (1) undisbursed balances, (2) no  remaining undisbursed balance (not flagged for closeout), and (3) no  remaining undisbursed balances that have been flagged for closeout.
The September 2015 fee of $29,000 for the 5,906 grant accounts PMS  has flagged for closeout is small relative to the grant award amounts. But,  it is important to note that it represents only a portion of the total fees  customers pay to keep open expired grant accounts that should have  been closed out by the awarding agency. In particular, the estimate does  not include expired accounts which should have been closed and have  undisbursed balances nor does it include those with zero balances that  have not been flagged for closeout by PMS. However, without examining  each expired grant account individually, we cannot determine whether  expired grant accounts that have exceeded their expiration date should  be closed or not. For example, the awarding agency may be renewing the  grant or there could be pending action as a result of an audit.
The monthly charges for expired grant accounts which have been flagged  by PMS for closeout can accumulate over time and can be  considerable. For example, of the 5,906 accounts PMS flagged for  closeout in September 2015, 359 of these accounts had also been  flagged for closeout in September 2011. Of these 359 expired grant  accounts, 260 belong to HHS. If the grant has otherwise been  administratively and financially closed out, then agencies paying fees for  expired accounts with a zero dollar balance are paying for services that  are not needed. 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 important tasks such as the submission of financial and  performance reports—may not have been completed.
section_title: Final Reporting and Processing Challenges Contribute to Delayed Grant Closeout, but Selected Agencies Have Begun to Implement Policies to Improve Closeout Timeliness
subsections: section_title: Agencies Cite Various Reasons for Grant Closeout Delays
paragraphs: Grant closeout is a necessary step for all types of grant programs that  serve a variety of missions and provide different services. As the final  stage of the grant life cycle, grant closeout requires the submission and  approval of all final grantee reports. Agency officials told us that grant  closeout delays can occur for a number of reasons that may be placed  into several larger categories, and sometimes these reasons can be  attributed to more than one category: grantee failure to submit final  reporting in a timely manner; agency failure to review, process, and  reconcile final reporting in a timely manner; and external processes or  factors. Officials we spoke with at Commerce, Justice, NASA, and NSF— agencies that reported on undisbursed balances in expired grant  accounts in their 2010 and 2011 annual performance reports—as well as  ACF which accounted for the largest share of undisbursed expired grant  balances at HHS as of September 30, 2015, told us that the grantee and  awarding agency face the following challenges that may delay grant  closeout (see figure 8).
Federal grant awards may fund projects that generate research products  or technical deliverables. Untimely submission of these deliverables on  the part of the grantee can delay grant closeout. For example, certain  grant awards at NASA require specialized reporting if the work funded by  the grant is for developmental research or leads to new research  accomplishments. According to NASA officials, grant award closeout can  be delayed if the grantee has yet to submit required new technology  reports, summary of research reports, or property reports. Justice  officials also told us missing technical deliverables would prevent the  National Institute of Justice (NIJ) from closing out grants in a timely  manner. Justice officials said NIJ grants typically require a technical  deliverable and they cannot close the grant until it has received the  deliverable and deemed it acceptable.
subsections: section_title: Grantee No Longer in Existence
paragraphs: There are instances in which a recipient of a federal award may cease to  exist. Grantees that cease operations after receiving a grant award may  not be able to submit their final financial or performance reports to the  federal awarding agency. For example, Commerce officials said if a  grantee is late in submitting reports, further investigation may find that the  grantee is no longer operational or is bankrupt. Commerce officials noted  that, while grant awards involving grantee bankruptcies are uncommon,  they could present challenges for grant closeout.
section_title: Grants with Cost-Sharing Agreements and Grants that Earn Program Income
paragraphs: Some grant programs may have cost-sharing or matching funds  requirements in the award that are designed to supplement the resources  available to the project from grant funds and to foster the dedication of  state, local, and community resources to the purposes of the project. In  addition, some federally funded grants support programs that earn  program income or income generated from activities funded by the  grant. Grant awards affected by these types of arrangements may  require additional layers of review by the grantee and agency and delay  grant closeout. For example, Commerce officials said grant programs with  cost-sharing can experience closeout challenges if the grantee  inaccurately documents the agreed upon shared costs and fails to meet  the matching costs. Commerce officials said in cases where the grantee  is short on the matching costs, Commerce’s bureaus would be required to  investigate the issue and in some cases require that grantees return  excess funds, which can delay grant closeout.
section_title: Agency Manual Report Reconciliation and the Disconnection between Grants Management and Payment Systems
paragraphs: Grant-making agencies may use grants management systems to track  their grants and payment systems, sometimes operated by a different  federal agency, to make payments to their grantees. As we have  previously reported, the separation of grant management and payment  functions in different systems could make it possible for an agency to  close a grant in a grants management system but not close the grant in a  separate payment system. In addition, it is possible for a grant  expiration date to be extended in the grant management system and not  in the payment system. ACF officials said the separation between grants  management systems and payment systems can present challenges  when awarding agencies attempt to reconcile final reports and close out  grants in the two separate systems. According to ACF officials, grant  closeout can become a manual process that presents challenges for  agencies that may have a limited number of grants specialists.  Specifically, officials explained that this process requires ACF grant  managers to compare their internal grant reports with the PMS closeout  report, identify grant awards to be closed, and request to close all eligible  awards in PMS.
ACF officials told us that, after completing this step, they have noted  instances where grants they previously requested be closed continue to  appear on subsequent PMS closeout reports—meaning that the grants  for which they requested closure were not closed in the payment system.  According to these officials, it could be possible for ACF to close a grant  award in its grants management system while the grant remains open in  the payment system due to a difference in the payments reported to the  awarding agency and PMS. As a result, the disconnection between  these systems can lead to undisbursed funds remaining in the payment  system when the grant is closed in the agencies’ grants management  system. In these cases, ACF grant managers may need to deobligate  funds from the grant and this requires taking additional steps to reopen  the grant in the grant management system. The disconnection between  these two systems and, in some cases, the manual steps needed to  reconcile the differences between systems can lead to additional  administrative burden and resource use to close out grants.
section_title: Grantee under Audit
paragraphs: Recipients of federal grant awards may be subject to certain federal  oversight requirements including having audits conducted. Under a  federal audit, the grantee must prepare appropriate financial statements,  follow up and take corrective action on audit findings, and provide the  auditor access to records, as needed. Agency officials told us grant  audits, and the related work, can delay grant closeout. For example,  Justice officials noted that open inspector general (IG) audits and  investigations, agency financial and programmatic monitoring activities, or  open legal or compliance issues can delay grant closeout. Commerce  officials also told us grants undergoing audit present closeout challenges.  They also said that grants under audit resolution remain open until the  audit is complete and a final decision has been issued. Certain types of  grants may have audits that take years to complete. For example, NASA  officials told us they have faced challenges in closing out grants to for- profit entities that require incurred cost audits by the Defense Contract  Audit Agency (DCAA). NASA officials said these audits for commercial  grants may take up to 3 years to complete as the federal audit agency  faces an ongoing audit backlog.
section_title: Grants Requiring Multi- jurisdictional Levels of Review
paragraphs: Some grant programs fund inherently complex projects. These projects  may involve multiple levels of review to comply with state statutes which  can delay grant closeout. For example, Commerce officials said grant  closeout delays can occur if grant reports are required to be reviewed by  various jurisdictions—including universities and state and local  governments—before the federal awarding agency. These officials noted  that construction grant programs such as the Broadband Technology  Opportunities Program (BTOP), a federal grant program to promote the  expansion of broadband infrastructure, have a complex review process  and have presented challenges for grantees in submitting reports in a  timely manner. The officials said BTOP construction grant projects  involve many equipment purchases that grantees must have reviewed  through state and local jurisdictions. The officials explained that grant  projects, such as the BTOP projects, that have a complex multi- jurisdictional review process require extra filings and additional grants  management, which can cause grant closeout delays.
section_title: Final Indirect Cost Rate Negotiation
paragraphs: Indirect costs represent a grantee’s general support expenses that cannot  be specifically identified with an individual grant project. Indirect costs  include, for example, building utilities and administrative staff salaries. To  determine the share of indirect costs that may be charged to federally  funded awards, grantees use a mechanism called the indirect cost rate,  which may be applied to a portion of direct costs and is available to the  grantee for a given period. A grantee may continue using a provisional  rate until agreement is reached on a new final rate. The procedure for  requesting an indirect cost rate varies based on the type of grantee  organization, but it entails submitting an indirect cost rate proposal and  negotiating with the grantee’s cognizant rate-setting agency.
Agency officials told us negotiating an approved indirect cost rate can  delay grant closeout. For example, NASA officials said grant closeout  challenges can occur if the final approved rate differs from the provisional  indirect cost rate used when the grant was awarded. The officials said  that in those cases the grantee must make reporting adjustments based  on the final approved rate for the period of performance. In some cases,  NASA officials said negotiating a final indirect cost rate agreement can  take years. OMB staff told us that one of the main reasons for grant  closeout delays involves the complexity of finalizing indirect cost rate  agreements. OMB staff explained that while a majority of grantees have  negotiated indirect cost rate agreements, the status of the agreement,  whether it is a provisional or a final negotiated indirect cost rate, can  affect when a grantee can close out. OMB staff said if a rate is not  finalized and the award has reached the end date, closing out a grant  using a provisional rate may involve subsequent complexities. Indirect  cost rate agreements are also an issue for closing grants at the National  Institute of Standards and Technology (NIST). According to NIST officials,  grantees have to negotiate a final rate in order for NIST to properly close  an award, and grantees have to wait for their next audit cycle to be able  to negotiate a final rate, which could be over a year after the award has  expired. Consequently it may not be ideal to close out grants without a  final rate. For example if the final indirect rate after closeout is lower, the  grantee owes money to the federal government, and the agency would  have to recover the funds. However, other agencies we spoke with did  not view indirect cost rate agreements as a major challenge that delays  grant closeout.
section_title: Grant Closeout Delays and Undisbursed Balances Are a Recurring Audit Issue
paragraphs: We and the federal inspectors general (IG) have continued to report on  grant closeout issues and actions taken by federal agencies. These  reports, in addition to our 2008 and 2012 reports, identified grant closeout  issues at federal award-making agencies and reported on agency  progress addressing concerns with grant closeout activities. For  example, in 2014 we reported that the Department of State (State)  generally did not adhere to its policies and procedures relating to  documenting internal-control activities such as grant closeout activities.  Through a grants file review, we found four grant awards that State grant  officers had closed without evidence that they had reviewed the  recipient’s final reports. We recommended that grant officials complete all  required documentation for all grants. State concurred with the  recommendation and said it would increase the emphasis on the file  documentation and will expand the extent of file reviews. In another  example, in 2014 we issued a follow-up report on the status of  recommendations we made in 2012 to Justice for its Bureau of Justice  Assistance to improve grantee accountability in the use of federal funds.  We found that Justice took actions to address our 2012  recommendations, including implementing an annual process to review  and deobligate all undisbursed grant funds.
Issues with final grantee reporting and awarding agency oversight of  closeout procedures have also been cited in federal IG reports. Since  2012, IGs at the Departments of Agriculture, Commerce, Energy, Housing  and Urban Development, Labor, and State, the United States Agency for  International Development, and NASA have issued reports identifying  grant closeout challenges experienced in their respective agencies. For  example, the IGs at Agriculture and Energy found agency officials were  waiting for final grantee reporting for expired grants but also noted that  the agency failed to send a closeout letter as required by regulation and  its standard operating procedures.
Federal IGs have also reported on closeout issues related to oversight  and internal controls. For example, an IG report from State cited  significant deficiencies in the agency’s grant-management process  including insufficient oversight caused by too few staff managing too  many grants, insufficient training of grant officials, and inadequate  documentation and closeout of grant activities. Two separate Agriculture  IG reports highlight issues related to grant closeout oversight. A 2013  Agriculture IG report found one of its grant-making agencies had  weaknesses in controls for deobgliating grant funds remaining after  projects were completed. In a 2014 report, the Agriculture IG found that  another of its grant-making agencies lacked effective controls, including  the lack of established time frames and milestones for completing  closeout reviews. The Commerce IG found that one of its grant-making  agencies had incomplete grant closeout procedures and another had  incomplete standard operating procedures. The Housing and Urban  Development IG found that one of its grant-making agencies lacked  adequate controls over the closeout process. This included written  policies and procedures for management’s oversight to ensure that  closeout data were consistently and accurately tracked and grants were  closed in a timely manner. The NASA IG found NASA lacked a uniform  closeout process and that the agency had not deobligated grant funds in  a timely manner. In addition to untimely deobligation, the NASA IG found  that the agency incurred unnecessary service fees associated with  expired grants. The United States Agency for International Development  IG found an agency grant program was not performing grant closeout  procedures on schedule and that millions of dollars of grant funds sat idle  while awaiting deobligation. The Labor IG reported that one of its grant- making agencies had delays in closing out expired grants because of  agency resource constraints developed over several years.
section_title: Selected Agencies Implemented Systems and Policies to Improve the Timeliness of Grant Closeout
subsections: section_title: Selected Agencies Use Features in their Grants Management and Payment Systems to Monitor Expired Grants
paragraphs: Agency officials told us grants management and payment systems with  automated system closeout features provide agencies with useful  methods to monitor, track, and close out expired grants. For example,  HHS officials told us about an automated feature in PMS that had a  positive impact in identifying late requests for payments for expired  grants. HHS officials said the feature allows the system to flag payment  requests for expired grants more than 90 days past the period of  performance end date and require the awarding agency to approve the  request. Justice officials told us its grant-awarding components use a  combination of the grants management system (GMS) and financial  systems to track undisbursed balances in expired grants. Justice officials  told us that their systems, particularly GMS and the Community Oriented  Policing Services (COPS) Office’s Enterprise Content Management  System, helped Justice’s components reduce their closeout backlog.  Justice officials cited a useful feature in both systems that includes an  automatic notification to the grantee as the award approaches its period  of performance end date. Commerce officials told us that the National  Oceanic and Atmospheric Administration (NOAA) grants management  system, Grants Online (GOL), offers automated features that assist  agencies in managing grant closeout. For example, Commerce officials  said GOL notifies the grantee of award expiration; due dates for final  progress and financial reports; report overdue notices; and issues a copy  of any enforcement actions. Commerce officials said GOL provides  NOAA the ability to electronically review and complete deobligation  memorandums, complete a closeout checklist, and view a workflow  history that includes dates, times, and electronic signatures of progress  and financial report submissions and approvals by grants managers.  Commerce officials also noted that GOL provides the option to generate a  report that tracks expired awards.
NSF officials told us NSF implemented its new award payment  management system, the Award Cash Management Service (ACMS), in  2013. NSF officials explained an advantage of using the new system is  that ACMS provides award payment and expenditure detail upon each  grantee drawdown of funds. NSF uses the payment and expenditure  detail from ACMS to notify grantees that have grants with large  undisbursed balances 3 months prior to the grants period of performance  end date. NSF officials said this approach has improved the timeliness of  no cost extension requests.
NASA officials said the contractor responsible for the agency’s award  closeout process uses a database tracking tool to facilitate grant closeout  and track undisbursed balances. NASA officials said the contractor  prepares monthly reports for NASA including reports that may highlight  reasons why expired grants remain open. This can help inform NASA’s  analysis of undisbursed balances and efforts to close out expired grants.
section_title: Selected Agencies Have Implemented Policies and Practices to Track and Manage Grant Closeout
paragraphs: Selected agencies have developed and implemented various policies to  manage the grant closeout process. OMB’s Uniform Guidance clarified  language on award closeout to help standardize federal agencies’ policies  for the award closeout process. In their implementing regulations, some  federal award-making agencies have provided additional language  beyond the Uniform Guidance. This additional language provided more  detail with respect to how these agencies intend to implement their award  policies with regard to OMB’s new guidance.
In addition to the additional guidance on federal award policies used by  some agencies to complement the Uniform Guidance, agency officials  told us about various internal policies and practices they implemented to  manage the grant closeout process. Specifically, selected agencies  incorporated expired grant review analyses and established goals to  reduce the number of expired grants in their portfolios. For example,  Justice officials told us that Office of Justice Programs (OJP) set an  internal grant closeout goal to have no more than 10 percent or 250,  whichever is greater, of all expired grants in a fiscal year extend 180 days  past the period of performance end date. OJP officials told us they  produce monthly and annual grant closeout analyses that track the  number of expired grant awards and potential deobligation amounts.  These reports compare awards past their period of performance end date  by 120-179 days and 180 days or more and present the total number of  expired grants that fall into these two categories. According to officials in  Justice’s Community Oriented Policing Services (COPS) Office, they use  a similar internal grant closeout goal to process at least 90 percent of all  expired grants within 180 days of the grant performance end date. The  office prepares an annual report to identify the total number of grants to  be closed within 180 days of the grant end date. A quarterly analysis is  completed to measure the number of expired grant awards that have  completed the closeout process and the total grant funding that has been  deobligated.
Similarly, Commerce has established a Grants Council that serves as an  informal working group that meets every 2 months to discuss  intergovernmental grant policies and ways to improve Commerce’s grant  business processes. Commerce officials told us that their bureaus provide  the Grants Council information on their expired grants that are more than  180 days past the period of performance end date. At each Grants  Council meeting, the council reviews closeout trends and any  undisbursed balances in expired grants that are more than 180 days past  the period of performance end date. Commerce officials said this process  helps the council categorize the reasons why grants have not been  closed. NSF officials also told us that they conduct an analysis at the end  of each fiscal year to determine the number of awards which have expired  and the amount of undisbursed balances remaining for each award.
Compared to other agencies we contacted, NASA took a different  approach to managing its grant closeout backlog. It uses a contractor to  facilitate its award-closeout process and track undisbursed balances  across the entire agency. NASA officials said the contractor coordinates  with the NASA grants management office on all aspects of closeout. The  contractor provides a monthly report to NASA’s Shared Service Center,  which performs various transactional, administrative, and business  functions including financial management for NASA grants, highlighting  reasons grants remain open. According to NASA officials, using a  contractor to facilitate the closeout process ensures consistency with  award closeout across the agency. However, similar to other agencies,  NASA conducts an analysis of expired grants. In addition, NASA’s Shared  Service Center’s finance office conducts an analysis of undisbursed  balances. NASA officials explained that since a 2014 IG review, the  agency has evaluated and refined its award closeout process, reduced  closeout duplication, and placed more emphasis on tracking expired  grants.
Officials from Commerce and Justice also told us their respective  agencies have developed training guides for grantees or awarding  agency grant managers. NOAA officials told us they conducted grants  workshop training for grantees and provided training materials on grant  closeout. For example, NOAA training materials provide information on  grant closeout topics including Commerce closeout policies and  regulations, responsibilities of the grantee and awarding agency, closeout  checklists, definitions, and a list of closeout issues for grant managers to  raise awareness for potential challenges. Justice also placed an  emphasis on developing closeout training for grantees and awarding  agency grant managers. Officials from OJP, the Office on Violence  Against Women, and the COPS Office, which represent all of Justice’s  grant-making agencies, said their respective offices provide closeout  training and financial management training for grantees. For example, the  OJP training guide covers closeout topics such as the OJP closeout  process and time frame, key grant closeout terms and definitions,  responsibilities, and a step-by-step guide to assist the grantee in using  the closeout module in the GMS to close the grant. By developing training  and information resources for both grantees and awarding agencies,  these agencies are using training as a method of informing all grant  stakeholders of the importance of a timely grant closeout.
section_title: Selected Agencies Report an Increased Use of Unilateral Grant Closeout
paragraphs: OMB’s 2012 Controller Alert advised grant-making agencies to consider  establishing policy and procedures for unilaterally closing out expired  grants. Selected agency officials also told us they have implemented  various internal policies that address administrative obstacles which can  cause grantees to fail to meet the terms of the agreement and delay grant  closeout processing. For example, Commerce officials said they  implemented a policy in 2013 that allowed the grants officer to carry out  an administrative closeout of expired and unexpired awards when the  recipient was no longer in existence or the recipient was unresponsive to  attempts to make contact. OJP, COPS, and the Office on Violence  Against Women use a similar policy to carry out an administrative  closeout of grant awards in which the grantee was unable or unwilling to  complete the requirements of the award. Under this policy, Justice  officials said the closeout process was initiated by either the grant  manager or automatically by GMS for an expired grant that reached 91  days past the grant period of performance end date. NASA has an  administrative closeout policy that enables the grant officer to initiate a  closeout within 270 days of the end of the period of performance if the  recipient is not cooperating with the terms of the award. HHS officials  explained that unilateral closeout exists as an option for closing awards,  but it is used infrequently and judiciously. HHS officials noted that  nuanced analysis and detailed communication should occur prior to  exercising a unilateral closeout to avoid negatively impacting recipients  that are cooperating. In situations where attempts to contact a recipient  are unsuccessful, or when an agreement cannot be reached with a  recipient, unilateral closeout is a tool of last resort when HHS operating  divisions have not been successful in obtaining acceptable final reports  from grant recipients.
section_title: OMB Does Not Monitor Selected Agencies’ Reporting of Undisbursed Balances in Expired Grants
paragraphs: From fiscal year 2010 through 2016, the Appropriations Act for  Commerce, Justice, Science and Related Agencies has required that  OMB instruct any department, agency, or instrumentality of the United  States receiving funds appropriated under the act to track undisbursed  balances in expired grant accounts and include these balances in its  annual performance plan and performance and accountability reports. In  response to these laws, in 2010 and 2011 OMB issued instructions for  tracking and reporting on undisbursed grant balances to these affected  federal agencies. However, according to OMB staff and officials at the  affected agencies we interviewed, OMB had not issued any instructions  on reporting these balances since 2011, and OMB staff did not think that  restating additional guidance was necessary given the language in the  selected agencies’ appropriations acts. OMB staff explained that they did  not conduct a detailed review of agency reporting of undisbursed  balances in expired grant accounts.
Our review included four of the affected agencies under this  appropriations act—Commerce, Justice, NASA, and NSF. While all four  agencies demonstrated that they have internal policies in place to review  expired grants and undisbursed balances, only Justice and NSF have  continually reported these undisbursed balances in expired grant  accounts. NASA stopped reporting these balances in its annual  performance reporting after fiscal year 2011, and Commerce stopped  reporting them after fiscal year 2012. They both cited a lack of guidance  from OMB related to reporting undisbursed balances in expired grants as  the reason why they stopped reporting.
Our previous work has found that reporting on the status of grant  closeouts in annual performance reports can raise the visibility of untimely  grant closeout within federal agencies. It can also lead to improvements  in grant closeouts and reduce undisbursed balances in expired grant  accounts. These reports help the President, Congress, and the  American people 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. For example, in accordance with the appropriations act,  both Justice and NSF have been reporting undisbursed balances in  expired grant accounts in their agency performance reporting since 2010.  These reports clearly point to the number of expired grants and the  amount of related undisbursed grant balances. Specifically, in fiscal year  2012, NSF reported $184.5 million in undisbursed balances in almost  8,000 expired grants. In fiscal year 2015, NSF reported an undisbursed  balance of $72.3 million in approximately 4,400 expired grant accounts.  However, as we noted above, NASA and Commerce have not been  reporting these balances as required since fiscal years 2011 and 2012,  respectively. As a result of OMB not recognizing the language in the  appropriations acts as a requirement to instruct agencies to report these  balances and NASA and Commerce not recognizing the language in the  appropriations acts to report, the undisbursed balances in expired grant  accounts for NASA and Commerce have not been reported since fiscal  years 2011 and 2012, respectively.
subsections: section_title: OMB Issued Updated Guidance on Grant Closeout, but Lacks Specificity on Tracking and Reporting Undisbursed Balances in Expired Grant Accounts
paragraphs: In July 2012, OMB issued a Controller Alert that instructed agencies to  take appropriate action to close out grants in a timely manner. This alert  asked all Chief Financial Officer Act agencies to consider the following: determine what closeout means for their programs; focus on closing out grants several years past their end date or having  no remaining funds; establish policies and procedures to unilaterally close out grants; leverage internal control procedures outlined in OMB Circular No. A- 123, Management’s Responsibility for Internal Control, to minimize  risk associated to not closing out grants in a timely manner; and monitor closeout activity to track progress in reducing the closeout  backlog.
In December 2013, OMB consolidated its grants management circulars  into a single document, OMB’s Uniform Guidance. This consolidated  guidance included some changes and clarifications for federal awarding  agencies and non-federal entities receiving grant funds on grant closeout  time frames and final adjustments to grantee reimbursable expenses.  The major change to grant closeout in the Uniform Guidance established  the period of 1 year for federal awarding agencies to complete all  closeout actions. It also clarifies that this closeout period begins after  receipt and acceptance of all required final reports.
While the 2012 Controller Alert and the Uniform Guidance take steps in  the right direction to increase government-wide awareness related to  timely grant closeout, these alerts and guidance documents continue to  lack instruction on tracking and reporting undisbursed balances in grant  accounts eligible for closeout, as we recommended in 2008. At that time,  in response to our recommendation, OMB stated that it did not believe  that having agencies report on these balances in their performance  reporting would reduce undisbursed balances in expired grant accounts.  According to federal standards for internal control, information should be  recorded and communicated to management and others within the entity  who need it. It should also come in a form and within a time frame that  enables the entity to carry out its internal control and other  responsibilities. Encouraging effective external communication on  undisbursed balances in expired grant accounts would serve to further  transparency efforts and promote informed decision making.
section_title: Conclusions
paragraphs: 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 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.
We have previously reported that agencies can improve their grant  closeout process when they direct their attention to the issue and make  timely grant closeout a high priority. We have also stated that tracking  undisbursed balances in expired grant accounts, including the status of  grant closeouts on annual performance reports, could raise the visibility of  the problem within individual agencies and across the federal  government. However, our analysis of PMS data indicates that expired  grant accounts, and, in some cases, the undisbursed balances  associated with these expired accounts, persisted as an issue for  agencies in 2015. The number of expired grant accounts decreased since  we last reported these data in 2012. However, the amount of undisbursed  balances in expired grant accounts has increased. HHS has not  effectively used PMS data to help target agency efforts toward closing  accounts that have the largest undisbursed balances and is missing an  opportunity to help agencies significantly reduce undisbursed balances  and deobligate funds from expired grant accounts, consistent with its  grant closeout policies to close out grants within 270 days of their  expiration.
In January 2016, the GONE Act was signed into law. This act requires  government-wide reporting of undisbursed balances in certain expired  grants and provides a basis for government-wide reporting of these  balances. In addition, OMB’s implementation of Section 537 of the  Commerce, Justice, Science, and Related Agencies Appropriations Act of  2010 and subsequent annual legislation creates a framework for such  reporting. However, affected agencies have varied in the reporting of  these balances and have said they need clearer instructions from OMB  on where and how to report these balances. Effective implementation of  grant closeout requirements in the GONE Act and appropriations acts  depends on clear instructions for where and how to report this information  and on appropriate agency policies for timely closeout. Improved grant  closeout processes can in turn allow federal agencies to make better use  of their appropriated funds.
section_title: Recommendations for Executive Action
paragraphs: 1.  The Director of OMB resume instructing all affected and independent  agencies receiving funds under the 2016 appropriations act to track  and report undisbursed balances in expired grant accounts.  2.  The Administrator of NASA resume reporting on the undisbursed  balances in expired grant accounts in the agency’s annual  performance reporting.  3.  The Secretary for the Department of Commerce resume reporting on  the undisbursed balances in expired grant accounts in the agency’s  annual performance reporting.  4.  The Secretary of HHS, to improve the enforcement of existing HHS  Grant Policy Manual grant closeout guidance and reduce undisbursed  balances in expired grant accounts, require all HHS grant-making  operating divisions to take the following two actions:  identify grants expired for more than 1 year past their period of  performance end date and to either close the expired grant in the  Payment Management System or to determine why these grants  are not closed; and identify expired grant accounts designated for immediate closure  by the Payment Management System and require these operating  divisions to close the expired grant accounts in PMS or explain  why these grants are not closed.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Director of the Office of  Management and Budget; the Administrator of the National Aeronautics  and Space Administration; the Assistant Attorney General for  Administration of the Department of Justice; the Office of the Director of  the National Science Foundation; and the Secretaries of the Departments  of Commerce, Health and Human Services, and the Treasury.  Commerce, HHS, NASA and OMB responded with written comments,  which we have reprinted in appendixes III, IV, V, and VI, respectively.  OMB concurred with the recommendation and said it will issue guidance  to the heads of the Selected Agencies to report on balances in expired  grant accounts in the agencies’ fiscal year 2016 performance and  accountability reports. In addition, OMB stated it is currently analyzing the  requirements of the GONE Act and will be issuing government-wide  guidance on the reporting of the required information by July 2016. NASA  partially concurred with GAO’s recommendation, saying it would resume  reporting on undisbursed balances in expired grant accounts once  guidance was provided by OMB. Commerce concurred with GAO’s  recommendation. HHS concurred with GAO’s recommendations and said  it will implement strategies, in accordance with the recommendations, to  address and reduce grant closeout delays and further enhance  compliance with HHS’ Grants Policy Administrative Manual. Staff from  OMB, HHS, Justice, NSF, and Commerce also provided technical  comments, which were incorporated as appropriate. NASA and Treasury  had no technical comments.
We are sending copies of this report to the heads of the Departments of  Health and Human Services, Treasury, OMB, Commerce, Justice, NASA,  and NSF, as well as interested congressional committees and other  interested parties. This report will also be available at no charge on the  GAO website at http://www.gao.gov.
If you or your staff has any questions about this report, please contact me  at (202) 512-6806 or sagerm@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of our report. Key contributors to this report are listed in appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) the extent to which there are undisbursed  balances remaining in expired grant accounts in the federal government’s  largest civilian payment management system—the Payment Management  System (PMS) administered by the Department of Health and Human  Services (HHS); (2) the reasons selected agencies give for their grant  accounts remaining open past their end dates; and (3) the extent to which  the Office of Management and Budget (OMB) monitors agency progress  with regard to tracking and reporting on undisbursed balances in expired  grant accounts.
To address the first objective, we analyzed data from PMS administered  by HHS’s Program Support Center (PSC). 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. Others enter into arrangements  with payment systems that serve multiple agencies to make payments on  their behalf. PMS was selected based on the following criteria:
PMS provides payment services to other federal departments and  entities. In 2015, offices from 12 federal departments and agencies  used PMS for making grant disbursements.
PMS accounts for a significant percentage of civilian federal grant  disbursements. Based on fiscal year 2014 data, the most recent  available at the time of our selection, PMS made about $429 billion in  grant disbursements, or 74 percent of all civilian federal grants  disbursements in fiscal year 2014.
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 PSC in the Division of Payment Management (DPM) at HHS.  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, serving as user/recipient liaisons, 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 a grant account is closed.
section_title: PMS Closeout Reports
paragraphs: 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 and 2012 reports. 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. A grant 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 2015 (September 30, 2015). 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  the methodology we used in our 2008 and 2012 reports. We excluded  127 programs from our review. We included programs that were grants or cooperative agreements; had a time limit for spending; had a zero or positive undisbursed balance; had a readily identifiable CFDA number and program description in did not have special financial reporting procedures.
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 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 year 2015  closeout report (i.e., as of September 30, 2015) 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 $29,000 September 2015 to  maintain more than 5,900 expired grant accounts with no undisbursed  balances remaining listed on the year-end closeout report.
section_title: Reliability Testing of PMS Data
paragraphs: 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. We discussed with HHS officials 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: Review of Dormant Account Report Data from Treasury’s Automated Standard Application for Payments System
paragraphs: In our 2012 report, we included an analysis of data contained in “dormant  account reports” that were 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. We were unable to include the results of a similar  analysis of the data contained in the most recent dormant account report  (dated October 2015) because the number of grant accounts identified  was below the threshold at which we could report without potentially  identifying the recipients.
section_title: Review of Agencies’ Progress with Grant Closeout
paragraphs: To address our second objective and identify why selected agencies have  expired grants open past their end dates, we collected and reviewed audit  reports from GAO and inspectors general (IG) at the 24 Chief Financial  Officers Act (CFO Act) agencies that focused on undisbursed funds in  expired grants accounts and grant closeout. We reviewed IG reports  from the 24 CFO Act agencies from September 2011 to March 2015 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 and 2012 reports, which included IG reports issued  between 2000 and 2011. We also reviewed annual performance reports  for all 24 agencies to determine how the major grant-making agencies  were reporting on undisbursed balances in expired grant accounts. We  also reviewed available data on grant closeout from selected agencies.
We interviewed agency officials at selected grant-making agencies to  determine reasons why grants remain open past their end date and  determine to what extent there are promising practices related to grant  closeout. Agencies selected for interviews reflect a mix of PMS  customers, one from within HHS that, according to preliminary analysis of  March 31, 2015 PMS data, had a large undisbursed balance. We also  interviewed officials from the United States Department of Commerce, the  United States Department of Justice, the National Aeronautics and Space  Administration, and the National Science Foundation as agencies that  have been instructed through their appropriations acts since 2010 to  report on undisbursed balances in expired grant accounts.
section_title: Review of Relevant OMB Guidance and Appropriations Acts
paragraphs: To address our third objective and understand the extent to which OMB  monitors agency progress with regard to tracking and reporting progress  on reducing undisbursed balances in expired grant accounts, we  reviewed relevant OMB guidance, including: Uniform Administrative  Requirements, Cost Principles, and Audit Requirements for Federal  Awards (Uniform Guidance) and OMB Circular No. A-136, Financial  Reporting Requirements. We reviewed two memorandums related to  tracking undisbursed balances in expired grant accounts issued by OMB  in 2010 and 2011 to selected agencies receiving funding under the  Commerce, Justice, Science, and Related Agencies appropriations act,  and the related appropriations acts from 2010 through 2016. We also  reviewed an OMB 2012 Controller Alert focused on timely grant closeout.  We interviewed OMB staff on providing government-wide guidance for  grants management and grant closeout and officials at the four agencies  that reported undisbursed balances in expired grant accounts in 2010 and  2011 annual performance reports—the United States Department of  Commerce, the United States Department of Justice, the National  Aeronautics and Space Administration, and the National Science  Foundation—to discuss their implementation of OMB’s instructions.
section_title: Appendix II: Federal Agencies Using the Payment Management System (PMS) as of April 2015
subsections: section_title: Department of Health & Human Services
section_title: Department of Labor
section_title: Department of Agriculture
section_title: Department of the Treasury
section_title: Department of Veterans Affairs
section_title: Department of Homeland Security
section_title: Executive Office of the President
section_title: National Aeronautics and Space Administration
section_title: Corporation for National and Community Service
section_title: Small Business Administration
section_title: Appendix III: Comments from the Department of Commerce
section_title: Appendix IV: Comments from the Department of Health and Human Services
section_title: Appendix V: Comments from the National Aeronautics and Space Administration
section_title: Appendix VI: Comments from the Office of Management and Budget
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Thomas M. James (Assistant  Director), Keith O’Brien (Analyst-in-Charge), Sara L. Daleski, Bertha  Dong, and Michael Sweet made major contributions to this report. Other  key contributors include Joy Booth, Michael Grogan, Kimberly McGatlin,  Robert Robinson, and Cynthia Saunders.
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