Environmental Protection Agency: Progress Has Been Made in Grant Reforms, but Weaknesses Remain in Implementation and Accountability
Published: 2006-05-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Environmental Protection Agency (EPA) has faced challenges for many years in managing its grants, which constitute over one-half of the agency's budget, or about $4 billion annually. EPA awards grants through 93 programs to such recipients as state and local governments, tribes, universities, and nonprofit organizations. In response to concerns about its ability to manage grants effectively, EPA issued its 5-year Grants Management Plan in 2003, with performance measures and targets. This testimony is based on GAO's May 2006 report, Grants Management: EPA Has Made Progress in Grant Reforms but Needs to Address Weaknesses in Implementation and Accountability (GAO-06-625). GAO examined EPA's progress in implementing its grant reforms in four key areas: (1) awarding grants, (2) monitoring grantees, (3) obtaining results from grants, and (4) managing grant staff and resources.
section_title: What GAO Found
paragraphs: EPA has made important strides in achieving the grant reforms laid out in its 2003 Grants Management Plan, but weaknesses in implementation and accountability continue to hamper effective grants management in four areas. First, EPA has strengthened its award process by, among other things, (1) expanding the use of competition to select the most qualified applicants and (2) issuing new policies and guidance to improve the awarding of grants. However, EPA's reviews found that staff do not always fully document their assessments of grantees' cost proposals; GAO also identified this problem in one region. Lack of documentation may hinder EPA's ability to be accountable for the reasonableness of a grantee's proposed costs. EPA is reexamining its cost review policy to address this problem. Second, EPA has made progress in reviewing its in-depth monitoring results to identify systemic problems, but long-standing issues remain in documenting ongoing monitoring and closing out grants. EPA and GAO found that staff do not always document ongoing monitoring, which is critical for determining if a grantee is on track in meeting its agreement. Without documentation, questions arise about the adequacy of EPA's monitoring of grantee performance. In addition, grant closeouts are needed to ensure that grantees have met all financial requirements, provided their final reports, and returned any unexpended balances. For fiscal year 2005, EPA closed out only 37 percent of its grants within 180 days after the grant project ended, as required by its policy. EPA also did not always close out grants properly in the regional files GAO reviewed. Third, EPA has initiated actions to obtain environmental results from its grants, but these efforts are not complete. For example, EPA's 2005 environmental results policy establishes criteria that grants should meet to obtain results. However, EPA has not established a performance measure that addresses these criteria. Furthermore, EPA has not yet identified better ways to integrate its grant reporting systems. The Office of Management and Budget's 2006 assessment also indicates that EPA needs to continue its concerted efforts to achieve results from grants. Finally, EPA has taken steps to manage grant staff and resources more effectively by analyzing workload, providing training, assessing the reliability of its grants management computer database, and holding managers and staff accountable for successfully fulfilling their grant responsibilities. Management attention is still needed because, among other things, EPA has just begun to implement its performance appraisal system for holding managers and staff accountable for grants management.

section_title: Letter
paragraphs: We are pleased to be here today to discuss the work you requested on the  Environmental Protection Agency’s (EPA) grant management reforms. My  testimony today focuses on the progress EPA has made in implementing  its grant management reforms and the problems that remain. This  testimony is based on the report being released today.
As you know, EPA has faced challenges for many years in managing its  grants, which constitute over one-half of the agency’s budget, or about $4  billion annually. In fiscal year 2005, EPA took 6,728 grant actions involving  funds totaling about $4 billion. These awards were made through 93  programs to various types of recipients, with states receiving the largest  portion (about 75 percent) of the grant funds. As of September 30, 2005,  EPA was administering grants through headquarters and regional offices  to 4,075 grant recipients. Given the size and diversity of EPA’s grant  programs, its ability to efficiently and effectively accomplish its mission  depends to a large extent on how well it manages its grant resources and  builds accountability for results into its efforts.
In response to concerns about its ability to manage grants effectively, in  2003, EPA issued its Grants Management Plan. In this plan, EPA for the  first time presented goals, objectives, milestones, and performance  measures with targets for tackling the agency’s long-standing grants  management problems. The 5-year plan had five goals that addressed  major concerns we had identified in our 2003 report on grants  management. EPA has also issued policies to implement the plan and  other grant reforms. EPA is currently revising this plan to reflect  accomplishments achieved and to address remaining issues.
Our testimony today assesses EPA’s progress in implementing its grant  reforms for (1) awarding grants, (2) monitoring grantees, (3) obtaining  results from grants, and (4) managing grant staff and resources. To  address these issues, we conducted our work at EPA’s headquarters and  regional offices. At EPA headquarters, we reviewed EPA documents from,  and interviewed officials of, the Office of Grants and Debarment and the  Office of Water, one of the program offices involved with grants. We  reviewed EPA’s Office of Inspector General reports as well as the Office of  Management and Budget’s (OMB) Program Assessment Rating Tool  (PART).  In conducting our work, you asked us to address the  implementation of EPA’s grant reforms at the regional level for Clean  Water Act programs. We selected Wetland Program Development Grants  because it is a discretionary grant program and Nonpoint Source  Management Program grants because it is a type of formula-based grant  program. We reviewed EPA’s progress at the regional level by selecting  grants in 3 of EPA’s 10 regional offices: Region 1 (Boston), Region 5  (Chicago), and Region 9 (San Francisco). We selected these regions, in  part, because, collectively, they represent a significant share of regional  grant funding for the two programs we reviewed and provide geographic  dispersion. Our regional work offers insights into regional grant activities  in the two programs in the three regions we visited, but it is not  generalizable to all grants in all regions because we (1) selected only two  of the programs conducted in these offices and (2) incorporated  nonprobability sampling into our grant selection process. This testimony is  based on GAO’s report for which audit work was conducted from  February 2005 through April 2006, in accordance with generally accepted  government auditing standards.
In summary, EPA has made important strides in achieving the grant  reforms laid out in its 2003 Grants Management Plan, but weaknesses in  implementation and accountability continue to hamper effective grants  management in four areas. Specifically:    Awarding grants. EPA has strengthened its award process by, among  other things, expanding the use of competition to select the most qualified  applicants and issuing new policies and guidance to improve the awarding  of grants. Nevertheless, EPA has found that staff do not always fully  document their assessments of grantees’ cost proposals, and we also  identified this problem in one region. Without documentation, EPA may be  limited in its ability to be accountable for the reasonableness of a grantee’s  proposed costs. EPA is reexamining its cost review policy to address this  problem.
Monitoring grantees. EPA has made progress in reviewing the results of  its in-depth monitoring to identify systemic problems, but long-standing  issues remain in documenting ongoing monitoring and closing out grants.  EPA and we found that staff do not always document ongoing monitoring,  which is critical for determining if a grantee is on track in meeting its  agreement. Without documentation, questions arise about the adequacy of  EPA’s monitoring of grantee performance. Lack of documentation  occurred, in part, because managers did not fulfill their commitment to  improve monitoring documentation. Grant closeouts are needed to ensure  that grantees have met all financial requirements, provided their final  reports, and returned any unexpended balances. For fiscal year 2005,  however, EPA closed out only 37 percent of its grants within 180 days after  the grant project ended, as required by its policy. EPA also did not always  close out grants properly in the regional files we reviewed.
Obtaining results from grants. EPA has initiated actions to obtain  environmental results from its grants, but these efforts are not complete.  For example, EPA’s 2005 environmental results policy establishes the  criteria that grants should meet to obtain results. However, EPA has not  established a performance measure that addresses these criteria.  Furthermore, EPA has not yet identified better ways to integrate its grant  reporting systems. Finally, OMB’s 2006 assessment indicates that EPA  needs to continue its concerted efforts to achieve results from grants.
Managing grants staff and resources. EPA has taken steps to manage  grant staff and resources more effectively by analyzing workload,  providing training, assessing the reliability of its grants management  computer database, and holding managers and staff accountable for  successfully fulfilling their grant responsibilities. Management attention is  still needed because, among other things, EPA has just begun to  implement its performance appraisal system for holding managers and  staff accountable for grants management.
subsections: section_title: Background
paragraphs: EPA offers three types of grants. First, discretionary grants fund  activities such as environmental research and training, and EPA has the  discretion to independently determine the recipients and funding levels for  these grants. In fiscal year 2005, EPA awarded about $644 million in  discretionary grants. Second, nondiscretionary grants are awarded  primarily to state and local governments and support projects often on the  basis of formulas prescribed by law or agency regulation. In fiscal year  2005, EPA awarded about $2.4 billion in nondiscretionary grants. Finally,  continuing environmental program grants contain both nondiscretionary  and discretionary features. In fiscal year 2005, EPA awarded about $1  billion in grants for continuing environmental programs.
EPA administers and oversees grants primarily through the Office of  Grants and Debarment in the Office of Administration and Resources  Management, 10 program offices in headquarters, and program offices and  grants management offices in EPA’s 10 regional offices. As of September  30, 2005, 119 grant specialists in the Office of Grants and Debarment and  the regional grants management offices were largely responsible for  administrative and financial grant functions. Furthermore, 2,064 project  officers were actively managing technical and programmatic aspects of  grants in headquarters and regional program offices. Unlike grant  specialists, however, project officers also have nongrant responsibilities,  such as using their scientific and technical expertise.
section_title: EPA Has Strengthened the Award Process, but Lack of Key Documentation Raises Accountability Concerns
paragraphs: EPA has strengthened its award process by, among other things,  expanding competition to select the most qualified applicants. In  September 2002, EPA issued a policy that for the first time required  competition for many discretionary grants. EPA issued a revised  competition policy, effective January 2005. It enhanced competition by,  among other things, reducing the threshold for competition from $75,000  to $15,000. EPA also issued a policy to require certain nonprofit  organizations to document that they have administrative and financial  systems to manage grants.
As part of its Grants Management Plan, the agency developed a  performance measure for increasing the percentage of new grants subject  to the competition policy that are actually competed and set increasing  targets for achieving this measure. According to EPA, about $249 million  of the approximately $3.1 billion it awarded in new grants in fiscal year  2005 were eligible for competition. EPA reports it now competes a higher  percentage of eligible grants, up from 27 percent in fiscal year 2002 to 93  percent in fiscal year 2005, exceeding its targets for fiscal years 2003  through 2005. The 7 percent of eligible new grants that EPA reported it  did not compete—which totaled about $10 million of the $249 million  eligible for competition in fiscal year 2005—resulted from exceptions to  the policy.
While EPA has improved its award process, its internal reviews in program  and regional offices have found that staff do not always fully document  their reviews of grantees’ cost proposals. For example, in 2004 and 2005, in  six of the seven program and regional offices it reviewed, the Office of  Grants and Debarment found either no documentation of cost reviews or  insufficient documentation. Furthermore, we also found this problem in  one of the three regions we visited. Region 5 has a checklist to ensure that  staff members who are responsible for each aspect of the cost review have  completed and documented their review before awarding a grant. For  most of the 12 approved award files we reviewed, we found instances in  which the resolution of the issues between the project officer and grant  specialist was not documented. This documentation problem may hinder  EPA’s ability to ensure the reasonableness of its grantees’ estimated costs  for performing the proposed work. Because of the continuing problems  with documenting cost reviews, EPA is reexamining its cost review policy  for grants.
section_title: EPA Has Improved In- depth Monitoring to Identify Agencywide Problems, but Weaknesses Remain in Ongoing Monitoring and in Closing Out Grants
paragraphs: EPA has improved some aspects of monitoring, but long-standing  problems in documentation and grant closeouts continue. Specifically, (1)  in-depth monitoring results can be analyzed nationwide, but staff do not  always document corrective actions; (2) inadequate documentation of  ongoing monitoring hinders accountability; and (3) EPA has reduced its  closeout backlog, but grant closures are often delayed and sometimes  improperly executed.
subsections: section_title: In-depth Monitoring Results Can Be Analyzed Nationwide to Identify Problems, but Staff Do Not Always Document Whether Corrective Actions Have Been Taken
paragraphs: EPA has begun to review the results of its in-depth monitoring to identify  systemic grantee problems, but staff do not always document whether  grantees have taken corrective actions. In fact, the Office of Grants and  Debarment found that corrective actions were documented for only 55  percent of the 269 problems identified through administrative and  programmatic reviews. We reported similar results in August 2003.  According to an Office of Grants and Debarment official, while some EPA  staff took corrective actions, they did not document those actions in EPA’s  grantee computer database.
section_title: Inadequate Documentation of Ongoing Monitoring Hinders Accountability
paragraphs: EPA and we found that grant specialists and project officers do not always  document ongoing monitoring. Ongoing monitoring is critical because, at a  minimum, EPA conducts it on every grant at least once a year throughout  the life of the grant and uses the results to determine whether the grantee  is on track in meeting the terms and conditions of the grant. However, our  analysis of EPA’s internal reviews indicates that several offices  experienced recurring problems in 2004 and 2005. For example, an August  2004 Office of Grants and Debarment internal review cited one regional  office as having “very limited” documentation of ongoing monitoring; and  in the following year, the regional office’s self-assessment found the same  documentation problem with project officer files. A lack of documentation  raises questions about the adequacy of the project officers’ and grant  specialists’ ongoing monitoring of grantee performance.
Because of these documentation problems, two of the three regional  offices we visited have committed to using checklists to document their  ongoing monitoring. Regions 1 and 9 had implemented such checklists at  the time of our review. However, of the 40 project officer and grant  specialist files we reviewed in Regions 1 and 9, more than half of the  checklists were either missing, blank, or incomplete. Similarly, in Region  5, which did not use a checklist, none of the six grant files requiring annual  contact with the grantee had documentation showing that the contact had  occurred.
In the three regions, we also found that project officers’ files did not  always contain grantees’ progress reports, which, according to EPA’s  project officer manual, are the project officer’s primary mechanism for  determining if the grantee is fulfilling its grant agreement obligations.  Thirteen of the 32 project officer grant files we reviewed were missing at  least one or more required progress reports. When EPA staff do not obtain  progress reports, they cannot monitor effectively, which may hinder  accountability.
The lack of documentation for ongoing monitoring occurs because of  weaknesses at the staff, supervisory, and management level in the three  regions we visited. Specifically:    Grant specialists and project officers do not consistently document key  monitoring efforts, or they rely on other staff with technical expertise to  assist with ongoing monitoring who may not provide the documented  results for inclusion in the grant file. This situation occurred in two of the  three regions we visited.
Supervisors do not always effectively review grant files for compliance  with grant policies in the three regions we visited.
Senior EPA managers in the regions do not always ensure that their  commitments to improve monitoring documentation are being met. For  example, two regions had committed to using checklists to document  ongoing monitoring. However, more than half of the checklists we  reviewed in these regions were missing, blank, or incomplete.  Despite the importance of ongoing monitoring, EPA has not created a  performance measure for documenting ongoing monitoring that would  underscore its importance to managers and staff. Furthermore, EPA’s  grants database has a data field for recording ongoing monitoring, but  recording this information is optional. Establishing a performance  measure and/or requiring the entry of information could enhance  accountability for implementing the monitoring policy.
section_title: EPA Has Reduced Its Closeout Backlog, but Grant Closures Are Often Delayed and Sometimes Improperly Carried Out
paragraphs: EPA incorporated grant closeout into its monitoring policy and its Grants  Management Plan. During closeout, EPA ensures that the grant recipient  has met all financial requirements and provided final technical reports,  and ensures that any unexpended balances are “deobligated” and returned  to the agency. Delays in closing out the grant can unnecessarily tie up  obligated but unexpended funds that could be used for other purposes.  EPA’s policy states that closeouts should occur within 180 days after the  grant’s project end date.
In the past, EPA had a substantial backlog of grants that it had not closed  out. EPA reported that, by 1995, the agency had amassed a backlog of over  18,000 completed grants that had not been closed out from the past two  decades. In fact, EPA had identified closeout, among other things, as a  material weakness—an accounting and internal control weakness that the  EPA Administrator must report to the President and Congress. As we  reported in 2003, however, EPA improved its closeout of backlogged  grants, eliminating backlog as a material weakness. Specifically, for fiscal  year 2005, using its historic closeout performance measure, EPA reported  that it had closed 97.8 percent of the 23,162 grants with project end dates  between the beginning of fiscal year 1999 and the end of fiscal year 2003.  EPA came close to its 99-percent target of closing out this backlog.
EPA developed a second closeout performance measure—which we call  the current closeout performance measure. As EPA reported, the agency  closed out 79 percent of the grants with project end dates in fiscal year  2004 by the end of reporting fiscal year 2005 (September 30, 2005) but did  not meet its performance target of 90 percent. However, EPA’s current  closeout performance measure does not calculate whether EPA closed the  grant within 180 days. Rather, this measure only reports whether EPA  closed the grant by the end of the following fiscal year (the fiscal year in  which it reports on closeouts—the reporting year). The measure, in fact,  can allow for a much more generous closeout time—from 183 days beyond  the 180 days to as much as 547 days (18 months) beyond the 180 days— because EPA does not report the performance measure until September  30, the end of the current fiscal year. EPA’s current performance measure  for closing out grants is a valuable tool for determining if grants were  ultimately closed out. However, we believe that this performance  measure—taken alone—is not a sufficient way to measure closeout  because it does not reflect the 180-day standard specified in EPA policy.
To determine the percentage of grants that were closed within 180 days,  we examined EPA’s analysis of closeout time frames for regional offices,  headquarter offices, and agencywide. EPA is having significant difficulty in  meeting the 180-day standard. In fact, for fiscal year 2005, EPA closed out  only 37 percent of the grants within the 180 days. Table 1 shows that EPA’s  current performance measure is masking the fact that the agency is having  significant difficulty in closing out grants within 180 days.
Overall, a combination of grantee lateness and internal inefficiencies  contributed to late closeouts. For example:  In Region 5, it took 795 days—615 days beyond the 180-day standard—to  close out a 2-year wetland grant for $56,778. The grantee submitted the  final financial status report 114 days late because a key grant contact had  died. However, it took the region an additional 591 days after the grantee  provided the final reports to close out the grant. According to the grant  specialist, closeout was delayed, in part, because of internal administrative  delays and because the grant was “lost” under a stack of other closeout  files.
In Region 1, closure of a nonpoint source grant that provided $796,532  over 10 years was delayed primarily because of a lack of documentation.  According to the project officer who inherited the file from a retiring  employee, the file had unusually poor documentation. Moreover, the state  employee who assumed responsibility for the grant also did not have a  complete file. Consequently, it took the project officer nearly 5 months  beyond the allotted 180 days to complete close out.
Adding to the agency’s closeout problems, 8 of the 34 closed grants we  reviewed in the regions were not closed out properly. Specifically:  In Region 5, one grant specialist’s file was missing the final financial status  report, which is a key report that describes how the grantee spent the  grant funds and whether any unspent funds remain that need to be  deobligated.
Region 1 grant specialists had not adequately reviewed the indirect cost  rate grantees submitted as part of their final financial status report, which,  in turn, led to improper closeout in 5 of the 10 files we reviewed.
In Region 9, Lobbying and Litigation Certification Forms—whose purpose  is to ensure that federal dollars are not spent for lobbying or litigation  activities—were missing from two grant files.
As with monitoring, without effective supervisory review of the grant and  project officer files, grants may be improperly closed out. With more  effective supervision, grants would be more likely to be properly closed  out.
EPA has formed a work group to review its monitoring and closeout  policies and plans to revise these policies in 2006.
section_title: EPA Has Initiated Actions to Obtain Results from Grants, but Its Efforts Are Not Complete
paragraphs: EPA has taken steps to obtain environmental results from its grants, but  its efforts are not complete. EPA included a performance measure in its  Grants Management Plan for identifying expected environmental results  from grants and issued an environmental results policy, effective in  January 2005. This policy, for the first time, requires EPA staff to ensure  that grant workplans specify well-defined environmental results, which  enables EPA to hold grantees accountable for achieving them.
To assess the agency’s effectiveness in implementing its environmental  results policy, EPA identified seven criteria that grant agreements should  meet. However, EPA’s current performance measure does not take into  account the new criteria for identifying and measuring results from grants  established by the policy. Furthermore, EPA acknowledges that it has not  identified better ways to integrate its systems for reporting on the results  of grants. Until recently, EPA recognized—but had not addressed in its  results policy—the known complexities of measuring environmental  outcomes, such as demonstrating outcomes when there is a long lag time  before results become apparent. While EPA has taken positive steps by  issuing a results policy, OMB’s evaluation of EPA grant programs in 2006  indicate that EPA must continue its concerted efforts to achieve results  from its grants. Specifically, OMB found that 5 of 18 EPA grant programs  in 2006 are “ineffective” or “results not demonstrated,” although there has  been some improvement from 2004 through 2006. Despite this progress, a  closer examination of the ratings for 2006 indicated that, with one  exception, the scores for the results component were lower than the  scores for other components, such as planning and management.
section_title: EPA Has Taken Steps to Manage Grants Staff and Resources More Effectively but Still Faces Major Management Problems
paragraphs: EPA has taken steps to manage grants staff and resources more effectively  in four key areas: (1) analyzing workload; (2) providing training on grant  policies; (3) assessing the reliability of the agency’s grants management  computer database; and (4) holding managers and staff accountable for  successfully fulfilling their grant responsibilities. Nevertheless,  management attention to these four issues is still needed.
Analyzing workload. Fulfilling an objective identified in the Grants  Management Plan, in April 2005, an EPA contractor’s analysis of project  officers and grant specialists showed that EPA had an overall shortage of  project officers and grant specialists, expressed in full-time equivalents.  The contractor recommended that before EPA add staff, it take steps to  improve the effectiveness and efficiency of its grants management  operations. As a result, grant offices are preparing project officer  workforce plans—due this year—that incorporate the workload analysis.
Providing training. EPA has provided some training on grant policies;  however, according to EPA staff, the amount of training has not been  sufficient to keep pace with the issuance of new grant policies. Region 1  provided training for its project officers on the new awards process.  However, only about 25 of the region’s 200 project officers attended the  optional 90-minute course, although they had three opportunities to do so.
Assessing the reliability of the grants computer database. In 1997, EPA  began developing the Integrated Grants Management System to better  manage its grants; EPA now also uses this database to inform the public  and the Congress about its $4 billion investment in grants. Data quality  problems in this database could impair EPA’s ability to effectively manage  grants and provide accurate information. In 2005, we recommended that  EPA conduct a comprehensive data quality review of its Integrated Grants  Management System. EPA expects to complete this review in 2006.
Holding managers and staff accountable. In 2005, EPA’s Inspector  General reported that EPA was not holding supervisors and project  officers accountable for grants management. In response, EPA issued a  plan in January 2006 to ensure that the agency’s new performance  appraisal system addresses grants management responsibilities. For the  2007 performance appraisal process, EPA plans to establish a workgroup  to develop final performance measures to assess the grants management  performance of project officers and supervisors and to incorporate these  measures into 2007 performance agreements. Our review is consistent  with the Inspector General’s findings. As previously discussed, EPA grants  staff told us that their supervisors were not reviewing their grant files to  determine compliance with grant monitoring policies. It is possible that  the awarding, monitoring, and closeout problems we found would have  been mitigated by effective supervisory review.
Mr. Chairman, about 3 years into its Grants Management Plan, 2003- 2008, EPA has made important strides in achieving its grant reforms, but it  has not resolved its long-standing problems in documenting ongoing  monitoring and closing out grants. As it revises its management plan, EPA  has an opportunity to tackle these continuing problems. In our report, we  recommended that the Administrator of EPA take actions to strengthen  ongoing monitoring, closing out grants, and obtaining results from grants,  and the agency has agreed to implement our recommendations. At the  same time, we believe that congressional oversight has contributed to  EPA’s progress to date and that continuing oversight is important to  ensuring that EPA builds accountability into the agency’s efforts to  achieve results from its $4 billion annual investment in grants.
Mr. Chairman, this concludes my prepared statement. I would be happy to  respond to any questions that you or Members of the Subcommittee may  have.
For further information, please contact John B. Stephenson at (202) 512- 3841. Individuals making key contributions to this testimony were Andrea  Wamstad Brown, Bruce Skud, Rebecca Shea, Lisa Vojta, Carol Herrnstadt  Shulman, Omari Norman, David Bobruff, Matthew J. Saradjian, and Jessica  Nierenberg.
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