Discretionary Grants: Further Tightening of Education's Procedures for Making Awards Could Improve Transparency and Accountability
Published: 2006-02-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In the past 3 years, Education awarded an average of $4.8 billion annually in discretionary grants through its competitive awards process and through consideration of unsolicited proposals. GAO assessed Education's policies and procedures for both competitive awards and unsolicited proposals awarded by its Office of Innovation and Improvement in 2003 and 2004 and determined whether it followed them in awarding grants in those years. GAO also reviewed Education's grant award decisions for several 2001 and 2002 grants to determine whether the department followed its own policies.
section_title: What GAO Found
paragraphs: In 2003 and 2004, Education took steps to improve its procedures for awarding discretionary grants through competitions but certain procedures were not always followed. During this time, after Education introduced some new management controls to its competitive grants procedures, we found it generally adhered to these new policies. For example, GAO did not find evidence that Education reduced any applicant's request without first conducting a budget analysis, as required, or that Education rescored applications after they had been peer reviewed. However, certain procedures were not always followed; for example, Education frequently did not finalize its plans for conducting competitions before starting the competitions--a step that would help ensure transparency in making awards. In addition, many files lacked documentation that the department screened the applicants, as required, to identify incompetent applicants, ineligible grantees, or unallowable expenditures. Since 2003, Education has also taken steps to reform its process for awarding grants based on unsolicited proposals, but it based its screening decisions on proposals that vary greatly and frequently provided extensive technical assistance. Following a departmental reorganization, Education established a centralized process for reviewing unsolicited proposals. However, these proposals, which Education used as a basis to certify that there is a substantial likelihood that the application will meet regulatory requirements, varied greatly in content and detail. GAO also found that Education provided extensive technical assistance to applicants, in some instances, providing applicants with the notes of peer reviewers and allowing applicants to revise and resubmit applications. Specifically, in 2004, 10 of the 27 applicants did not get reviewers' support and were provided a chance to re-apply. Of those 10 applicants, 8 revised their proposals, received favorable recommendations, and were subsequently funded. Prior to 2003, Education made exceptions to some of its policies in awarding three grants, totaling about $12.3 million, where particular allegations were raised. Two of the grants were awarded through a competitive process, but GAO found that Education reduced funding to all of the grantees to expand the number of grantees funded and to accommodate awards to lower rated grantees. In doing so, Education altered its selection methodology after it developed and recommended a list of grantees. In one case, Education rescored and reversed the order of selected grantees after the peer reviewers had completed their assessments. Education awarded the third grant based on an unsolicited proposal and regulations require that the department seek recommendations from peer reviewers prior to funding. In this case, the peer reviewers could not agree on a recommendation. GAO found that Education lacked a process to reconcile disagreements among reviewers and awarded a grant that two of three reviewers did not recommend. Moreover, Education awarded four grants in 2001 for unsolicited proposals that had not been recommended for funding by any one of the three reviewers.

section_title: Letter
paragraphs: In fiscal year 2005, the Department of Education (Education) provided  more than $42 billion in grants to state and local education agencies,  school districts, colleges and universities, and other organizations to  conduct various program and research activities. While Congress directs  the allocation of most of these funds, a small portion of this money—$4.7  billion in 2005—is awarded by the Secretary either through program  competitions or through consideration of unsolicited proposals. In the  case of competitions, selection of awardees is governed by regulations and  policies designed to ensure that federal funds are directed to those  proposals of highest merit. In the case of proposals that are unsolicited,  awards are to be made to grantees that are recommended for funding by  external reviewers based on proposals they deem to be of high quality and  national significance.
Allegations were made that Education did not follow its policies in making  the grant awards that benefited specific grantees. You asked us to review  two grant awards—a competitive grant awarded in 2002 from the  Voluntary Public School Choice program to the Arkansas Department of  Education to fund its partnership with K12, Inc., and a 2001 award based  on an unsolicited proposal to the National Council on Teacher Quality  (NCTQ). In the course of our review, program officials directed us to  another competitive grant where they noted similar concerns as those  raised in your letter. This third grant was awarded from the Credit  Enhancement for Charter School Facilities Grant program to America’s  Charter School Finance Corporation. The grants in question were awarded  in 2001 and 2002 and Education has subsequently issued new guidance for  making grant awards and has moved the grant programs in question to the  newly created Office of Innovation and Improvement (OII). We assessed  Education’s policies and procedures for both competitive awards and  unsolicited proposals in 2003 and 2004 and determined whether Education  followed them in awarding grants in those years and we reviewed  Education’s grant award decisions for several 2001 and 2002 grants to  determine whether the department followed its own policies.
To assess the policies and procedures in place for the 2003 and 2004  competitive awards processes, we reviewed departmental guidance issued  in March 2003 that governed the grants awarded in those years. We  reviewed a stratified random sample of 91 of the 521 competitive grants  made by OII in 2003 and 2004, including all 10 grants with over $15 million  in obligations. All percentage estimates from this sample have margins of  error of plus or minus 10 percent or less. To assess Education’s process  for reviewing unsolicited proposals in 2003 and 2004, we reviewed  departmental guidance and all 65 files for unsolicited grants awarded by  OII in 2003 and 2004. We used the department’s Grant Administration and  Payment System (GAPS) to identify all grants awarded in 2003 and 2004.  We assessed the reliability of the data in GAPS and found it to be reliable  for our purposes.  To review Education’s decisions to award the 2001 and  2002 grants, we obtained and reviewed departmental grant-making  guidance in place at the time these grants were awarded. To determine  whether or not departmental guidance was followed, we reviewed the  official grant files for each of these grants, the corresponding files for the  competitions that contain information on all of the applicants’ proposals,  the competition plans, and external reviewers’ rankings and comments. In  2002, 34 applicants competed for grants from the Credit Enhancement for  Charter School Facilities Grant program and Education awarded five  grants, including the grant in question. That year, the department also  considered 21 unsolicited proposals and made awards to 18 grantees,  including the grantee in question. In 2002, 46 applicants participated in the  Voluntary Public School Choice grant competition and the department  awarded 13 grants, including the grant in question. For additional details  about our scope and methodology, see appendix I. Our work was  conducted from May 2005 through February 2006 according to generally  accepted government auditing standards.
subsections: section_title: Background
paragraphs: Education administers discretionary grants both through competitions and  through consideration of unsolicited proposals. In 2003, OII awarded   267 competitive grants totaling $335 million and 41 grants based on  unsolicited proposals totaling $64 million. In 2004, the department  approved 254 competitive grants for $826 million and 24 grants for  unsolicited proposals totaling $17.5 million.
subsections: section_title: Trends in Discretionary Grants Awards
paragraphs: Education distributed more than $42 billion in grants in fiscal year 2005,  but only a small portion—12 percent—was discretionary. The rest of the  funds were allocated to grantees on the basis of statutory formulas or as a  result of a congressional earmarks; the department has no discretion over  who receives grants from those funds. (See fig. 1).
Although Education’s grant awards have increased by about a third since  before the enactment of the No Child Left Behind Act, funding for  discretionary grants decreased by 19 percent. Most of the increase in grant  funding is allocated through formula grants, such as Title I—Improving the  Academic Achievement of the Disadvantaged. Total funding for formula  grants grew by about 45 percent between 2001 and 2005.
section_title: Competitive Grant-Making Process
paragraphs: In the case of competitions, selection of awardees is governed by policies  and procedures designed to ensure a fair and objective evaluation of all of  the applications. Education begins the competition process by publishing  a notice in the Federal Register. This announcement serves as a notice  that federal funds are available through a specific program and invites  interested parties to prepare an application for funding. The notice  provides information on the estimated number of awards that will be made  and the estimated size of each award. Importantly, the notice establishes  the rules by which the competition will be conducted; among other things,  this notice provides information on the eligibility criteria, the issues  Education expects the applicants to address in their applications, and the  evaluation criteria for the competition. The notice serves as a blueprint for  applicants to use in developing a successful application.
In addition, program officials must develop a plan for how they will  administer the competition. The competition plan, known as an  Application Technical Review Plan (ATRP), is a key management control  that helps promote fairness and transparency in the process. The  competition plan includes such information as the schedule for the  competition, the process for identifying and using external peer reviewers,  the composition of the peer reviewer panels, a description of how the  applications will be assigned to these panels, the process for resolving  peer reviewers’ conflicts of interest, and the methodology for selecting  applications for funding. Any deviation from the original plan for  reviewing the applications, selecting applicants, and approving the list of  prospective grantees must be justified in writing, which is designed to  enhance transparency.
Another key control for ensuring fairness in the award process for grants  is the peer review process. Peer reviewers are typically external experts  who bring an independent assessment of the merits of the applications.  The number of individuals selected to serve as peer reviewers depends on  the number of applications received for a specific competition. These peer  reviewers are usually grouped together in panels of three or more  members to review applications. Each peer reviewer independently reads  and scores a group of applications randomly assigned to the panel,  generally using a numerical scoring system, against program criteria based  on legislative and regulatory requirements. Program officials prepare a  single score for each application—usually by averaging the scores of all  the peer reviewers on the panel that reviewed the application or, less  frequently, using a statistical technique to equalize unusual scoring  variances among reviewers. Program officials then prepare a rank-ordered  list of applications based on the single scores and use this list to prepare  their funding recommendations.
Education’s regulations stipulate that the rank-order list is one of many  factors the Secretary may use in selecting new grants. The Secretary may  also use information from the application as well as information  concerning the applicants’ performance and use of funds under a previous  award. Ultimately, the peer reviewers’ comments are advisory, and the  Secretary can determine which new grants to fund based on the program  criteria outlined in the statute and the Federal Register notice.
In addition to developing the ATRP, Education’s policy requires program  officials to screen the applicants for eligibility, typically before  applications are peer reviewed. Before making an award, program officials  must conduct checks to ensure the applicants’ competence to manage  federal funds. A budget analysis is also required to be conducted to ensure  that no grant funds are awarded for unallowable purposes.
section_title: Process for Making Awards Based on Unsolicited Proposals
paragraphs: Education’s policy is to award the vast majority of discretionary grant  funds through the competitive process, however it may also fund grants  based on unsolicited proposals. Although Education can fund unsolicited  proposals from any program, the primary source for funding such  proposals is the Fund for the Improvement of Education (FIE). This  program was created in 1988 as the Secretary’s Fund for Innovation in  Education. At the time, it provided the Secretary with the authority to  fund proposals that showed promise of identifying and disseminating  innovative educational approaches. The program has been reauthorized  over the years, most recently in 2002 with enactment of the No Child Left  Behind Act and maintains flexibility by providing the Secretary with the  authority to fund “meritorious” programs to improve the quality of  elementary and secondary education at the state and local levels and help  all children meet challenging state academic content and student  academic achievement standards. The FIE program is also used to fund  congressional earmarks for elementary and secondary education activities.
The statute does not require Education to compare the relative merits of  all the proposals it receives in any given year; however, it does require that  the Secretary use a peer review process for reviewing applications.  Appropriations for the FIE program remained relatively steady until 1998.  Since 1998 appropriations increased dramatically. (See fig. 2).
Before funding unsolicited proposals, Education must also make sure that  the regulatory requirements for funding such proposals are met. Education  must first determine whether the unsolicited proposal could be funded  under a competitive grant program; if it could be funded under a  competition, the Secretary refers the proposal to the appropriate  competition. If an appropriate competition does not exist, departmental  regulations require the Secretary to decide if (1) there is a substantial  likelihood that the application is of exceptional quality and national  significance, (2) the application satisfies the requirements of all applicable  statutes and codified regulations that apply to the program, and   (3) selection of the project would not have an adverse impact on the funds  available for other awards planned for the program. If these criteria are  met, Education assembles a panel of experts to evaluate the unsolicited  proposal based on the selection criteria. If the experts highly rate the  application and determine that the application is of such exceptional  quality and national significance that it should be funded as an unsolicited  application, then the Secretary may fund the application.
section_title: In 2001 and 2002, Education Made Exceptions to Its Policies in Awarding the Three Grants
paragraphs: Education made progress since 2003 in improving its policies for awarding  discretionary grants; however, prior to these improvements we found that  Education made exceptions to its policies that benefited the grantees in  question. For the two competitive grants, we found that Education  officials reduced funding to all of the grantees to accommodate awards to  lower-rated grantees and did not conduct analyses to assess the impact of  these reductions on the ability of the applicants to achieve the goals of  their projects. In doing so, Education broke from established practice by  altering its selection methodology after it had developed a list of grantees  recommended for funding. With regard to the third grant, which was an  unsolicited proposal, we found that Education made the award with  approval from only one of three independent reviewers and lacked a  process for reconciling differences among peer reviewers’ ratings.  Furthermore, Education awarded four unsolicited grants in 2001 that had  not been recommended for funding by any one of the three reviewers,  contrary to departmental regulations.
subsections: section_title: Arkansas Department of Education
paragraphs: In order to fund a grant to the Arkansas Department of Education,  Education officials reduced the prospective grant awards to all other  competitors in the 2002 Voluntary Public School Choice Program by nearly  50 percent. Specifically, Education’s program office recommended   10 grantees for funding, but subsequently expanded this list to   13 awardees, including 13th-ranked Arkansas. As part of its decision to  fund 13 grants instead of 10, Education funded each of the top 12 grantees  at just 53 percent of its request, while it funded Arkansas at 77 percent of  its request. (See fig. 3).
In reducing the grant awards to accommodate 13 grants, Education set  aside its policy to conduct a thorough budget analysis of the programmatic  impact of the reductions. The program official responsible for the  competition received assurances from all of the grantees that they could  still achieve the goals of their proposals with decreased funds, and  according to this official, all of the grantees submitted revised budgets  reflecting reduced award amounts. However, this official told us that  Education did not analyze the revised budgets, and we found no evidence  from our file review that a budget analysis was conducted to determine if  there would be a programmatic impact resulting from the reductions.  Additionally, neither the assurances nor the rescoped proposals, which  given the magnitude of the reductions could be substantially different  from original proposals, were vetted by any external reviewers. For  example, Arkansas scaled back its proposal by eliminating foreign  language instruction and summer school programs.
In addition, we found that Education broke from established practice and  altered its selection methodology outlined in the competition plan. The  department’s original list of 13 grantees would have required cutting the  requests of the applicants other than Arkansas across-the-board by   51 percent in order to fund each applicant. Arkansas received a reduction  of only 23 percent. The department altered its selection methodology,  which resulted in one grant request for $3.6 million being replaced by one  for $749,000. Using the new methodology, funding reductions for each of  the 12 grantees went from 51 percent to 47 percent. Officials told us it was  not normal procedure to make changes to the selection methodology so  close to the time of the award decision.
section_title: America’s Charter School Finance Corporation
paragraphs: We found that the process used by senior departmental officials in making  an award to America’s Charter School Finance Corporation under the  Credit Enhancement for Charter School Facilities program set aside  departmental policy and varied from standard departmental practice.  Specifically, after receiving a list of four grantees recommended for  funding, the deputy secretary asked his staff—a senior political  appointee—to re-review the fifth and sixth ranked competitors, as ranked  by expert reviewers. Based on this re-review, the order of the fifth and  sixth ranked grantees was reversed, according to the department official  conducting this review, because “the application from America’s Charter  was stronger and had been evaluated too harshly by its peer review panel.”  Program officials said that they had never before experienced a case  whereby a senior political appointee selectively re-reviewed and rescored  particular applicants after the peer review process had been completed.  Furthermore, the appointee recommended that “this excellent, ambitious  application be awarded the fifth of five allowable grants,” expanding the  initial list recommended by the program staff. To fund five grantees,  program officials reduced the awards to each of the grantees by anywhere  from 16 to 40 percent. We found no evidence that a budget analysis was  conducted, as required by policy, to determine whether the reductions  impeded the grantee’s ability to perform the proposed activities and  achieve the intended outcomes on which the reviewers based their scores.
section_title: National Council on Teacher Quality
paragraphs: In the case of the grant to NCTQ in 2001, Education awarded $5 million to  the council, despite the fact that its proposal was not recommended for  funding by two of three reviewers. The council’s award was based on an  unsolicited proposal to create a new national accreditation program for  teachers—the American Board for Certification of Teacher Excellence  (ABCTE). We also found that in 2001 Education funded eight other  unsolicited proposals that had been rejected by at least two of three  reviewers. Four of these eight were funded despite not being  recommended by any of the three reviewers, which was contrary to  departmental regulations.
section_title: In 2003 and 2004, Education Strengthened Its Policies for Competitive Grants and Generally Adhered to Them
paragraphs: In 2003, Education strengthened some of its policies governing the  competitive grant process and in both 2003 and 2004 generally adhered to  its key policies, although certain procedures were not always carried out  or documented. In our review of all 25 competitions we did not find  evidence that Education made funding reductions without conducting  budget analyses of the potential impact on the proposals or rescored  applications after they had been assessed by expert reviewers. Nor did we  encounter any changes to the competition plans for 2003 and 2004 after  peer reviewers had assessed the applications. However, we did find found  that many of the original competition plans we examined had not been  finalized—that is to say, formally approved. For this reason, we cannot be  certain that all competitions had proceeded without alteration to the  plans. In addition, we found many of the grant files lacked documentation  documented evidence that Education had conducted three standard  procedures for screening potential grantees: (1) a review of the applicant’s  compliance with audit requirements; (2) a review of the applicant’s  eligibility for the program; and (3) a review of requested costs and  expenses to determine whether they were allowable.
subsections: section_title: Education in 2003 Introduced New Controls to the Competitive Grant Process
paragraphs: In 2003, Education added certain controls over the competitive grants  process aimed at increasing its fairness and transparency. Among these is  an explicit requirement to document any changes to a competition plan,  which would include changes to how competitors are scored or how peer  reviewers are selected. The new guidance provides that if there is a need  to deviate from a plan during a competition, it should be formally amended  and a written justification should be approved by a senior departmental  official and included in the official file for the competition. Also, the  department clarified the conditions under which it may reduce funding  from what was applied for. In addition, the department added several  checks for program staff to consider before making awards as part of their  responsibility for determining that potential awardees are competent to  manage federal funds. One of these checks requires that program staff  submit for screening a list of the likely awardees to determine whether any  have a grant history and met auditing requirements. If the audit record  reveals any problem, program staff are required to withhold or delay an  award until such problems are resolved. Table 1 compares certain  requirements from Education’s 1997 guidance with 2003 guidance.
section_title: In 2003 and 2004, Education Generally Adhered to Its Policies for Competitive Grants
paragraphs: In our review of all 25 competitions run by OII in 2003 and 2004, we found  that Education generally adhered to its policies for ensuring fairness in the  competitive process, and we found no evidence that Education made  funding reductions without conducting budgetary analysis of the potential  impact on the proposals. Nor did we find any instances in which  Education officials re-reviewed peer reviewers’ initial assessments. In  addition, we found that grants were generally awarded to the highest- scoring eligible applicants, as policy requires, and that exceptions to the  rank order were appropriately documented and justified, as policy  requires. For example, we found several instances where applicants were  dropped from the slate because they were ineligible for the program.
section_title: Formal Plans That Govern Grant Competitions Frequently Were Not Finalized As Required
paragraphs: In 2003 and 2004 we found no evidence that competition plans—the  procedural and scoring blueprint for each grant competition and a key  management control—were changed after the expert reviews were  completed. However, only 5 of the 14 plans covering the 25 competitions  had been finalized as required. Specifically, the plans did not contain  documentation of approval by a principal officer, nor did the plans show  whether they had been amended. Without such documentation, we could  not determine whether changes had, in fact, been made to the plans that  would have required justification and approval under Education’s 2003  guidance. Officials acknowledged that competition plans should be signed  and dated when they are developed, but officials said they at times  overlooked this step. Additionally, they said that any amendments to the  plans were rare and usually not substantive in nature.
section_title: Screenings for Grantee Competence, Eligibility, and Allowable Expenses Were Not Always Performed or Documented by Education Officials
paragraphs: Further, our review of the 2003 and 2004 grants showed that the files  frequently lacked documentation that Education had conducted three  management controls that are designed to ensure that applicants are  qualified to receive federal funds. Specifically, many of the files did not  contain evidence that Education determined whether the applicant had  any past audit findings, met the eligibility requirements for the program, or  requested any unallowable expenses. We estimate that in 98 percent of the  files, there was no evidence that program officers checked a grantee’s  audit history—a key check on an applicant’s ability to manage federal  grant funds. The guidance requires program staff to submit lists of  potential applicants to the audit administrator to determine whether  applicants submitted federally required audits and, if applicable, adhered  to corrective actions required in the audits. The director of the audit  division informed us, however, that this check was not universally  implemented due to resource constraints. As a result, there is no pre- award assessment of an applicant’s prior performance under any previous  federal grant, or that an applicant with audit findings resolved any  deficiencies before a new grant was awarded.
Further, we estimate that 45 percent of the grant files did not contain  documentation that Education, prior to award, screened the applicants for  eligibility, and 68 percent of the grant files did not contain documentation  of a thorough analysis of the applicant’s requested budget to determine  whether all costs were allowable. Program officials assured us that they  perform both of these checks and acknowledged that documentation of  the checks should be in the file.
section_title: Education Selected Unsolicited Proposals That Varied Greatly in Content and Provided Extensive Technical Assistance
paragraphs: While Education has taken steps to centralize and improve its process for  reviewing unsolicited proposals, it based its screening decisions on  proposals that varied greatly and frequently provided extensive technical  assistance. Prior to a departmental reorganization, Education officials told  us there was no established process for considering unsolicited  applications; instead, various offices within Education ushered select  applications through a peer review process, and the Secretary decided  among those which to fund. In December 2002, the Secretary notified the  various offices within the department to send any unsolicited proposals  relating to elementary and secondary education initiatives to OII for  review.
In 2003, OII developed a process for reviewing unsolicited proposals to  determine which would be asked to submit an application for peer review.  To select among the proposals received, senior OII officials told us they  chose those proposals that aligned with the Secretary’s priorities. At the  beginning of the year, these officials said they met with the Secretary to  discuss his priorities and then, over the course of the year, selected some  that matched the Secretary’s priorities to submit full applications. In 2004,  Education’s IG reviewed OII’s process to ensure that it complied with  departmental regulations and policy and found that it failed to document  compliance with a number of regulatory requirements. Specifically, the IG  reported that Education was not documenting whether unsolicited  proposals that had been selected for peer review had been screened to  ensure, among other things, that there was a substantial likelihood that the  application was of exceptional quality and national significance, as  required by regulations. In response to the IG’s findings, OII began to  document the required screenings by including a memo in the grant file for  each proposal that it planned to forward to peer review certifying, among  other things, that there was a substantial likelihood that peer reviewers  would deem the proposal to be of exceptional quality and national  significance.
While Education developed a standard process for reviewing unsolicited  proposals, these proposals varied greatly in content and detail. OII officials  said that the proposals could range from multipage documents from  experienced grantees to less formal proposals—sometimes one-page  letters or e-mails—from novice grantees. OII does not require that  proposals be in a standard format before it selects which ones to forward  to peer reviewers. OII officials told us it was often difficult to discern from  the submitted material which proposals would ultimately gain the support  of the peer reviewers. Nonetheless, OII made its determinations that  proposals were likely to meet regulatory requirements of national  significance and exceptional quality on the basis of these varying  proposals. OII officials said that because the regulatory criteria defining  significance and quality are broad many of the proposals submitted  during the year met the criteria.
OII officials said that they were concerned that if they had to promulgate  rules governing the format or topics for unsolicited proposals, they might  be overwhelmed with applicants. However, another office within  Education—the Institute of Education Sciences (IES)—invites unsolicited  research proposals and requires a standard submission. IES’ invitation  provides guidance on standardized presentation formats—proposals are  limited to six pages—and imposes deadlines on submitting the proposals  to IES.
We also found that OII provided extensive technical assistance to some  applicants. Our file review of unsolicited proposals showed that in many  cases OII staff were in regular communication with the applicants,  provided them with suggestions for how to organize and structure the  narrative portion of their applications, assisted them in preparing  proposed budgets, and commented on drafts of their applications.
In 2003, despite Education’s screening and technical assistance efforts,  peer reviewers gave low scores to 14 of 42 applicants, and Education  funded 13 of these low-scoring proposals. (See appendix II for a list of  grants awarded in 2003 based on unsolicited proposals). In its 2004 study,  the IG found that OII failed to comply with regulations that make funding  for unsolicited proposals contingent on recommendations from peer  reviewers. In response to the IG’s findings and to comply with the  regulation, OII began, in 2004, to ask the peer reviewers to provide  recommendations for or against funding, rather than just having them  provide a numerical score for each proposal.
However, in 2004, if peer review failed to recommend approving a  proposal that OII had selected, OII provided the applicants with the  reviewers’ comments and asked them to rewrite their proposals. In 2004,  10 of the 27 applicants failed to garner the reviewers’ support. Of those   10 grantees, 2 declined to resubmit their applications—citing time  constraints—and were not approved. The remaining eight applicants  revised their proposals and were subsequently recommended for approval  by peer reviewers after the revisions were submitted. All eight were  approved and funded. (See app. III for a list of grants awarded in 2004  based on unsolicited proposals).
section_title: Conclusions
paragraphs: The Department of Education has the responsibility to ensure that when it  makes discretionary grant awards it follows a transparent and fair process  that results in awards to deserving eligible applicants. In the case of  unsolicited applications, OII’s process is designed to meet statutory and  regulatory requirements. However, Education based its decisions about  the likely national significance and quality of proposals on information  that varied greatly in detail and, as a result, sent applications forward for  peer review that sometimes required extensive revisions. Without  requiring a more uniform format for unsolicited proposals, OII may not  have adequate information on which to base its screening decisions.
Regarding its competitive awards process, the department has put in place  management controls that, if followed, provide a reasonable assurance  that awards are made appropriately. These controls protect the integrity  and transparency of the departmental grant award process by requiring,  among other things, that competition plans are finalized prior to the  competition, that any changes to such plans are documented and  approved, that grantees are screened for competency and eligibility, and  that departmental officials determine that proposed activities are  allowable under the law. When the department does not consistently  follow these procedures, as we found to be the case, the integrity of its  competitive grant award process may be undermined. Furthermore, in the  absence of such diligence, actions taken that benefit specific grantees,  such as those we found in 2001 and 2002, could happen again.
section_title: Recommendations for Executive Action
paragraphs: We are making four recommendations to the Secretary of Education to  address certain shortcomings in the department’s grant-making policies  through a variety of executive actions designed to promote fairness,  enhance transparency, and provide greater access to funding  opportunities. Specifically, to improve the process for selecting and  awarding grants based on unsolicited proposals, we are recommending  that the Secretary    develop a more systematic format to select unsolicited proposals for  further consideration by peer reviewers.
In addition, to ensure fairness and improve transparency in the  competitive grants process, we recommend that the Secretary take the  following steps:    Ensure that all competition plans are finalized before competitions  begin and if a plan needs to be amended during a competition, the  Secretary should provide assurances that any such amendment is  justified in writing and has been approved by a senior department  official.  Implement departmental policy to screen all applicants for compliance  with audit requirements before the award, and ensure that outstanding  audit issues—if there are any—are addressed before making an award.
Take appropriate steps to ensure that program officers better  document required checks such as budget analyses and eligibility  screening.
section_title: Agency Comments
paragraphs: Education provided us with comments on a draft of this report; these  comments appear in appendix III. Education also provided technical  comments that we incorporated as appropriate. Education agreed with   3 of our recommendations for improving the transparency of its  competitive review process and said it has already taken steps to improve  its guidance and training. Specifically, it agreed to (1) finalize competition  plans before the competitions begin and obtain approvals from senior  department officials for any amendments to the plans, (2) ensure that  program officers better document their analyses of applicants’ budgets  and eligibility, and (3) implement departmental policy to screen all  applicants for compliance with audit requirements before awarding any  new grants.
Education disagreed with our recommendation that it develop a more  systematic approach—modeled after the approach used by IES—to select  unsolicited proposals for further consideration by peer reviewers.  Education said implementation of our recommendation would not help it  to select high-quality applications because of the broad nature of the FIE  program. We disagree and think that collecting some systematic  information would enhance Education’s ability to more effectively screen  the quality of its applicants and enhance the transparency and consistency  of this process. As we reported, Education officials acknowledge that, due  to the nature of the proposals, it is often difficult to make quality screening  decisions. We acknowledge that FIE awards and IES’ research grants are  fundamentally different, but we point out that the FIE program does not  necessarily need to collect information that is as detailed or that would  place unnecessary burdens on organizations seeking FIE funds. To make it  clear that Education should focus on developing a systematic approach to  selecting unsolicited proposals rather than duplicating the approach used  by IES, we have modified our recommendation and removed reference to  IES.
As agreed with your staff, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after its  issue date. At that time, we will send copies of this report to the Secretary  of Education, Education’s OII, relevant congressional committees, and  other interested parties. We will also make copies available to others upon  request. In addition, the report will be made available at no charge on  GAO’s Web site at http://www.gao.gov.
If you or your staff have any questions regarding this report, please  contact me at (202) 512-7215. Contact points for our Offices of  Congressional Relations and Public Affairs are listed on the last page of  this report. Key contributors are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: This appendix discusses in detail our scope and methodology for   (1) reviewing Education’s grant award decisions for the 2001 and 2002  grants in question to determine whether the department had followed its  policies in place at the time, (2) assessing the department’s policies and  procedures in place in 2003 and 2004 for the competitive awards process  and determining whether Education followed them in making such awards  in those years, and (3) assessing Education’s process for reviewing  unsolicited proposals in 2003 and 2004.
subsections: section_title: Scope
paragraphs: To review Education’s grant award decisions for the 2001 and 2002 grants,  we limited our in-depth inquiry to the three grants in question. These  grants were awarded before Education reorganized in 2003. In 2003,  Education created OII and consolidated a number of grant programs with  it. The grants in question were funded from programs that are now housed  in OII. In addition, in 2003 Education published revised agency guidance  on awarding. This guidance governs the policies and procedures program  staff must follow in holding grant competitions and in awarding grants.  Consequently, we chose 2003 and 2004 as the time period for our  systematic review of both competitive grants and grants based on  unsolicited proposals.
We used the department’s GAPS to identify all grants awarded in 2003 and  2004. We assessed the reliability of the data in GAPS and found it to be  reliable for our purposes. We reviewed the competition files from all   25 discretionary grant competitions held in 2003 and 2004. During this   2-year period, a total of 521 grants were awarded. Ten of these grants were  for $15 million or more; we selected all of these grants for review. Of the  remaining 511 competitive grants awarded for amounts under $15 million,  we selected a random sample of 81 additional grants to review. The  sample size was calculated to achieve a precision of plus or minus   10 percent for an attribute estimate with an expected proportion of   50 percent and a 95 percent confidence level. With this probability sample,  each grant in the population had a known nonzero probability of being  selected. Each sample grant was subsequently weighted in the analysis to  account statistically for all the members of the population, including those  that were not selected. All percentage estimates from this sample have  margins of error of plus or minus 10 percent or less.
In addition to 91 competitive awards, we examined all 65 grants based on  unsolicited proposals made by OII during 2003 and 2004. In 2003,   $64 million was awarded to 41 unsolicited grantees; in 2004,   $17.5 million was awarded to 24 unsolicited grantees.
The grantees we examined were collectively awarded $507 million, or   41 percent of the $1.24 billion total competitive and unsolicited grant  funds awarded in 2003 and 2004 by OII.
section_title: Methodology
paragraphs: To review the 2001 and 2002 grants in question to determine whether the  department had followed its policies, we reviewed departmental grant- making guidance in place at the time these grants were awarded and the  official grant files for each of these grants. For the two competitive grants,  we also examined the corresponding files for the competitions that  contain information on all of the applicants’ proposals, the competition  plans, and external reviewers’ rankings and comments. In addition, for the  competitions, we interviewed relevant managers and program officers  responsible for monitoring the grants, program attorneys, and ethics  officials. For the unsolicited grant, we reviewed the official grant file,  including the peer review comments. For comparison, we also reviewed  the expert reviewers’ rankings and comments for all other unsolicited  awards made in 2001. Further, we interviewed program officials  responsible for monitoring the grant.
To assess the department’s policies and procedures in place in 2003 and  2004 for the competitive awards process and determine whether  Education followed them in making such awards in those years, we  examined departmental guidance issued in March 2003 that governed the  grants awarded in those years as well as applicable statutes authorizing  competitions and regulations. Also, we reviewed competition files and  individual grant files for grants awarded during this 2-year period. In  reviewing the competition files, we recorded information in the Federal  Register notice inviting applications, the competition plan, the funding  memo and slate from the Deputy Under Secretary to the Executive  Secretary and information on the funded grantees from the GAPS. We  used a structured instrument to collect information about each grant. In  reviewing each individual grant file, we recorded information on the   (1) grantee’s funding levels, years in the program, and contact information;  (2) application processing by Education, including funding checklists,  application log screening forms, and budget analysis; (3) peer reviewers’  comments and rankings; and (4) single audit database reports. We also  interviewed key program officials from three of OII’s six program offices  to ascertain their familiarity with departmental guidance and to help us  better understand how they implemented the department’s guidance.
Similarly, to assess Education’s process for reviewing unsolicited  proposals in 2003 and 2004, we reviewed departmental guidance and all   65 files for unsolicited grants awarded by OII in 2003 and 2004. We  collected information from this review on the processes used by the  department to assess each successful application for its quality and its  national significance, the level of technical assistance provided to each  successful application, the peer reviewers’ comments on each application,  and any additional post-review support provided to the awardees. Again,  we used a structured instrument to collect information about each grant.  In addition, we interviewed officials responsible for administering grants  based on unsolicited proposals.
We conducted our work between May 2005 and February 2006 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Grants Awarded Based on Unsolicited Proposals (2003-2004)
paragraphs: Appendix II: Grants Awarded Based on  Unsolicited Proposals (2003-2004)
Colorado Children’s Campaign  Black Alliance for Educational Options  Hispanic Council for Reform and Educational  Opportunities  National Council of Negro Women, Inc.
Corporation for Educational Radio and  Television (CERT)
Accountability Works, Inc./Education Leaders  Council  National Alliance of State Science and  Mathematics Coalitions  Research for Better Schools, Inc.
University of Dayton School of Education  Center for Education Innovation—Public  Education Association  National Football Foundation and College  Hall of Fame, Inc  Alpha Kappa Alpha Sorority, Inc.
First & Goal, Inc.
section_title: Appendix III: Comments from the Department of Education
section_title: Appendix IV: GAO Contacts and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: Bryon Gordon, Assistant Director, and Bill Keller, Analyst-in-Charge,  managed this assignment and made significant contributions to all aspects  of this report. Ellen Soltow also made significant contributions, and   Jim Ashley, Joel Grossman, and Jerry Sandau aided in this assignment. In  addition, Richard Burkard and Jim Rebbe assisted in the legal analysis,  and Sue Bernstein assisted in the message and report development.
section_title: Related GAO Products
paragraphs: U.S. Department of Education’s Use of Fiscal Year Appropriations to  Award Multiple Year Grants. B-289801. Washington, D.C.:   December 30, 2002.
Financial Management: Review of Education’s Grantback Account.  GAO/AIMD-00-228. Washington, D.C.: August 8, 2000.
Education Discretionary Grants: Awards Process Could Benefit From  Additional Improvements. GAO/HEHS-00-55. Washington, D.C.: March 30,  2000.
Department of Education Grant Award. GAO/HRD-93-8R. Washington,  D.C.: December 9, 1992.
subsections: section_title: Grants Management
paragraphs: Grants Management: Additional Actions Needed to Streamline and  Simplify Processes. GAO-05-335. Washington, D.C.: April 18, 2005.
Grants Management: EPA Needs to Strengthen Efforts to Provide the  Public with Complete and Accurate Information on Grant  Opportunities. GAO-05-149R. Washington, D.C.: February 3, 2005.
Federal Assistance: Grant System Continues to Be Highly Fragmented.  GAO-03-718T. Washington, D.C.: April 29, 2003.
Welfare Reform: Competitive Grant Selection Requirement for DOT’s Job  Access Program Was Not Followed. GAO-02-213. Washington, D.C.:  December 7, 2001.
Grant Financial System Requirements: Checklist for Reviewing Systems  Under the Federal Financial Management Improvement Act.   GAO-01-911G. Washington, D.C.: September 3, 2001.
Grant Financial System Requirements. GAO/JFMIP-SR-00-3. Washington,  D.C.: June 1, 2000.