Grants Management: Attention Needed to Address Undisbursed Balances in Expired Grant Accounts
Published: 2008-08-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2006, the subcommittee concluded there was a need for increased accountability and transparency for unspent funds in federal programs and agencies, and requested GAO review the status of balances not drawn down by grantees by the time the grants' period of availability had ended. GAO was asked to answer these questions: (1) to what extent are there undisbursed grant balances in expired grant accounts and do they share any program characteristics?; and (2) do these expired grants share grant management challenges and how have federal agencies improved grant closeout and diminished undisbursed balances? To do this, GAO analyzed grant balance data from the largest federal grant payment system; reviewed grant management problems and corrective actions from more than 150 audit reports; and reviewed guidance from the Office of Management and Budget (OMB) and the Code of Federal Regulations.
section_title: What GAO Found
paragraphs: During calendar year 2006, about $1 billion in undisbursed funding remained in expired grant accounts in the largest civilian payment system for grants--the Payment Management System (PMS). PMS is administered by the Department of Health and Human Services and makes payments for about 70 percent of grants and for 12 federal entities. Undisbursed funding is funding the federal government has obligated through a grant agreement, but which the grantee has not entirely spent. Among all of the expired grant accounts in PMS that remained open, these undisbursed funds typically represented about 1 percent of the total funds originally made available for these grants--meaning grantees had spent most of their available funds. However, when expired grant accounts with no funds remaining were excluded and the focus was narrowed to just expired grant accounts with undisbursed balances, GAO found the amount of undisbursed funding represented, on average, about 26 percent of the original funding made available. The expired but still open grant accounts were associated with thousands of grantees and over 325 different federal programs. GAO also found that expired grant accounts with the largest undisbursed balances in PMS for calendar years 2003 through 2006 shared a few common program characteristics. However, the results could not be compared to program characteristics for all closed federal grants or all closed grants using PMS, during this period, due to the burden of collecting comparable data for all closed federal grants from eight other federal civilian payments systems or for all closed grants from PMS. Past audits of federal agencies by GAO and Inspectors General and annual performance reports by at least 8 federal agencies in 2006 and 2007 suggested that grant management challenges including grant closeouts and undisbursed balances are a long-standing problem. Closeout procedures ensure grantees have met all financial requirements, provided final reports, and that unused funds are deobligated. The audits generally attributed the problems to inadequacies in awarding agencies' grant management processes, including closeouts as a low management priority, inconsistent closeout procedures, poorly timed communications with grantees, or insufficient compliance or enforcement. However, when federal agencies, such as the Departments of Health and Human Services and Justice, and the Environmental Protection Agency, took corrective actions, there were improvements in grant closeouts and resolution of undisbursed funding. The actions taken by these three agencies generally focused on making grant closeouts a higher agency management priority, as noted in their recent performance reports, and on improving overall closeout processing. Using federal payment systems to track undisbursed funding in expired grant accounts and including the status of grant closeouts in annual performance reports could raise the visibility of the problem both within the agency and governmentwide, and lead to improvements in grant closeouts and minimize undisbursed balances. OMB circulars do not currently require federal agencies to track and report on undisbursed funding in expired grant accounts.

section_title: Letter
paragraphs: The federal government’s reliance on grants to achieve national objectives  and respond to significant trends, such as an aging population and  changing threats to national security, has grown significantly. According to  Office of Management and Budget (OMB) estimates, from 2000 through  2006, federal grant awards to nonfederal entities, such as states and  nonprofit organizations, increased from $300 billion to over $450 billion.  Grants now represent about one-sixth of the federal budget. If even a small  fraction of total grant funding is not spent in a prudent and timely fashion,  it can create potential problems for the federal government. The existence  of unspent funds can hinder the achievement of national objectives in  various ways, such as leaving projects incomplete, preventing the  reallocation of scarce resources to address other needs, or making federal  funds more susceptible to improper spending or accounting as monitoring  diminishes over time. In times of constrained resources, it is vital for  federal agencies to maximize the performance of their programs in order  to meet long-term goals.
In the spring of 2006, your subcommittee concluded there was a need for  increased accountability and transparency for unspent funds in federal  programs and agencies. You requested that we review the status of grant  funds that grantees had not drawn down by the time the grants’ period of  availability had ended (i.e., “expired”). To respond to your request, we  identified and analyzed data from the largest federal civilian grant payment  management system—accounting for about 70 percent of federal  disbursements to grantees in 2006—to focus on agency-level grant  accounts that remained open after their expiration date (hereafter, referred to as “expired grant accounts”) and had unspent funds in the form  of undisbursed balances. Undisbursed balances are funds that the federal  government has obligated by entering into a grant agreement, but the  grantee has not drawn down (“disbursed”). These funds were obligated  from the federal perspective. However, once the grant’s period of  availability to the grantee has expired, the grant could be closed out and  the funds deobligated by the awarding agency. Grant closeout procedures  ensure that grantees have met all financial requirements, provided their  final reports, and returned any undisbursed balances.
Based on your request, this report answers these questions: (1) to what  extent are there undisbursed grant balances in expired grant accounts and  do they share any program characteristics?; and (2) do these expired  grants share grant management challenges and what actions have federal  agencies taken to improve grant closeout and diminish undisbursed  balances?
To address our objectives, we analyzed data on undisbursed balances in  expired agency grant accounts and reviewed federal regulations, audit  reports, and annual performance reports relating to grant closeouts. To  identify the status of undisbursed balances in expired grant accounts, we  collected and analyzed 4 calendar years (from 2003 through 2006) of  quarterly payment data for grants with defined spending periods that  executed payments through the Department of Health and Human  Services’ (HHS) Payment Management System (PMS). PMS is the largest  of the nine civilian federal payment systems. In 2006, it handled about 70  percent of all federal grant disbursements. As of August 2007, PMS  provided payment services to nine federal departments, an independent  agency, a government corporation, and the Office of National Drug  Control Policy (ONDCP) within the Executive Office of the President. We  used program information from the Catalog of Federal Domestic  Assistance (CFDA) to identify key program characteristics that were  associated with the expired grant accounts in PMS. We analyzed payment  data for expired grant accounts in PMS, from 2003 through 2006, as a  complete set of current PMS customers, rather than analyzing specific  federal agencies or grant programs. To identify federal guidelines on grant  closeouts, we reviewed related OMB circulars and agency regulations. To  identify federal guidelines on performance reporting we reviewed related  OMB circulars. To identify what other auditors found and recommended  as strategies to diminish unspent funds in expired grant accounts, we  conducted a Web-based literature search for related audit reports and  reviewed over 150 reports that we and various federal Inspectors General  (IG) issued from 2000 through 2007, and contacted officials from several  federal IG offices. In addition, we reviewed the 2006 and 2007  Performance and Accountability Reports (PAR) for 15 cabinet-level  executive departments and the Environmental Protection Agency (EPA).  Appendix I provides more information on our methodology and on PMS  and CFDA. We conducted this performance audit from October 2006 to  June 2008, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The federal government uses grants, along with other policy tools, such as  direct services and loans, to achieve national priorities through nonfederal  parties, including state and local governments, educational institutions,  and nonprofit organizations. The federal government uses grants to  implement over 1,200 different programs through over 28 federal  departments and agencies. These programs awarded funding to over  60,000 grantees. The Catalog of Federal Domestic Assistance (CFDA)  provides descriptions of these grant programs, as well as other domestic  assistance programs.
The design and implementation of federal grants varies. For example,  grant programs generally use one of three ways to award funding to  grantees. Formula grants award funds based on distribution formulas  prescribed by legislation or regulation. Project grants generally award  funding for specific periods or specific projects, products, or services. As a  third method, some grant programs award funds using a hybrid of formula  and project-based awarding methods. In addition, federal agencies use a  variety of organizational approaches to implement grant programs. Some  agencies administer many grants through multiple, decentralized  components, while other agencies have small, centralized grant-making  offices that administer only a few grant programs.
Federal grants are typically subject to a wide range of requirements  derived from a combination of program statutes, agency regulations, and  other guidance. They are also subject to many crosscutting requirements  that apply to most federal assistance programs, including statutory  provisions applicable to recipients of federal funds and administrative  requirements such as audit and record keeping and the allowability of  costs.
As a general rule, grant programs are governed by detailed legislation as  well as implementing regulations issued by the responsible agency. Prior  to 1988, each agency issued regulations to govern its grant management,  and OMB Circular No. A-102, Grants and Cooperative Agreements With  State and Local Governments, also provided some governmentwide  guidance for grants to state and local governments. OMB Circular No.  A-110, Uniform Administrative Requirements for Grants and  Agreements With Institutions of Higher Education, Hospitals, and Other  Non-Profit Organizations, provided some guidance for grants to other  types of grantees like hospitals and other nonprofit institutions. In 1987, a  memorandum from the President directed OMB to revise Circular No.  A-102 to specify uniform, governmentwide terms and conditions for grants  to state and local governments, and directed executive branch  departments and agencies to propose and issue common regulations  adopting these terms and conditions verbatim, modified where necessary  to reflect inconsistent statutory requirements. Pursuant to this direction,  the first iteration of what has come to be known as the “common rule”  system was published on June 9, 1987.
There are currently a number of OMB circulars on grants, which provide  guidance only to federal (grantor) agencies; they do not apply directly to  grantees. Therefore, each federal agency has issued largely identical sets  of regulations that prescribe requirements that are binding on their  grantees. These regulations are referred to as the “common rules.” Each  agency’s common rule regulations are codified in the Code of Federal  Regulations.
Grant programs also share a common life cycle for administering the  grants: announcement of grant opportunity, application, award,  postaward, and closeout. During the award stage, the federal awarding  agency enters into an agreement with the grantee. The grant agreement  stipulates the terms and conditions for the use of grant funds such as the  period of time funds are available for the grantee’s use, as noted by a start  and end date. In addition, the awarding agency establishes an account in a  federal payment system to execute payments to the grantee.
During the postaward stage, the grantee carries out the requirements of  the agreement and requests payments, while the awarding agency  approves payments and oversees the grantee. The Payment Management  System (PMS), operated by HHS, went online in 1984 and, as of 2006, was  the largest of the nine civilian federal payment systems. The system, which  handled about 70 percent of all federal grant disbursements in 2006, serves  nine federal departments, an independent agency, a government  corporation, and ONDCP. Appendix I provides a description of PMS and  appendix II provides a recent list of department- and agency-level PMS  customers. According to HHS, PMS is a full-service centralized grants  payment and cash management system. The system is fully automated to  receive payment requests, edit them for accuracy and content, transmit the  payment to either the Federal Reserve Bank or the U.S. Treasury for  deposit into the grantee’s bank account, and record the payment  transactions and corresponding disbursements to the appropriate  accounts. Federal agencies pay HHS a service fee for maintaining accounts  and executing payments through PMS. PMS continues to charge agency  customers a servicing fee until an account is closed.
When the grantee has completed all the work associated with a grant  agreement or the end date for the grant has arrived, or both, the awarding  agency and grantee close out the grant. Closeout procedures ensure that  grantees have met all financial requirements, provided their final reports,  and returned any unexpended balances. To close out a grant, federal  regulations generally require that the    awarding agency ensures the grantee has completed all work and    grantee settles (liquidates) all obligations 90 days after grant end date;    grantee submits all final financial, performance, and other reports within  90 days of grant end date; and    grantee requests an extension of the reporting deadline from the awarding  agency, if required.
These requirements apply when the awarding agency has specified a  funding period for the grant (a start and end date) and has prohibited the  grantee from having carryover balances. In this report, we refer to grants  that were not closed after their end date as “expired” grants and PMS grant  accounts that remained open after the grant’s end date as “expired grant  accounts.”
PMS issues a quarterly report to its customers, referred to as the “closeout  report,” listing expired grant accounts that remain open, and for each  account includes data on the funds made available and the amount of  funds disbursed (i.e., “drawn down” or “charged”). GAO recommended  HHS develop and distribute this type of report in 1987. HHS lists an  account on a quarterly PMS closeout report if the end date for the account  was 3 months old and there was no disbursement in the preceding 9  months.
The closeout is an important grant management procedure because it is  the final point of accountability for grantees. An undisbursed balance in an  expired grant account can be an indication of a potential grant  management problem. Grantees that do not expend their funding may not  be meeting the program objectives for the intended beneficiaries. These  balances may also suggest that awarding agencies or grantees, or both,  may not be managing the funding efficiently or effectively. Effective grants  management, including the completion of grant closeout, increases the  likelihood that awarded grants contribute to agency goals.
An agency or grant program office can track its performance in closing  grants and other grant management procedures using a variety of  measures. In this report, we use the amount of undisbursed funding to  assess one aspect of the performance of the expired grants—their  financial status. Other types of measures track other aspects of  performance, such as the grants’ service quality and customer satisfaction.  The amount of undisbursed funding measures the amount of funds  remaining potentially available for deobligation.
Agencies report to the President and Congress regarding their strategic  plans and actual program performance, including, among other things,  progress on improving grants management and other management  initiatives under the auspices of the Government Performance and Results  Act of 1993 (GPRA). GPRA is part of a statutory framework that seeks to  create a more focused, results-oriented management and decision-making  process within both Congress and the executive branch. The act requires  federal agencies to develop strategic plans with long-term strategic goals,  annual goals linked to achieving the long-term goals, and annual reports  on the results achieved. An agency’s annual performance plan contains the  annual performance goals and associated measures for its programs, as  well as mission-critical management problems identified by the  administration, the agency’s financial audit, and other agency assessments.  An agency’s annual performance report compares its performance against  its goals, summarizes the findings of program evaluations completed  during the year, and describes the actions needed to address any unmet  goals. OMB is responsible for providing guidelines to agencies on  preparing their plans and reports, and for receiving and reviewing  agencies’ strategic plans, annual performance plans, and annual  performance reports. Currently, most agencies report on their annual  performance in their PAR. OMB Circular No. A-11, Preparation,  Submission and Execution of the Budget, provides guidelines on the  content of the performance accountability portion of the PAR, while  Circular No. A-136, Financial Reporting Requirements, provides guidance  on the content of the financial accountability portion of the PAR.
section_title: Undisbursed Balances in Expired Grant Accounts in PMS Were about $1 Billion during 2006
paragraphs: In our review of the closeout data for expired grants that executed  payments through HHS’s PMS, we found the quarterly amount of  undisbursed funding reported as remaining in expired grant accounts  increased from about $600 million in 2003 to about $1 billion during 2006.  These balances typically represented about 1 percent of the total funds  made available for all expired grants in PMS during this period. This  proportion included expired grant accounts with a zero undisbursed  balance (no undisbursed funding) and expired grant accounts with a  positive undisbursed balance (undisbursed funds remaining). Once we  excluded expired grant accounts with a zero balance from the calculation  and narrowed our focus solely to expired grant accounts with undisbursed  balances, the proportion of undisbursed funding relative to total funds  made available increased substantially. Among this smaller set of expired  grant accounts, we found the undisbursed funding ranged between an  average of 14 and 26 percent of the total funds made available for these  grants. We found that, among PMS customers, numerous federal agencies  and grant programs had expired grant accounts containing undisbursed  funds.
subsections: section_title: Expired Grant Accounts with Undisbursed Balances Had Not Spent between an Average of 14 and 26 Percent of Funds Made Available
paragraphs: When we analyzed the quarterly PMS closeout data for 2003 through 2006,  we identified two sets of expired grants accounts. One set consisted of  expired grant accounts for which all of the funds made available had been  disbursed, but still had not been closed. As stated earlier, grant accounts  remain open in PMS, and HHS continues to charge service fees to the  awarding agencies for maintaining accounts and executing payments, until  the awarding agencies indicate to HHS that the account can be closed.  Thus, even though all grant funds have been disbursed, these grant  accounts are continuing to cost the awarding agency through accumulated  PMS service fees. Moreover, the presence of expired grant accounts at  the awarding agency suggests more than a minor administrative oversight.  It suggests that the final point of accountability for these grants, which  includes such important tasks as the submission of financial and  performance reports, was not completed.
We identified a second set of accounts that included those expired  accounts reported as still having an undisbursed balance. On the basis of  our review of expired grant accounts with undisbursed balances, we found  that, from March 2003 through March 2005, the quarterly totals of  undisbursed funding ranged between an average of 14 and 16 percent of  the funding made available for the grants. However, from June 2005  through December 2006, the quarterly balances of undisbursed funding for  these expired grants was near $1 billion, ranging between an average of 24  and 26 percent of the funds made available. These results are for grant  accounts with specific time limits and do not include grant accounts that  do not have specific time limits, such as TANF or Medicaid, because  without a specific time limit, the grants, once awarded, do not expire. The  PMS closeout data results described in the remainder of this report only  pertain to the set of expired grant accounts with undisbursed balances,  unless otherwise noted.
section_title: Numerous Grant Programs Had Expired Grant Accounts Containing Undisbursed Funds
paragraphs: As stated previously, in 2006 PMS was the largest of the nine federal  payment systems, handled about 70 percent of federal grant  disbursements, and served nine federal civilian departments, an  independent agency, a government corporation, and ONDCP. In analyzing  the expired grant accounts with undisbursed balances in the PMS closeout  data from 2003 through 2006, we found these accounts were not confined  to a few federal awarding agencies, grant programs, or grantees. Instead  we found, in 15 of the 16 quarters, at least four of the federal departments  using PMS had over 100 expired grant accounts with undisbursed funding.  Lastly, we found that over 325 different programs administered the  expired grant accounts with undisbursed funding and that thousands of  grantees were associated with these grants.
We analyzed the quarterly balances of undisbursed funding over 4  calendar years, from 2003 through 2006, according to four program  characteristics: size of the funding originally made available to the grantee;  whether program funding was awarded based on a formula or on a project  basis; the grantee organization (entity) receiving the grant; and whether  the program required the grantee to make a contribution to support the  grant activity. We selected these four characteristics because they are  fundamental elements of grant design that could be readily analyzed using  the information from the PMS and the CFDA data sets.
When we compared the undisbursed balances among the types within  each of the four program characteristic categories, we found, for the first  three characteristics, certain types of grants consistently had the largest  quarterly balances. We found the largest quarterly balances of undisbursed  funding to be consistently among expired grant accounts that had neither  the smallest nor the largest funding awards, but rather in the mid-range of  funding awards—that is, with funding awards from over $100,000 to      $100 million. We found accounts with program funding awarded on a  project basis had the largest undisbursed balances compared to those  awarded on a formula basis. Lastly, we also found accounts with grants  awarded to a state organization consistently had the largest undisbursed  balances compared to other types of grantees. However, these results  cannot be compared to the program characteristics of all closed federal  grants or closed grants with payments processed through PMS from 2003  through 2006, due to the burden of collecting comparable data from eight  other federal civilian payments systems or for all closed grants in PMS.  Without comparative data, we cannot know whether the program  characteristics for these expired grant accounts represented a  disproportionate share, compared to all closed federal grants or all closed  grants in PMS. Appendix I provides further information on our  methodology and program characteristics findings.
section_title: Grant Closeout Problems Attributed to Several Causes but Can Be Mitigated
paragraphs: In our review of past audit reports, we observed that the reports generally  focused on expired grants in specific agencies or grant programs. We also  found that, when taken together, they suggested the presence of  undisbursed balances in expired grant accounts was a long-standing  problem. We and agency Inspectors General (IG) have reported for years  that specific grant programs or awarding agencies have had expired grant  accounts with undisbursed funding. Moreover, by synthesizing the  observations from these reports, we found that these grants shared  common grants management problems. In recent years, three federal  agencies, the Department of Justice’s (DOJ) Office of Justice Programs  (OJP), HHS’s National Institutes of Health (NIH), and the Environmental  Protection Agency (EPA), have made concerted efforts to improve their  grant closeout processes. In 2006 and 2007, several auditors highlighted  grants management problems as mission critical in their agency’s  Performance Accountability Report (PAR). In 2006, EPA went further and  reported a financial performance measure to track the agency’s progress  in closing grants.
subsections: section_title: Several Grant Management Issues Contribute to Closeout Problems
paragraphs: We have reported that the timely closeout of expired grants was a problem  at various agencies over the past three decades. In two recent examples,  we reported that the State Department’s (DOS) United States Agency for  International Development (a PMS customer) did not routinely follow  prescribed closeout processes to identify and recover inappropriate  expenditures or undisbursed funds and that EPA (an agency that does  not use PMS) closed out only 37 percent of grants in fiscal year 2005  within 180 days after the grant project ended as required by its own  policy. IG reports identified a variety of awarding agencies or programs  with closeout problems dating back to 2000. Maintaining undisbursed  balances in expired grant accounts may prevent the deobligation of  funding or expose the funding to improper spending or accounting. For  example, the DOJ Office of Inspector General (OIG) reported in 2006 that  $172 million in undisbursed funding could have been deobligated and that  several million dollars in funding used from expired grant accounts was  either unallowable or unsupportable.
Audit reports identified several awarding agencies or programs with  closeout problems. They generally attributed the problems to inadequacies  in awarding agencies’ grant management processes, including closeouts as  a low management priority, inconsistent closeout procedures, poorly  timed communications with grantees, or insufficient compliance or  enforcement. While we reviewed several audit reports examining closeout  problems, this section summarizes examples from an HHS OIG and DOJ  OIG report, and a GAO report on EPA—all issued within the last 3 years.
Auditors indicated that grant closeouts were a low priority, at either the  grantee organization or federal agency, which contributed to delays in  grant closeouts. The audit reports described closeouts as a low priority in  the context of staff-related issues. NIH and EPA reported that grantee staff  resources were limited, staff were overburdened with other  responsibilities, and staff considered grant closeout a low priority. NIH,  DOJ, and EPA officials reported similar problems among agency grant  staff. Staff turnover, at either the agency or the grantee organization, also  led to lapses in the supervision of grants and the transfer of grant-specific  information to new staff. Agency staff also reported that delaying grant  closeout added to staff workload. For instance, NIH and EPA reported that  as time elapsed it became more burdensome for staff to close out an  expired account.
Auditors noted that grant offices did not always have consistent grant  closeout procedures, such as due dates for closeout completion. For  example, we reported that EPA used closeouts to ensure that grant  recipients had met all financial requirements and had provided final  reports, and that any unexpended balances were returned to the agency.  EPA’s policy stated that closeouts should occur within 180 days after the  grant’s project end date. However, agency officials did not always comply  with this policy—in fiscal year 2005 EPA closed out only 37 percent of the  grants within 180 days. In its 2006 report, the DOJ OIG reported that two  of the three DOJ grant offices had a deadline for closing out grants, while  the third office did not; that each of the three DOJ grant offices conducted  the closeouts process differently; and that each office had undefined and  undocumented “workarounds” that had evolved over time.
Auditors reported that agency communication with grantees, either the  content or the timing of the communication, also delayed grant closeouts.  The communication of inconsistent policies and procedures contributed to  grantee confusion, especially for grantees who work with multiple federal  programs of offices. For instance, DOJ reported OJP grantees, especially  those who dealt with multiple offices, were confused by the variation in  language, time frames, requirements, and communications. Auditors found  the mistiming of the agency closeout reminders, or the lack of such  reminders, also contributed to delays in report submissions. For example,  NIH reminded its grantees about their closeout reporting a year ahead of  time, too far ahead to serve as a timely reminder.
Lastly, auditors also noted awarding agencies were not enforcing their  closeout requirements through the application of controls, corrective  actions, or penalties. For example, EPA grant officials told GAO they had  no realistic options for taking strong action against grantees, usually state  governments, for submitting late reports because the states had continuing  grants for environmental programs. The HHS OIG found NIH program  guidelines provided few specifics about what type of corrective actions  were appropriate and when the grant office should apply the actions. The  OIG noted that NIH grant offices could impose special award conditions  on the grantees, such as additional monitoring or withhold future funding.  However, the OIG found that grant officials rarely resorted to withholding  future funding from a grantee due to late closeout because agency officials  thought this penalty too severe and would slow down future project  development.
section_title: Three Agencies Took Action to Improve Grant Closeouts
paragraphs: In response to auditors’ concerns, three federal agencies, DOJ’s OJP,  HHS’s NIH, and EPA, undertook actions to improve their grant closeout  processes. To varying degrees, the agencies’ actions included elevating  grant closeouts to a higher agency priority in order to improve monitoring,  standardization of procedures, communications with grantees,  compliance, or enforcement, or a combination of the above. Auditors  reported that when federal grant managers took these actions, agencies  generally improved the timeliness of grant closeouts, reduced grant  closeout backlogs, or improved their ability to identify and deobligate  unspent funds from expired grants, or a combination of the above.
In 2000, DOJ’s OJP initiated a pilot project called “Operation Closeout” to  deal with grant closeout backlogs. The agency reported that this initiative  accelerated the grant closeout process through revised closeout guidelines  and elevated the importance of the closeout function as a required  procedure in the administration of grants. Over a period of 6 months,  “Operation Closeout” closed 4,136 grants, resulting in over $30 million in  deobligated funds. In 2006, the DOJ OIG reported that since 2002 grant  closeout was a higher priority within DOJ and that its awarding agencies  made improvements in the timeliness of grant closeouts. For example,  from 2001 to 2005, OJP reduced its backlog of expired grants from 11,356  to 6,237. The report also indicated that OJP was recommending, among  several recommendations, establishing a performance measure to monitor  efficiency and compliance with its closeout process. In 2006, the DOJ OIG  also reported that OJP updated the grant monitoring requirements in its  Grant Manager’s Manual, automated its Grant Adjustment Notice (GAN)  process, shortened its timeline for closeouts from 180 days to 120 days,  and addressed the backlog of grants overdue for closure. By automating  the GAN process, auditors reported that OJP reduced the time to respond  to grant adjustment requests by 10 days and planned to notify grantees of  decisions regarding grant adjustment requests through the Grants  Management System (GMS). OJP required that its grant staff conduct and  document all its programmatic monitoring efforts in GMS.
To address its grant closeout problems, NIH undertook several corrective  actions in 2002 and 2003. The agency stated that it continued to emphasize  to grantees that the submission of final closeout reports was an agency  priority and improve agency monitoring. To address its backlog of expired  accounts and reduce the burden on monitoring staff, NIH management  assigned dedicated staff to resolving the backlog of accounts. Corrective  actions included creating a database to track receipt of final reports,  which allowed NIH to send individualized reminders to grantees of  outstanding reports. Another planned action was to provide technical  assistance to grantees through general outreach efforts or through  targeted follow-up with individual grantees. NIH also established a  workgroup and a reminder system to improve grantee compliance with its  closeout guidelines.
Between 1995 and 2005, EPA efforts led to substantial progress in  resolving its backlog of expired grants. By 2005, the agency nearly  eliminated its backlog of over 23,000 expired grants accumulated between  1999 and 2003. To continue its efforts and to hold program managers more  accountable for grants management, EPA developed a corrective action  plan. EPA planned to require all managers and supervisors to complete  online grants management training; require baseline monitoring for all  grants documented in the agency’s Integrated Grants Management System;  and integrate grants with financial data and eliminate duplicate data entry.  This plan also included incorporating grants management performance  measures into the performance standards of project officers, supervisors,  and managers with grants management responsibilities.
section_title: Agencies’ Performance and Accountability Reports Address Grant Closeouts
paragraphs: In 2006 and 2007, eight agencies highlighted grants management problems  as a management challenge or concern in their agency’s PAR to the  President and Congress. Moreover, DOJ, HHS, and EPA reported to the  President and Congress that timely grant closeout was a long-standing  grants management challenge. In the 2006 DOJ and HHS PARs, both the  IG and the independent auditor specifically addressed grant closeout  problems and agency progress in addressing the problems. In each case,  the IG listed grant closeouts as contributing to the department’s  difficulties with grants management at several of its agencies. In response,  the departments described both agency-level and departmentwide  initiatives to address the problems. In HHS’s 2006 PAR, the independent  auditors reported the department had more than 64,000 grants, with a  remaining balance of $1.6 billion, eligible for closeout, and that 75 percent  of these grants had been expired for more than 2 years. In the HHS 2007  Agency Financial Report, the HHS Inspector General continued to cite  grant management, and specifically grant closeouts, as a management  challenge. In DOJ’s 2006 and 2007 PAR, the independent auditors  highlighted the IGs findings and explained that the closeout delays  contributed to misstatements in the department’s financial statements. In  its 2007 PAR, DOJ cited grant management process improvements by  several of its program offices but also stated that grant management and  closeout continued to be a major challenge.
In our review of the 2006 EPA PAR, we found that EPA had a financial  performance measure—the percentage of eligible grants closed out— specifically to track the agency’s progress in closing grants. The EPA  assessed its performance by calculating the percent of grants closed out in  the current year that had a “project end date” in the previous year. In 2005,  EPA had goal of 90 percent grant closure, and it reported in its 2006 PAR  achieving a 95 percent grant closure rate. In 2006, we concluded that,  while EPA’s performance measure did not assess compliance since it did  not reflect the 180-day closeout standard, the measure was a valuable tool  for determining if grants were ultimately closed. As indicated earlier, EPA  also planned to incorporate its grant performance measures into  performance standards for its grants professionals.
EPA’s 2007 PAR reported that the agency had successfully put into place  grant management process improvements to correct long-standing  problems identified by GAO and the OIG. EPA is also developing a new  Grants Management Plan that will go into effect in 2008 to replace and  update the plan established in 2003. Also in 2007, the EPA OIG removed  the agency’s use of assistance agreements, including grants, from its list of  EPA’s management challenges. The OIG attributed the removal of these  agreements from its list of management challenges to the substantial  actions EPA had taken to improve its management of these agreements.  The OIG noted that EPA planned to evaluate implementation of its new  policies and the OIG would continue to monitor the agency’s corrective  actions in this management area.
As previously discussed, OMB Circulars No. A-102 and No. A-110 establish  standards for consistency and uniformity among federal agencies in the  administration of grants through the preaward, postaward, and closeout  phases of the grant life cycle, and Circulars No. A-11 and No. A-136  provide agencies with guidance on preparing and submitting their PARs in  terms of performance and financial accountability. However, in our review  of these circulars as well as selected agency regulations, we found no  explicit instruction to agencies to track or report on undisbursed balances  remaining in expired grant accounts.
Although not explicitly directed to do so by the OMB circulars, we found  that the inclusion of undisbursed balances in expired grant accounts in a  department or agency’s GPRA documents—as has been done by DOJ,  HHS, and EPA—has the potential to raise the internal and external  visibility of the problem. As we reported in 2004, developing strategic  plans and reporting on progress toward performance goals can lead to  cultural changes within an agency. The focus on results can also  stimulate internal problem solving and discussions about performance.  Externally, OMB and Congress use GPRA documents, like the PAR, in  discussions of agency performance and resource allocation.
section_title: Conclusion
paragraphs: The existence of undisbursed grant balances in expired grant accounts  may hinder the achievement of program objectives, limit deobligating  funding for other uses, and expose the funding to improper spending or  accounting. Our analysis showed that, taken together, quarterly  undisbursed balances for expired grant accounts in HHS’s Payment  Management System—which in 2006 handled about 70 percent of all  federal grant disbursements—can be significant. Audit reports from  agencies not participating in PMS indicate they also have expired grants  with undisbursed balances. Data analysis of grant accounts in other  federal payment systems may reveal additional expired grants with  undisbursed balances.
In reviewing audit reports for three agencies, we found that grant  closeouts processes can improve when given a high priority and the  agency addresses the multiple causes in a concerted fashion. The financial  status of long-expired grant accounts is one aspect of agency performance  that has implications for broader program and agency-level performance.  By elevating this issue as a management priority in their annual  performance plans and PARs, the three agencies made grant closeouts a  priority for improving program and agency-wide performance. However,  OMB circulars relating to grants management and performance reporting  do not currently instruct federal agencies to track and annually report on  undisbursed funding in expired grant accounts. Given the federal  government’s constrained fiscal position, the executive branch could  minimize undisbursed funding in expired grant accounts if OMB instructed  federal awarding agencies to use its federal financial information systems  and GPRA’s performance-reporting infrastructure to track and annually  report this information.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Director, OMB, instruct all executive departments  and independent agencies to take the following two actions: (1) annually  track the amount of undisbursed grant funding remaining in expired grant  accounts; and (2) report on the status and resolution of the undisbursed  funding in their annual performance plan and report in their annual PAR  on  the amount of undisbursed grant funding in expired grant accounts,    why these funds were undisbursed,  the actions taken to resolve the undisbursed funding and close the expired  grants and related accounts, and    outcomes associated with these actions.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to OMB and HHS for review and  comment.  HHS replied via e-mail and had no substantive comments.  OMB  responded with written comments, which we have reprinted in appendix  III.
OMB said it supported the intent of our recommendations to strengthen  grants management by explicitly requiring federal agencies to track and  report the amount of undisbursed grant funding remaining in expired grant  accounts and that it believes agencies should design processes with strong  internal controls to promote effective funds management for all types of  obligations.  OMB’s comments did not indicate a commitment to  implement our recommendations.  OMB stated that, during its regular  review, it would consider revising its grants management guidance,  Circulars A-102, Grants and Cooperative Agreements with State and  Local Government, and A-110, Uniform Administrative Requirements for  Grants and Other Agreements with Institutions of Higher Education,  Hospitals, and Other Nonprofit Organizations, to include instructions for  agency grant managers to track and report this information.  OMB added  that it does not favor having agencies report on these balances in their  PARs and so would not offer instructions under its performance reporting  guidance, Circular A-136, Financial Reporting Requirements.
We agree that OMB should have discretion in instructing departments and  agencies on how to track and report undisbursed balances in expired grant  accounts.  Our draft report recommended OMB instruct agencies to  annually track and report in their PARs the amount of undisbursed expired  grant balances.  As we reported, some federal agencies such as EPA, HHS,  and DOJ have already voluntarily included in their annual PARs their  actions to track and reduce undisbursed balances in expired grant  accounts.  We found that such reporting had raised the internal and  external visibility of the challenge and that these agencies had improved  their performance.  Accordingly, we continue to believe that the PARs  would be appropriate vehicles to address on a governmentwide basis the  issue of undisbursed balances in expired grant accounts.  Such reporting  may not be necessary for every department or agency, every year.  Should  it choose, OMB could always attenuate its requirements by setting a  threshold as part of its instructions for reporting these balances in the  PARs.
We will send copies of this report to the congressional committees with  jurisdiction over HHS and its activities, the Secretary of HHS, and the  Director of OMB. We will also make copies available to others upon  request. In addition, the report will be available at no charge on the GAO  Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at (202) 512- 6806 or czerwinskis@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, Methodology, and Additional Information on Program Characteristics
paragraphs: Our objectives were to address the following: (1) to what extent are there  undisbursed grant balances in expired grant accounts and do they share  any program characteristics?; and (2) do these expired grants share grant  management challenges and what actions have federal agencies taken to  improve grant closeout and diminish undisbursed balances? In the course  of our work, we did not evaluate the implementation of closeout  procedures for any specific grant program or awarding agency. The  following describes the various procedures we undertook to answer these  objectives.
subsections: section_title: Review of Relevant OMB Circulars and Federal Regulations
paragraphs: We began our study by reviewing the key federal guidelines on grant  closeouts: Office of Management and Budget (OMB) Circulars No. A-102,  Grants and Cooperative Agreements with State and Local Governments,  and No. A-110, Uniform Administrative Requirements for Grants and  Other Agreements With Institutions of Higher Education, Hospitals, and  Other Non-Profit Organizations. Since the President directed executive  branch departments to adopt these OMB circulars in their regulations, we  also reviewed applicable regulations for eight executive departments (the  Departments of Agriculture , Education (Education), Energy  ), Health and Human Services , Housing and Urban  Development , Justice , Labor , and State ), the  Social Security Administration (SSA), and the Environmental Protection  Agency (EPA) to identify any differences in grant closeout guidelines  between the OMB circulars and the agency regulations. We selected these  agency regulations for review because a recent audit had indicated that  either a grantee or program had problems with grant closeouts. To identify  federal governmentwide guidance relating to federal agency performance  reporting, we reviewed OMB Circular No. A-11, Preparation, Submission  and Execution of the Budget and Circular No. A-136, Financial Reporting  Requirements.
section_title: Collection and Review of Related Audit Reports and PARs
paragraphs: To identify what other auditors found and recommended as strategies to  diminish unspent funds in expired grant accounts, we interviewed various  grant program experts from GAO and federal Offices of Inspectors General  (OIG), as well as experts from the National Grants Management  Association (NGMA), and the National Association of State Auditors,  Comptrollers and Treasurers (NASACT). We also conducted a Web-based  literature search for related audit reports and reviewed over 150 reports  issued by GAO and various federal OIGs and independent agencies from  2000 to 2006 to identify some common grants management problems  related to closing expired grants. During the 2000 to 2006 period, auditors  issued reports to the following departments or independent agencies  regarding either a grantee or program with grant management problems  relating to closing expired grants: USDA, Education, DOE, HHS, HUD,  DOJ, DOL, DOS, SSA, and EPA. We reviewed the 2006 and 2007  Performance and Accountability Reports (PAR) from EPA and the 15  cabinet-level executive departments to determine whether grant  management, specifically timely grant closeouts and undisbursed balances  from expired grants, were identified as a problem, and strategies agencies  were employing to address the problem.
section_title: Analysis of Expired Grant Account Data from PMS
paragraphs: To identify the amount of undisbursed funding remaining in expired  grants, we collected and analyzed data from HHS’s Payment Management  System (PMS) and the U.S. General Services Administration (GSA) Catalog  of Federal Domestic Assistance (CFDA). This section describes these two  data systems, our collection of selected data from each system, our  analysis of the data collected, and the results for the program  characteristics analysis.
subsections: section_title: Description of Payment Management System
paragraphs: PMS is a centralized grants payment and cash management system,  operated by HHS’s Program Support Center (PSC) in the Division of  Payment Management (DPM). 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.
PMS is the largest of the nine civilian federal payment systems and  executes payments for nine federal departments, one independent agency,  a government corporation and the Office of National Drug Control Policy  (ONDCP), which, in 2006, represented about 70 percent of all federal grant  disbursements. According to HHS, PMS is a full-service centralized grants  payment and cash management system. The system is fully automated to  receive payment requests, edit them for accuracy and content, transmit the  payment to either the Federal Reserve Bank or the U.S. Treasury for  deposit into the grantee’s bank account, and record the payment  transactions and corresponding disbursements to the appropriate  account(s).
Appendix II lists the current PMS customers. A few statistics help to  illustrate the volume of PMS’s payment processing. In 2006, PMS  processed over $320 billion in payments to grant recipients. As of June  2007, according to an HHS official, PMS contained over 200,000 open  grants. Cumulatively, the grants executing payments through PMS  represent a significant amount of funding—open grants in PMS, as of May  2007, represented over $1.3 trillion in total funding. Over the years, PMS  has executed payments for tens of thousands of grantees.
The DPM described its role, in operating the PMS, as an intermediary  between awarding agencies and grant recipients. DPM personnel operate  PMS, making payments to grant recipients, maintaining user/recipient  liaison, and reporting disbursement data to awarding agencies. Awarding  agencies’ responsibilities include PMS registration of grant recipients  (DPM personnel perform this function for cross-serviced agencies), entry  of authorization data into PMS, programs and grants monitoring, grant  closeout, and reconciliation of their accounting records to the PMS  information. Awarding agencies pay HHS a service fee for maintaining  accounts and executing payments through PMS. PMS continues to charge  agency customers a servicing fee until an account is closed.
Several federal agencies collaborate with HHS in executing grant  payments including the U.S. Treasury and Federal Reserve Bank.  According to DPM, the U.S. Department of the Treasury is responsible for  establishing cash management policies, operating the Government On-Line  Accounting Link System and the electronic system for processing of  payments, check payments, and certain transactions. The Federal Reserve  Bank’s responsibilities include direct deposit payments to  payees’/recipients’ bank accounts.
HHS documentation indicated that other public and private organizations  also have roles in executing payments, including the grant recipients and  their financial institutions. Grantee responsibilities include executing  grants, reporting cash disbursements to PMS, and maintaining their own  accounting records. The grantee’s financial institutions are responsible for  receiving payments for credit to recipient accounts, and maintaining  recipient bank accounts.
An independent auditor assessed PMS in 2006. The auditor reported that  DPM’s internal controls were suitably designed and tested to provide  reasonable assurance that control objectives, including proper payments  and remittances, and accurate reporting, were met.
section_title: Collection and Reliability Testing of PMS Closeout Data
paragraphs: To identify the status of undisbursed balances in expired grant accounts,  we narrowed our focus to grants executing their payments through PMS.  The awarding agencies provide the descriptive information for each grant  account to PMS. The data set for each grant account contains over 900  unique data fields. One of the required data fields in each PMS account  record is the CFDA number for the assistance program that is associated  with each account.
Each quarter, PMS distributes to its customers a “closeout” report listing  the expired grant accounts that, according to the data system, have not  completed all of their closeout procedures. HHS listed an account on a  quarterly PMS closeout report if both the latest end date for the account  was 3 months old and the latest date of disbursement was 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 charged, and the beginning and end  dates for the grant.
We initially requested that HHS provide PMS quarterly closeout reports for  the period 2000 through 2006, then narrowed our focus to the 2003 through  2006 period. As part of the data request, we requested that HHS append to  the closeout data additional information available in PMS for each grant  account: the CFDA numbers and the type of grantee organization. Having  the associated CFDA number for each grant account enabled us to link the  grant account information in the closeout report with the associated  program information as listed in the catalog.
To test the reliability of PMS closeout data, we (1) reviewed existing  documentation related to PMS, including the most recent system audit by  the independent auditor, (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 worked closely with  HHS officials responsible for the administration of the database and the  production of the closeout reports. When we found discrepancies, we  brought them to the attention of the agency officials and worked with  them to make corrections before the analyses began. For example, our  testing revealed that there were accounts in the PMS closeout data sets  that: had CFDA numbers that did not match existing CFDA numbers; were  for nongrant programs that were not intended to be entered into the grant  payment system; and were for grants that did not have a defined  expiration date. We excluded these extraneous entries from our analysis.  After conducting these assessment steps, we found that the closeout data  were sufficiently reliable for the purposes of this report.
section_title: Description of Catalog of Federal Domestic Assistance
paragraphs: The Catalog of Federal Domestic Assistance (CFDA) is the single  authoritative, governmentwide compendium and source document for  descriptions of federal programs that provide assistance or benefits to the  American public. According to GSA, the catalog does not include solicited  contracts; foreign activities that do not benefit the domestic economy;  personnel recruitment programs; benefits or assistance only available for  federal employees; new programs that do not have enacted appropriations;  or inactive programs with expired authorization or appropriation.
OMB created the catalog pursuant to the Federal Program Information  Act to ensure that comprehensive information on federal assistance  programs was readily available to the public and interested parties. Later  amended in November 1983, revised guidelines transferred the  responsibilities of the Federal Program Information Act from OMB to GSA.  OMB serves as an intermediary agent between federal agencies and GSA,  with oversight responsibility for the necessary collection of program data.
OMB Circular No. A-89 provides the federal guidelines for the collection  and dissemination of the program information. GSA is responsible for  maintaining and distributing CFDA information. By law, federal agencies  submit program data to OMB for review. OMB reviews the information and  provides any comments to and obtains updates and clarifications from the  agency. OMB then submits each program description to GSA, which  incorporates these submissions into the CFDA. According to a GSA  official, GSA does not verify the accuracy of the information that the  federal agencies provide for the program description. Each federal agency  is responsible for assuring, among other things, the adequacy and  timeliness of program information submitted to OMB.
The law authorizing CFDA required that GSA establish and maintain a  computerized retrieval system capable of identifying all existing federal  domestic assistance programs. GSA now maintains the comprehensive  database information on all federal domestic assistance programs.  Information about these programs is made available to the public through  periodic update and annual issuance of the catalog. Until 2006, GSA  distributed printed copies of the CFDA for free. GSA’s free CFDA Web site  (http://www.cfda.gov) is now the principal means of distributing the  catalog. This Web site enables users to download an electronic file of the  catalog or search its contents online. CFDA program description contains  a wealth of financial and nonfinancial information, including program  objectives, type of programs assistance provided, applicant eligibility  requirements, and guidance on how to apply for assistance.
section_title: Collection and Reliability Testing of CFDA Data
paragraphs: To identify expired grants in PMS and two of the four program  characteristics analyzed—funding award method and the contribution  requirement—we obtained the October 2006 CFDA as an electronic data  file from the GSA. We were able to crosswalk the CFDA program data to  the PMS data using the CFDA number. The CFDA number is a five-digit  number assigned to each assistance program listed in the catalog. In  creating a grant account in PMS, HHS requires the awarding agencies to  enter the CFDA number for the assistance program that is funding the  grant. At our request, HHS appended the CFDA number to each of the  accounts listed in the quarterly PMS closeout data given to GAO. We used  information from the catalog to identify those grants that had specific time  limits, and thus, that we could consider “expired” once the period of  availability had ended. We also used CFDA program information to  identify the type of funding award method (project or formula-based), and  whether a grantee was required to contribute resources, such as matching  funds, to the grant project.
According to a GSA official, GSA does not verify the accuracy of the  program description information submitted by the awarding agency for the  catalog. To test the reliability of CFDA data, we selected a random sample  of 25 CFDA program descriptions and compared selected information  from the CFDA program description to the same program information  from other federal sources. Specifically, we checked the reliability of six  data fields: the CFDA number, awarding agency, program name, funding  award method, contribution requirement and the period of availability of  the grant. As we found only one discrepancy for one of six data fields, we  can be 95 percent confident that fewer than 17.6 percent of cases in the  catalog contain discrepancies between the electronic catalog and  information available from other federal sources for these fields. We thus  determined the selected CFDA data used in our analyses were sufficiently  reliable for the purposes of this report.
section_title: Expired Grant Accounts Included in and Excluded from Analyses
paragraphs: Prior to conducting the analysis of the 2003 through 2006 expired grants in  PMS, we excluded extraneous accounts that appeared in the closeout  data. The purpose of these exclusions was to avoid including accounts  that might unduly distort the results on undisbursed funds in expired PMS  grant accounts.
We included accounts that were associated with grants or cooperative  agreements. We excluded accounts if we could not associate them with a  grant program. For instance, we found some PMS accounts were for  nongrants. We also decided to exclude accounts that lacked a CFDA  number, since without this number we could not verify that the account  was for a grant or obtain other information used in our analyses.
We included grant accounts that had a time limit for spending the funds  made available and a zero or positive undisbursed balance. As described  by HHS staff, the purpose of the PMS closeout report is to alert awarding  agencies of accounts in PMS that remain open after their posted end date.  If a grant does not have a defined end date, such as the Temporary  Assistance for Needy Families (TANF), then HHS staff consider the PMS  closeout report merely as a reminder to the awarding agency of the open  account and that PMS continues to charge fees on this open account. We  identified “expired” grants, grants that had defined end dates, by  conducting a content analysis of their associated CFDA program  descriptions. Through the content analysis we identified 26 grant  programs (HHS and non-HHS), and associated PMS grant accounts, where  the CFDA program description indicated no time limit on the availability  of grant funding, and excluded these grant accounts from our analysis.
We included grant accounts that met the previous criteria and also had a  readily identifiable CFDA number. We found well over 100 CFDA numbers  listed for grant accounts in PMS that did not have a program description in  the October 2006 edition of the CFDA. We searched the 1999 to 2005  editions of the CFDA and the catalog’s historical index to find the program  descriptions for these CFDA numbers. We excluded an account if we  could not find any information on the CFDA number either in the CFDA or  in the CFDA Historical Index, or if the CFDA number and program  description had been deleted from the catalog before the 1999 edition of  the CFDA. We excluded these grant accounts associated with very old  CFDA numbers because pre-1999 catalogs are not readily available,  making it unduly burdensome to obtain program information. We also  excluded accounts in the 2003 through 2004 PMS closeout data if their  associated CFDA numbers (1) were not in the 1999 through 2006 CFDAs,  and (2) the accounts associated with the CFDA number did not have a  cumulative undisbursed balance of greater than $100,000 for two  consecutive quarters. We felt that, where the cumulative amounts of  undisbursed funding for the accounts associated with these CFDA  numbers were less than 0.1 percent of the quarterly totals and, by 2005,  were at or near zero, it was unduly burdensome to collect the CFDA  program information that was more than 7 years out of date.
We also excluded expired accounts for several block grants in keeping  with the 2006 independent audit of PMS which stated that (1) the funds for  these block grants continued to be available to the grantees until the  obligation/expenditure period expired, and (2) traditional financial  reporting requirements do not apply to these programs. We excluded  expired grant accounts associated with the following HHS block grant  programs from our analysis based on this audit: Community Mental Health  Services Block Grant, Preventive Health and Health Services Block Grant,  Substance Abuse and Preventive Treatment Block Grant, Maternal and  Child Health Services Block Grant, Social Services Block Grant, Low  Income Housing Energy Assistance Block Grant, and Community Services  Block Grant.
To summarize, our reported results describe accounts listed in PMS’s  quarterly closeout reports from 2003 through 2006, 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;    had a program description in the 1999 through 2006 CFDAs; and    did not have special financial reporting procedures.
section_title: Analysis of the PMS and CFDA Data to Quantify Undisbursed Funding in Expired Grant Accounts and Related Program Characteristics
paragraphs: Having excluded the extraneous accounts, we analyzed the 2003 through  2006 payment closeout data as a complete set of current PMS customers,  rather than analyzing specific federal agencies or grant programs. When  we analyzed the quarterly PMS closeout data for the 2003 through 2006  period, we identified two sets of expired grants accounts. One set  consisted of expired accounts for which all of the funds made available  had been disbursed, but still had not been closed. We identified a second  set of accounts that included those expired accounts reported with a  positive undisbursed balance. Most of our analysis focused on those  expired accounts with undisbursed balances. For each quarter we totaled  the amount of undisbursed funding in the expired grant accounts, without  adjusting the amounts for inflation.
To identify common program characteristics of the expired grants with  undisbursed balances, we conducted further analysis by linking data from  the PMS closeout reports to selected program information from the CFDA.  We identified four program characteristics for analysis: size of the funding  award originally made available to the grantee; whether program funding  was awarded based on a formula or on a competitive, project-by-project  basis; the grantee organization (entity) receiving the grant; and whether  the program required the grantee to make a contribution to support the  grant activity. We selected these four characteristics because they are  fundamental elements of grant design that could be readily analyzed using  the information from the PMS and the CFDA data sets. While grant  programs have other fundamental design characteristics such as the  purpose of the program (e.g., grant funds are to be used for construction  or providing services), they could not be as readily analyzed. PMS grant  closeout data provided the data on grant funding size and grantee  organization. The CFDA data provided information for the funding award  method and the contribution requirement.
We began our analyses by sorting the expired grants with undisbursed  balances into 13 ranges of funding award size. These ranges were used  because the average percentage of funds undisbursed were similar from  quarter to quarter and minimally overlapped with the average percent for  an adjacent range, reflecting natural breaks in the data analysis. The  ranges varied from relatively small grants of under $25,000 to very large  grants of up to $1 billion. For each funding range, we identified the  quarterly balances of undisbursed funds for each of the 16 quarters from  2003 through 2006.
We next sorted the expired grants with undisbursed balances according to  the method used to award the funds to grantees. As described earlier,  federal awarding agencies typically award their grant funding using a  formula or on a project basis, or by using a hybrid of both methods. Our  guideline in sorting by funding award method was that if a program  description had more than one allocation method, we sorted the grant  according to the first allocation method listed in the CFDA program  description. Using this information, we found that of 328 unique grant  programs in the 2003 through 2006 PMS closeout data with positive  undisbursed balances, 54 were awarded on a formula basis and 274 were  awarded on a project basis.
Next, we analyzed the expired grants with undisbursed balances according  to the type of grantee organization receiving the grant. For the grant  organization characteristic, we collapsed the organization types used in  PMS into six types (state, county, city, domestic nonprofit, domestic for- profit, and other).
Lastly, we compared the quarterly undisbursed funding balances for those  expired grants that required some form of grantee contribution to those  that did not. As described in the CFDA, grant program regulations can  require grantees to contribute some form of resources to support grant- related activities, such as requiring the grantee to provide matching funds,  share in the costs, or provide in-kind contributions. We sorted grants as  having required contribution if the CFDA program description indicated  grantees were required to contribute some form of resources to support  grant-related activities, such as requiring the grantee to provide matching  funds, share in the costs, or provide in-kind contributions.
For each program characteristic, we totaled the undisbursed funding  according to the various types within each characteristic category. For  example, for the method of funding award characteristic there were two  types, project or formula-based. All of the program characteristic results  are in comparison to other types of grants in the same characteristic  category, such as sizes of grant authorizations or type of funding award  method.
section_title: Expired Grant Accounts with Largest Undisbursed Balances Share Program Characteristics
paragraphs: When we compared the undisbursed balances among the types within  each of the four program characteristic categories, we found certain types  of grants consistently had the largest quarterly balances. Among the 13  funding award ranges, we found the largest quarterly balances of  undisbursed funds in midsize grants, that had original funding awards  ranging from over $100,000 to $100 million (in nominal dollars) for expired  grants from 2003 through 2006. We also found that, between the two  funding awards methods, grants awarded on a project basis consistently  had the largest quarterly balances of undisbursed funding and that, among  the six types of grantees, state grantees had the largest quarterly amounts  of undisbursed funding, followed distantly by nonprofit organizations.  When comparing grants requiring a grantee contribution and those grants  that did not have this requirement—the fourth characteristic examined— we found that neither type had consistently larger quarterly amounts of  undisbursed funding.
Our analysis has several limitations. First, each analysis of the quarterly  undisbursed funding by program characteristic was an independent  assessment of the variation in undisbursed funding among expired grant  accounts. Consequently, the results for each program characteristic  cannot be combined into a general statement about the four  characteristics. Second, the results are limited to the expired grant  accounts with undisbursed grants balances listed in the PMS closeout  report from 2003 through 2006. We were not able to compare these results  to all closed federal grants or all closed grants in PMS due to the burden of  collecting comparable data for all closed federal grants from the eight  other federal civilian payments systems or for all closed grants from PMS.  Lastly, we did not interview policy experts or agency grant managers to  explore why expired grants with different program characteristics might  have larger undisbursed balances.
section_title: Appendix II: Federal Agencies Using PMS
section_title: Appendix III: Comments from the Office of Management and Budget
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact named above, Thomas James, Assistant  Director; Patricia Farrell Donahue, Analyst-in-Charge; Carlos Diz; Wesley  Dunn; Sharon Hogan; Elizabeth Hosler; Susan Mak; Anna Maria Ortiz; Neill  Martin-Rolsky; Minette Richardson; Jay Smale; and William Trancucci  made key contributions to this report.