Grants Management: EPA Needs to Strengthen Efforts to Address Management Challenges
Published: 2004-03-03T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Environmental Protection Agency (EPA) has long faced problems managing its grants, which constitute over one-half of the agency's annual budget, or about $4 billion. EPA uses grants to implement its programs to protect human health and the environment and awards grants to thousands of recipients, including state and local governments, tribes, universities, and nonprofit organizations. EPA's ability to efficiently and effectively accomplish its mission largely depends on how well it manages its grants resources. This testimony, based on GAO's August 2003 report Grants Management: EPA Needs to Strengthen Efforts to Address Persistent Challenges, GAO-03-846 , focuses on the (1) major challenges EPA faces in managing its grants and how it has addressed these challenges in the past, and (2) extent to which EPA's recently issued policies and grants management plan address these challenges.
section_title: What GAO Found
paragraphs: EPA continues to face four key grants management challenges, despite past efforts to address them. These challenges are (1) selecting the most qualified grants applicants, (2) effectively overseeing grantees, (3) measuring the results of grants, and (4) effectively managing grant staff and resources. In the past, EPA has taken a series of actions to address these challenges by, among other things, issuing policies on competition and oversight, conducting training for project officers and nonprofit organizations, and developing a new data system for grants management. However, these actions had mixed results because of the complexity of the problems, weaknesses in design and implementation, and insufficient management attention. EPA's recently issued policies and a 5-year grants management plan to address longstanding management problems show promise, but these policies and plan require strengthening, enhanced accountability, and sustained commitment to succeed. EPA's September 2002 competition policy should improve EPA's ability to select the most qualified applicants by requiring competition for more grants. However, effective implementation of the policy will require a major cultural shift for EPA managers and staff because the competitive process will require significant planning and take more time than awarding grants noncompetitively. EPA's December 2002 oversight policy makes important improvements in oversight, but it does not enable EPA to identify systemic problems in grants management. For example, the policy does not incorporate a statistical approach to selecting grantees for review so that EPA can project the results of the reviews to all EPA grantees. Issued in April 2003, EPA's 5-year grants management plan does offer, for the first time, a comprehensive road map with objectives, goals, and milestones for addressing grants management challenges. However, in implementing the plan, EPA faces challenges in holding all managers and staff accountable for successfully fulfilling their grants management responsibilities. Without this accountability, EPA cannot ensure the sustained commitment needed for the plan's success. While EPA has begun implementing actions in the plan, GAO believes that, given EPA's historically uneven performance in addressing its grants challenges, congressional oversight is important to ensure that EPA's Administrator, managers, and staff implement the plan in a sustained, coordinated fashion to meet the plan's ambitious targets and time frames.

section_title: Letter
paragraphs: We are pleased to be here today to discuss the Environmental Protection  Agency’s (EPA) management of its grants.  My testimony is based on our  report on this topic issued last August.
EPA has faced persistent challenges for many years in managing its grants,  which constitute over one-half of the agency’s budget, or about $4 billion  annually.  To support its mission of protecting human health and the  environment, EPA awards grants to a variety of recipients, including state  and local governments, tribes, universities, and nonprofit organizations.   There were 4,100 EPA grant recipients when we conducted our review.   Given the size and diversity of EPA’s programs, its ability to efficiently and  effectively accomplish its mission largely depends on how well it manages  its grant resources and builds accountability into its efforts.
Congressional hearings in 1996, 1999, and 2003, have focused on EPA’s  problems in effectively managing its grants.  We and EPA’s Inspector  General have reported on a number of weaknesses throughout the grants  management process—from awarding grants to measuring grant results.   EPA’s efforts to address its grants management problems have not fully  resolved them.  To highlight these problems and hopefully focus greater  attention on their resolution, we designated EPA’s grants management as a  major management challenge in our January 2003 EPA performance and  accountability report.
Late in 2002, EPA issued two new policies to address some of its grants  management problems—one to promote competition in awarding grants  and one to improve its oversight of grants.  In April 2003, EPA issued a  comprehensive 5-year grants management plan to address its long- standing grants management problems.
Our testimony today describes the (1) major challenges EPA faces in  managing its grants and how it has addressed these challenges in the past,  and (2) extent to which EPA’s recently issued policies and grants  management plan address these challenges.
To identify the challenges EPA faces in managing its grants and to  examine how it has addressed these challenges in the past, we (1)  analyzed 93 reports on EPA’s grants management, including our reports,  EPA’s Inspector General reports, and EPA’s internal management reviews  conducted from 1996 through 2003, (2) systematically reviewed and  recorded information from the 1,232 records of calendar year 2002 in- depth reviews of grantee performance—from financial management to  progress in achieving grant objectives, and (3) interviewed EPA officials  and reviewed documents obtained from them.  To determine the extent to  which EPA’s recently issued policies and grants management plan address  these challenges, we (1) reviewed the new policies and plan and  interviewed EPA officials responsible for key aspects of the plan, (2)  attended EPA’s grants management training courses, and (3) observed five  EPA in-depth reviews of grantees.  This testimony is based on GAO’s  report for which audit work was conducted from June 2002 through June  2003 in accordance with generally accepted government auditing  standards.
In summary, we found the following:    EPA faces four key management challenges.  These challenges are (1)  selecting the most qualified grant applicants, (2) effectively overseeing  grantees, (3) measuring the results of grants, and (4) effectively managing  grant staff and resources.  In the past, EPA has taken a series of actions to  address these challenges by, among other things, issuing policies,  conducting training, and developing a new data system for grants  management.  However, these actions had mixed results because of the  complexity of the problems, weaknesses in design and implementation,  and insufficient management attention.
EPA’s 2002 competition and oversight policies and 2003 grants  management plan focus on the major grants management challenges we  identified but will require strengthening, enhanced accountability, and a  sustained commitment to succeed.
We made recommendations in our report to the EPA Administrator to  strengthen grants management, specifically in overseeing grantees,  measuring environmental outcomes, incorporating accountability for  grants management responsibilities, considering promising practices, and  reporting on the progress of its efforts in its annual report to Congress.   EPA agreed with our recommendations and is in the process of  implementing them as part of its 5-year grants management plan.
subsections: section_title: Background
paragraphs: EPA administers and oversees grants primarily through the Office of  Grants and Debarment, 10 program offices in headquarters, and program  offices and grants management offices in EPA’s 10 regional offices.  Figure  1 shows EPA’s key offices involved in grants activities for headquarters  and the regions.
The management of EPA’s grants program is a cooperative effort involving  the Office of Administration and Resources Management’s Office of Grants  and Debarment, program offices in headquarters, and grants management  and program offices in the regions.  The Office of Grants and Debarment  develops grant policy and guidance.  It also carries out certain types of  administrative and financial functions for the grants approved by the  headquarters program offices, such as awarding grants and overseeing the  financial management of these grants.  On the programmatic side,  headquarters program offices establish and implement national policies  for their grant programs, and set funding priorities.  They are also  responsible for the technical and programmatic oversight of their grants.   In the regions, grants management offices carry out certain administrative  and financial functions for the grants, such as awarding grants approved  by the regional program offices, while the regional program staff provide  technical and programmatic oversight of their grantees.
As of June 2003, 109 grants specialists in the Office of Grants and  Debarment and the regional grants management offices were largely  responsible for administrative and financial grant functions.  Furthermore,  1,835 project officers were actively managing grants in headquarters and  regional program offices.  These project officers are responsible for the  technical and programmatic management of grants.  Unlike grant  specialists, however, project officers generally have other primary  responsibilities, such as using the scientific and technical expertise for  which they were hired.
In fiscal year 2002, EPA took 8,070 grant actions totaling about $4.2  billion.These awards were made to six main categories of recipients as  shown in figure 2.
EPA offers two types of grants—nondiscretionary and discretionary:      Nondiscretionary grants support water infrastructure projects, such as  the drinking water and clean water state revolving fund programs, and  continuing environmental programs, such as the Clean Air Program for  monitoring and enforcing Clean Air Act regulations.   For these grants,  Congress directs awards to one or more classes of prospective recipients  who meet specific eligibility criteria; the grants are often awarded on the  basis of formulas prescribed by law or agency regulation.  In fiscal year  2002, EPA awarded about $3.5 billion in nondiscretionary grants.  EPA has  awarded these grants primarily to states or other governmental entities.
Discretionary grants fund a variety of activities, such as environmental  research and training.  EPA has the discretion to independently determine  the recipients and funding levels for grants.  In fiscal year 2002, EPA  awarded about $719 million in discretionary grants.  EPA has awarded  these grants primarily to nonprofit organizations, universities, and  government entities.
The grant process has the following four phases:     Preaward.  EPA reviews the application paperwork and makes an award  decision.
Award.  EPA prepares the grant documents and instructs the grantee on  technical requirements, and the grantee signs an agreement to comply  with all requirements.
Postaward.  After awarding the grant, EPA provides technical assistance,  oversees the work, and provides payments to the grantee; the grantee  completes the work, and the project ends.
Closeout of the award.  EPA ensures that all technical work and  administrative requirements have been completed; EPA prepares closeout  documents and notifies the grantee that the grant is completed.
EPA’s grantees are subject to the same type of financial management  oversight as the recipients of other federal assistance.  Specifically, the  Single Audit Act requires grantees to have an audit of their financial  statements and federal awards or program-specific audit if they spend  $300,000 or more in federal awards in a fiscal year.,  Grantees submit  these audits to a central clearinghouse operated by the Bureau of the  Census, which then forwards the audit findings to the appropriate agency  for any necessary action.  However, the act does not cover all grants and  all aspects of grants management and, therefore, agencies must take  additional steps to ensure that federal funds are spent appropriately.  In  addition, EPA conducts in-depth reviews to analyze grantees’ compliance  with grant regulations and specific grant requirements.  Furthermore, to  determine how well offices and regions oversee grantees, EPA conducts  internal management reviews that address grants management.
The Office of Management and Budget, as authorized by the act, increased this amount to  $500,000 in federal awards as of June 23, 2003. closeouts, as a material weakness—an accounting and internal control  system weakness that the EPA Administrator must report to the President  and Congress.  EPA’s fiscal year 1999 Federal Managers’ Financial  Integrity Act report indicated that this oversight material weakness had  been corrected, but the Inspector General testified that the weakness  continued.  In 2002, the Inspector General again recommended that EPA  designate grants management as a material weakness.  The Office of  Management and Budget (OMB) also recommended in 2002 that EPA  designate grants management as a material weakness.  In its fiscal year  2002 Annual Report, EPA ultimately decided to maintain this issue as an  agency-level weakness, which is a lower level of risk than a material  weakness.  EPA reached this decision because it believes its ongoing  corrective action efforts will help to resolve outstanding grants  management challenges.  However, in adding EPA’s grants management to  our list of EPA’s major management challenges in January 2003, we  signaled our concern that EPA has not yet taken sufficient action to  ensure that it can manage its grants effectively.
section_title: EPA Faces Four Key Grants Management Challenges, Despite Past Efforts to Address Them
paragraphs: We identified four key challenges that EPA continues to face in managing  its grants.   These challenges are (1) selecting the most qualified grant  applicants, (2) effectively overseeing grantees, (3) measuring the results of  grants, and (4) effectively managing grant staff and resources.  In the  past, EPA has taken a series of actions to address these challenges by,  among other things, issuing policies on competition and oversight,  conducting training for project officers and nonprofit organizations, and  developing a new data system for grants management.  However, these  actions had mixed results because of the complexity of the problems,  weaknesses in design and implementation, and insufficient management  attention.
EPA has not selected the most qualified applicants despite issuing a  competition policy.  The Federal Grant and Cooperative Agreement Act of  1977 encourages agencies to use competition in awarding grants.  To  encourage competition, EPA issued a grants competition policy in 1995.   However, EPA’s policy did not result in meaningful competition  throughout the agency, according to EPA officials.  Furthermore, EPA’s  own internal management reviews and a 2001 Inspector General report  found that EPA has not always encouraged competition. Finally, EPA has  not always engaged in widespread solicitation of its grants, which would  provide greater assurance that EPA receives proposals from a variety of  eligible and highly qualified applicants who otherwise may not have  known about grant opportunities.
EPA has not always effectively overseen grant recipients despite past  actions to improve oversight.  To address oversight problems, EPA issued  a series of policies starting in 1998.  However, these oversight policies  have had mixed results in addressing this challenge.  For example, EPA’s  efforts to improve oversight included in-depth reviews of grantees but did  not include a statistical approach to identifying grantees for reviews,  collecting standard information from the reviews, and a plan for analyzing  the results to identify and act on systemic grants management problems.   EPA, therefore, could not be assured that it was identifying and resolving  grantee problems and using its resources more effectively to target its  oversight efforts.
EPA’s efforts to measure environmental results have not consistently  ensured that grantees achieve them.  Planning for grants to achieve  environmental results—and measuring results—is a difficult, complex  challenge.  However, as we pointed out in an earlier report, it is  important to measure outcomes of environmental activities rather than  just the activities themselves.  Identifying and measuring the outcomes of  EPA’s grants will help EPA better manage for results.  EPA has awarded  some discretionary grants before considering how the results of the  grantees’ work would contribute to achieving environmental results. EPA  has also not developed environmental measures and outcomes for all of its  grant programs.  OMB found that four EPA grant programs lacked  outcome-based measures—measures that demonstrated the impact of the  programs on improving human health and the environment—and  concluded that one of EPA’s major challenges was demonstrating program  effectiveness in achieving public health and environmental results.   Finally, EPA has not always required grantees to submit work plans that  explain how a project will achieve measurable environmental results.  In  2002, EPA’s Inspector General reported that EPA approved some grantees’  work plans without determining the projects’ human health and  environmental outcomes.  In fact, for almost half of the 42 discretionary  grants the Inspector General reviewed, EPA did not even attempt to  measure the projects’ outcomes. Instead, EPA funded grants on the basis  of work plans that focused on short-term procedural results, such as  meetings or conferences.  In some cases, it was unclear what the grant had  accomplished.  In 2003, the Inspector General again found the project  officers had not negotiated environmental outcomes in work plans.  The  Inspector General found that 42 percent of the grant work plans  reviewed—both discretionary and nondiscretionary grants—lacked  negotiated environmental outcomes.
EPA has not always effectively managed its grants staff and resources  despite some past efforts.  EPA has not always appropriately allocated the  workload for staff managing grants, provided them with adequate training,  or held them accountable.  Additionally, EPA has not always provided staff  with the resources, support, and information necessary to manage the  agency’s grants.  To address these problems, EPA has taken a number of  actions, such as conducting additional training and developing a new  electronic grants management system.  However, implementation  weaknesses have precluded EPA from fully resolving its resource  management problems.  For example, EPA has not always held its staff— such as project officers—accountable for fulfilling their grants  management responsibilities.  According to the Inspector General and  internal management reviews, EPA has not clearly defined project officers’  grants management responsibilities in their position descriptions and  performance agreements.  Without specific standards for grants  management in performance agreements, it is difficult for EPA to hold  staff accountable.  It is therefore not surprising that, according to the  Inspector General, project officers faced no consequences for failing to  effectively perform grants management duties.  Compounding the  accountability problem, agency leadership has not always emphasized the  importance of project officers’ grants management duties.
section_title: New Policies and Plan Show Promise but Require Strengthening, Enhanced Accountability, and Sustained Commitment to Succeed
paragraphs: EPA’s recently issued policies on competition and oversight and a 5-year  grants management plan to address its long-standing grants management  problems are promising and focus on the major management challenges,  but these policies and plan require strengthening, enhanced  accountability, and sustained commitment to succeed.
EPA’s competition policy shows promise but requires a major cultural  shift.  In September 2002, EPA issued a policy to promote competition in  grant awards by requiring that most discretionary grants be competed.   The policy also promotes widespread solicitation for competed grants by  establishing specific requirements for announcing funding opportunities  in, for example, the Federal Register and on Web sites.
This policy should encourage selection of the most qualified applicants.   However, the competition policy faces implementation barriers because it  represents a major cultural shift for EPA staff and managers, who have  had limited experience with competition, according to EPA’s Office of  Grants and Debarment.  The policy requires EPA officials to take a more  planned, rigorous approach to awarding grants.  That is, EPA staff must  determine the evaluation criteria and ranking of these criteria for a grant,  develop the grant announcement, and generally publish it at least 60 days  before the application deadline.  Staff must also evaluate applications— potentially from a larger number of applicants than in the past—and notify  applicants of their decisions.  These activities will require significant  planning and take more time than awarding grants noncompetitively.
Oversight policy makes important improvements but requires  strengthening to identify systemic problems.  EPA’s December 2002  policy makes important improvements in oversight, but it still does not  enable EPA to identify systemic problems in grants management.   Specifically, the policy does not (1) incorporate a statistical approach to  selecting grantees for review so EPA can project the results of the reviews  to all EPA grantees, (2) require a standard reporting format for in-depth  reviews so that EPA can use the information to guide its grants oversight  efforts agencywide, and  (3) maximize use of information in its grantee  compliance database to fully identify systemic problems and then inform  grants management officials about oversight areas that need to be  addressed.
Grants management plan will require strengthening, sustained  commitment, and enhanced accountability.  We believe that EPA’s grants  management plan is comprehensive in that it focuses on the four major  management challenges—grantee selection, oversight, environmental  results, and resources—that we identified in our work.  For the first time,  EPA plans a coordinated, integrated approach to improving grants  management.  The plan is also a positive step because it (1) identifies  goals, objectives, milestones, and resources to achieve the plan’s goals; (2)  provides an accompanying annual tactical plan that outlines specific tasks  for each goal and objective, identifies the person accountable for  completing the task, and sets an expected completion date; (3) attempts to  build accountability into grants management by establishing performance  measures for each of the plan’s five goals; (4) recognizes the need for  greater involvement of high-level officials in coordinating grants  management throughout the agency by establishing a high-level grants  management council to coordinate, plan, and set priorities for grants  management; and (5) establishes best practices for grants management  offices.  According to EPA’s Assistant Administrator for Administration  and Resources Management, the agency’s April 2003 5-year grants  management plan is the most critical component of EPA’s efforts to  improve its grants management.
In addition to the goals and objectives, the plan establishes performance  measures, targets, and action steps with completion dates for 2003 through  2006.  EPA has already begun implementing several of the actions in the  plan or meant to support the plan; these actions address previously  identified problems.  For example, EPA now posts its available grants on  the federal grants Web site http://www.fedgrants.gov.  In January 2004,  EPA issued an interim policy to require that grant funding packages  describe how the proposed project supports the goals of EPA’s strategic  plan.
Successful implementation of the new plan requires all staff—senior  management, project officers, and grants specialists—to be fully  committed to, and accountable for, grants management.  Recognizing the  importance of commitment and accountability, EPA’s 5-year grants  management plan has as one of its objectives the establishment of clear  lines of accountability for grants oversight.  The plan, among other things,  calls for (1) ensuring that performance standards established for grants  specialists and project officers adequately address grants management  responsibilities in 2004; (2) clarifying and defining the roles and  responsibilities of senior resource officials, grant specialists, project  officers, and others in 2003; and (3) analyzing project officers’ and grants  specialists’ workload in 2004.
In implementing this plan, however, EPA faces challenges to enhancing  accountability.  Although the plan calls for ensuring that project officers’  performance standards adequately address their grants management  responsibilities, agencywide implementation may be difficult.  Currently,  project officers do not have uniform performance standards, according to  officials in EPA’s Office of Human Resources and Organizational Services.   Instead, each supervisor sets standards for each project officer, and these  standards may not include grants management responsibilities.   Once  individual project officers’ performance standards are established for the  approximately 1,800 project officers, strong support by managers at all  levels, as well as regular communication on performance expectations and  feedback, will be key to ensuring that staff with grants management duties  successfully meet their responsibilities.   Furthermore, it is difficult to  implement performance standards that will hold project officers  accountable for grants management because these officers have a variety  of responsibilities and some project officers manage few grants, and  because grants management responsibilities often fall into the category of  “other duties as assigned.”
Although EPA’s current performance management system can  accommodate development of performance standards tailored to each  project officer’s specific grants management responsibilities, the current  system provides only two choices for measuring performance— satisfactory or unsatisfactory—which may make it difficult to make  meaningful distinctions in performance.  Such an approach may not  provide enough meaningful information and dispersion in ratings to  recognize and reward top performers, help everyone attain their maximum  potential, and deal with poor performers.
EPA will also have difficulty achieving the plan’s goals if all managers and  staff are not held accountable for grants management.  The plan does not  call for including grants management standards in managers’ and  supervisors’ agreements.  In contrast, senior grants managers in the Office  of Grants and Debarment as well as other Senior Executive Service  managers have performance standards that address grants management  responsibilities.  However, middle-level managers and supervisors also  need to be held accountable for grants management because they oversee  many of the staff that have important grants management responsibilities.   According to Office of Grants and Debarment officials, they are working  on developing performance standards for all managers and supervisors  with grants responsibilities.  In November 2003, EPA asked key grants  managers to review all performance standards and job descriptions for  employees involved in grants management, including grants specialists,  project officers, supervisors, and managers, to ensure that the complexity  and extent of their grant management duties are accurately reflected.
Further complicating the establishment of clear lines of accountability, the  Office of Grants and Debarment does not have direct control over many of  the managers and staff who perform grants management duties— particularly the approximately 1,800 project officers in headquarters and  regional program offices.  The division of responsibilities between the  Office of Grants and Debarment and program and regional offices will  continue to present a challenge to holding staff accountable and improving  grants management, and will require the sustained commitment of EPA’s  senior managers.
If EPA is to better achieve its environmental mission, it must more  effectively manage its grants—which account for more than half of its  annual budget.  While EPA’s new 5-year grants management plan shows  promise, given EPA’s historically uneven performance in addressing its  grants management challenges, congressional oversight is important to  ensure that the Administrator of EPA, managers, and staff implement the  plan in a sustained, coordinated fashion to meet the plan’s ambitious  targets and time frames.
To ensure that EPA’s recent efforts to address its grants management  challenges are successful, in our August 2003 report, we recommended  that the Administrator of EPA provide sufficient resources and  commitment to meeting the agency’s grants management plan’s goals,  objectives, and performance targets within the specified timeframes.   Furthermore, to strengthen EPA’s efforts we recommended  incorporating appropriate statistical techniques in selecting grantees for  in-depth reviews; requiring EPA staff to use a standard reporting format for in-depth reviews  so that the results can be entered into the grant databases and analyzed  agencywide;   developing a plan, including modifications to the grantee compliance  database, to use data from its various oversight efforts—in-depth reviews,  significant actions, corrective actions taken, and other compliance  information—to fully identify systemic problems, inform grants  management officials of areas that need to be addressed, and take  corrective action as needed;   modifying its in-depth review protocols to include questions on the status  of grantees’ progress in measuring and achieving environmental outcomes; incorporating accountability for grants management responsibilities  through performance standards that address grants management for all  managers and staff in headquarters and the regions responsible for grants   management and holding managers and staff accountable for meeting  these standards; and   evaluating the promising practices identified in the report and  implementing those that could potentially improve EPA grants  management.
To better inform Congress about EPA’s achievements in improving grants  management, we recommended that the Administrator of EPA report on  the agency’s accomplishments in meeting the goals and objectives  developed in the grants management plan and other actions to improve  grants management, beginning with its 2003 annual report to Congress.
EPA agreed with our recommendations and is in the process of  implementing them as part of its 5-year grants management plan.
Mr. Chairman, this concludes my prepared statement.  I would be happy to  respond to any questions that you or Members of the Committee may  have.
section_title: Contacts and Acknowledgments
paragraphs: For further information, please contact John B. Stephenson at (202) 512- 3841.  Individuals making key contributions to this testimony were Carl  Barden, Andrea W. Brown, Christopher Murray, Paul Schearf, Rebecca  Shea, Carol Herrnstadt Shulman, Bruce Skud, and Amy Webbink.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.