Grants Management: Programs at HHS and HUD Collect Administrative Cost Information but Differences in Cost Caps and Definitions Create Challenges
Released: 2014-12-12T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The federal government spends billions of dollars on various grants to achieve diverse purposes. The total cost of a grant includes both program costs that directly support the grant's mission and services and administrative costs to run the program. These administrative activities, such as managing finances, are essential. It is important for agencies to track the cost of these activities to provide accountability for efficient use of federal resources.

GAO was asked to review how costs associated with the administration of grants are tracked and the availability of this information. GAO examined (1) the extent to which selected federal agencies and grantees have mechanisms and guidance in place to distinguish between administrative and program costs and to facilitate the availability of these data to Congress and the public; and (2) the extent to which there are challenges that hinder the comparability of grant administrative cost data. For this review GAO selected six grant programs—three in HHS and three in the Department of Housing and Urban Development (HUD). Agencies and grant programs were selected in part based on obligation amounts and grant types. GAO reviewed each program's statutes, regulations, guidance, and grant documents, as applicable, and interviewed agency officials. Although GAO's findings are not generalizable, they are indicative of the wide variation associated with the mechanisms and guidance for tracking grant administrative costs.

GAO received and incorporated, as appropriate, technical comments from HHS. HUD did not provide comments.

section_title: What GAO Found
paragraphs: All six of the grant programs GAO reviewed had mechanisms in place to capture the administrative costs charged to their grant programs, either via a computerized system or paper reporting. All the programs reported that they reviewed their grantees' costs for appropriateness. Two of the programs make administrative cost data available online. The programs GAO reviewed track administrative costs in different ways. For some programs administrative and program costs are reported separately, while for others they are included in the same line items. Administrative costs reported to the federal government may understate the actual cost to administer a grant program. GAO found examples of grantees absorbing part of the costs to administer a grant. Some primary grant recipients stated that when such costs were not reimbursed by the federal grant, they would cover those expenses themselves. Another grantee said he relies on state appropriations to cover the majority of administrative costs.

GAO identified two factors that hinder the comparability of administrative cost data in the programs it reviewed. First, is the existence of cost caps. These caps limit the amount of the grant that may be charged as administrative costs, and thereby affect what is reported to the federal government as administrative costs. For the programs GAO reviewed caps ranged from 5 to 26 percent, with one program having no cap. This variation can make some programs look more administratively expensive than others. Second, differences in what is defined as an administrative cost can present an even greater challenge to comparing costs across programs. Programs have different missions, priorities, services, and clients; as a result definitions of administrative costs vary from program to program. Therefore, different programs may treat similar costs differently. A cost that may be classified as administrative in one program may be considered a direct program delivery cost by another. For example, the salary of an employee who enrolls participants in one Department of Health and Human Services (HHS) program is considered a program cost but an employee who holds a similar position determining the eligibility of participants in another HHS program may be considered an administrative cost depending on the state where it is administered. This variation in definitions means that a program with high administrative costs may not be less efficient than a program with low administrative costs.

Given these issues, it is challenging to collect comparable information for different grant programs. Any use of information on administrative costs needs to recognize these concerns particularly when comparing programs with different types of objectives, projects, or services. Comparisons of costs may be appropriate when reviewing programs that fulfill similar missions or provide similar services. However, comparisons across different types of grant programs should be made with caution.

section_title: Letter
paragraphs: The federal government provides grants to a wide range of recipients— including state and local governments, for-profit and nonprofit entities,  and public and private universities—to achieve national objectives. The  government spends a substantial amount of money on these grants.  According to the Office of Management and Budget (OMB), state and  local governments alone received about $546 billion in federal grants in   The total cost of a grant includes two components:      fiscal year 2013.(1) program costs that directly support the grant’s mission and services;  and (2) administrative costs, such as payroll and clerical support, to run  the grant program. It is important for agencies that administer grants to  track these costs—including the portion spent to reimburse grantees for  their administrative costs—because such tracking allows the agencies to  provide accountability for efficient use of resources. Further, tracking  these costs helps agencies assess the changes in the balance between  grant administrative costs and program costs. However, as budgets grow  more constrained, this drive for efficiency can create a tension between a  program’s capacity to deliver services and the actual administrative costs  of doing so.

The recently enacted Digital Accountability and Transparency Act of 2014  (DATA Act) is intended to increase accountability and transparency of  federal spending and establish government-wide financial data  standards. Towards this end, OMB and the Department of the Treasury  (Treasury) are developing these standards, which could include  administrative spending. In addition, legislation has been introduced in  Congress that could also affect how agencies publicly report on program  administrative costs. As agencies implement the DATA Act and as  Congress examines whether to require additional reporting on  administrative costs, it is important to consider what these costs  represent, how they are calculated, and the challenges in making  comparisons across different programs.

You asked us to review how costs associated with the administration of  grants are tracked and the availability of this information. This report  examines (1) the extent to which selected federal agencies and grantees  have mechanisms and guidance in place to distinguish between  administrative and program costs and to facilitate the availability of these  data to Congress and the public; and (2) the extent to which there are  challenges that hinder the comparability of grant administrative cost data.  To address these objectives, we selected two agencies for this review— the Departments of Health and Human Services (HHS) and Housing and  Urban Development (HUD). We selected HHS because it manages the  largest share of federal grants in terms of both obligation amount and  number of grant programs. We included HUD to obtain management  perspectives on a different set of programs and issues. We then selected  three grant programs at each of these agencies with the aim of identifying  both higher-dollar value grants relative to other agency programs as well  as a variety of types of grants (project and formula) and grantees (state  and local governments, nonprofit organizations, and for-profit entities).

At HHS we selected the following grant programs:

Child Care and Development Fund (CCDF);

Head Start; and

Allergy, Immunology and Transplantation Research (AITR).

At HUD we selected the following grant programs:

HOME Investment Partnerships Program (HOME);

Community Development Block Grant (CDBG); and

Multifamily Housing Service Coordinators (MHSC).

See table 1 in the background for information on each of these programs.

To determine the extent to which selected federal agencies and grantees  have mechanisms and guidance in place to distinguish between  administrative and program costs, we reviewed regulations, program  guidance, grant documents, and statutes as applicable for each program.  Additionally, we interviewed agency officials responsible for each of the  selected grant programs to understand how these programs collect  administrative cost data; the guidance, training, and technical assistance  they provide grantees; and their requirements and experiences with  determining and reporting administrative costs. To inform our work on  government-wide efforts to collect grant administrative cost information,  we interviewed staff at OMB’s Office of Federal Financial Management.

To examine the extent to which there are challenges that hinder the  comparability of grant administrative cost data we used OMB data on  federal grants to select states with varying amounts of federal grant  obligations.receiving higher and lower amounts of federal grant dollars, respectively.  We then selected primary grant recipients within those states with the  highest grant obligation for each selected grant program in that state. To  better understand grant administrative costs, grant management, and  cost principles we reviewed our previous reports on these topics as well   We selected Massachusetts and New Hampshire as states  as those by the Congressional Research Service and the Congressional  Budget Office. See appendix I for more details on program selection and  our overall objectives, scope, and methodology.

We conducted this performance audit from January 2014 to December  2014 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 provides grants to a variety of recipients as a  form of financial assistance to accomplish a particular public purpose  authorized by law. Grant recipients include for-profit and nonprofit entities;  public and private universities; and state, local, and tribal governments.  Some grant programs also permit the granting of funds from primary grant  recipient to subawardees. While there is substantial variation among  grant types, competitively awarded federal grants generally follow a life  cycle comprising various stages—pre-award (announcement and  application), award, implementation, and closeout—as shown in figure 1.

Grant programs are established through legislation that may specify  particular objectives, eligibility requirements, and other conditions, and  grant-making agencies may impose additional requirements on recipients.  Additionally, grant programs are typically subject to a wide range of  accountability requirements under their authorizing or appropriations  statutes and implementing regulations. Congress may also impose  increased reporting and oversight requirements at the agency or recipient  level. Grant-making agencies and their programs are also subject to  crosscutting requirements applicable to most assistance programs.
subsections: section_title: Administrative Costs
paragraphs: Administrative activities such as managing finances and facilities,  ensuring quality, and reporting project status are essential to the  operation of grant programs. These administrative costs may be charged  directly or indirectly to a grant depending on individual program guidelines  and whether the grantee has an approved indirect rate agreement. A  direct cost is one that can be specifically identified with the individual  grant objective and is charged to that specific grant. Direct costs include,  for example, a researcher’s salary and equipment. Indirect costs  represent a grantee’s general support expenses that cannot be  specifically identified with an individual grant project. Indirect costs  include, for example, building utilities and administrative staff salaries  (see figure 2). To determine the proportion of indirect costs that may be  charged to federally funded awards, grantees use a mechanism called  the indirect cost rate. The procedure for requesting an indirect cost rate  varies based on the type of grantee organization. In the case of higher  educational institutions, the rate is established based on a historical fiscal  year of cost data from a school and is applied to each of its individual  research awards.

As we have previously reported, there is no government-wide definition of  what constitutes an administrative cost. Programs have different  missions, priorities, services, and clients, and jurisdiction for the programs  are spread among numerous congressional committees; therefore federal  agencies’ definitions of allowable (or prohibited) administrative costs vary  from program to program. We have also previously concluded that  funding gaps for grant indirect costs which, depending on the program,  may represent a large portion of administrative costs, may compromise  the nonprofit sector’s ability to partner with the federal government to  provide services and may ultimately risk the viability of the sector. In a  2013 study, the Urban Institute found that limits on administrative costs  are concerning for nonprofits because they must find other ways to cover  these expenses. This study also stated that trying to minimize overhead  costs could lead nonprofits to offer low pay for administrative positions,  which could make it difficult to recruit and retain skilled and experienced  staff.

section_title: Guidance on Cost Principles
paragraphs: OMB is responsible for developing government-wide guidance to ensure  that grants are managed properly and that grant funds are spent in  accordance with applicable laws and regulations.guidance on administrative requirements, cost principles, and audit  requirements for federal awards. Until recently, OMB guidance came in  the form of circulars for specific grants management areas to different  types of grantees. For example, OMB Circular No. A-21 provided the  principles for determining the types of direct and indirect costs that may  be claimed and the methods for allocating such costs to federally funded  projects at educational institutions. OMB had similar guidance on cost  principles for state and local governments, Indian tribal governments, and  nonprofit organizations. In December 2013, OMB consolidated its grants  management circulars into a single document, Uniform Administrative  Requirements, Cost Principles, and Audit Requirements for Federal  Awards (Uniform Guidance), to streamline its guidance, promote  consistency among grantees, and reduce administrative burden on   OMB provides  nonfederal entities. OMB staff told us that although the new Uniform  Guidance is intended to create a framework for the allocation of grant  costs, decisions about how these costs are allocated are made at the  award level. The new Uniform Guidance is scheduled to go into effect  for grantees on December 26, 2014, and officials at both HHS and HUD  told us they were evaluating the changes and its effects on their programs  and regulations.

section_title: Selected Agencies and Programs
paragraphs: To provide examples for this review, we selected six grant programs at  two federal grant-making agencies (see table 1). These programs are  managed by a variety of subagencies and reflect different program  objectives.

Objectives  To expand the supply of affordable housing, particularly rental housing,  for low and very low income Americans.

To develop viable urban communities by providing decent housing, a  suitable living environment, and expanding economic opportunities,  principally for persons of low and moderate income.

To link elderly, especially frail and disabled, or disabled nonelderly  assisted housing and neighborhood residents to supportive services in the  general community.

To promote family economic self-sufficiency and to help children succeed  in school and life through affordable, high-quality early care and  afterschool programs.

To promote school readiness by enhancing the social and cognitive  development of low-income children.

To assist public and private nonprofit institutions and individuals to  establish, expand, and improve biomedical research and research training  in allergic and immunologic diseases and related areas to assist public,  private, and commercial institutions to conduct developmental research.

section_title: Agencies Reviewed Have Mechanisms in Place to Collect Data on Federal Grant Administrative Costs, but These Data May Not Reflect Actual Cost of Administration
paragraphs: Although grant-making agencies are not required to track grant  administrative cost data specifically, all six of the grant programs we  reviewed collect grant administrative cost data in some form. Each of the  grant programs we reviewed had mechanisms in place to capture the  administrative costs charged to their grant programs, via either a  computerized system or paper reporting.collection system varied, as follows:   However, each program’s data

HHS’s On-Line Data Collection System used for the CCDF grant and  HUD’s Integrated Disbursement & Information System used for both  HOME and CDBG are computerized data collection systems available  to the grantee and agency that capture grant program budgetary  information and actual post-award expenditure reporting.

The Head Start Enterprise System collects grant budget estimates  electronically during the program’s grant application process.

Reporting of actual expenses incurred is captured in paper form at the  regional office level.

The Multifamily Housing Service Coordinators program uses the Line  of Credit Control System to disburse and track payment of grant  funds. The system may be accessed through a voice-response  system or a computerized system. In addition to these systems,  documentation is provided in paper form to the regional office where  the grant is managed.

Electronic Research Administration Commons is a web-based  interface where National Institutes of Health (NIH) grantees share  administrative information about grants. It also collects AITR grantees’  Federal Financial Reports.

Officials for all of the selected programs reported that they use these  systems to review their grantees’ costs for appropriateness. Such reviews  also help to ensure that the data collected are accurate if they are used  for evaluating the programs’ effectiveness. With the exception of the AITR  program, which is managed at headquarters, all of the programs we  reviewed performed compliance checks on fiscal reporting at the regional  office level where the grants are managed. For five of the six programs in  our review, officials said their analysis of administrative costs was  focused on ensuring compliance with the grants’ administrative cost caps  and approved indirect rate agreements. Agency officials also told us that  when a grantee’s total federal expenditures exceed an audit threshold, all  six programs rely on the single audit process to identify deficiencies in  grantee accounting, internal controls, and financial management. Two of  the six programs we reviewed—CDBG and CCDF—make their grant  administrative cost data available to the public via their websites.

The six programs we reviewed track grant expenses in different ways,  which can make it challenging to identify aggregate administrative costs.  For some of these programs, administrative costs and program costs may  be included in the same line items and program officials told us that  separating these costs would be labor intensive. For example, program  officials explained that for the AITR program they do not specifically track  grant administrative costs. Instead, grant program costs are reported as  either direct or indirect costs because recipients are required to use the  Federal Financial Report to report on grant expenditures and that report  captures indirect costs. NIH officials explained that administrative costs  are normally charged as indirect costs but if the administrative services  are integral to a major project and the administrative costs can be  specifically attributed to the project, they may be charged as direct costs  to the grant. Therefore, interpreting indirect costs as administrative  costs could miss administrative costs charged as direct costs to the grant.

Further complicating this issue, NIH officials explained that primary grant  recipients report their subgrantee’s direct and indirect expenses under the  primary recipient’s total costs on the Federal Financial Report. There is  no requirement to specifically track grant administrative cost data for a  grant’s subgrantee and the current federal financial reporting mechanism  for the AITR grant does not facilitate identifying all administrative costs.  According to NIH officials, identifying administrative costs reported under  the total cost line item would be onerous under the current financial  information collection method since this would entail additional auditing at  both the primary grantee and subgrantee levels. Additionally, consistent  with OMB guidance, indirect cost rates are to be based on historical costs  incurred by an institution and applied to all grants received by that  institution for a set period. While using such a rate may prove efficient for  reporting purposes, these rates are a blunt instrument by which to  determine actual administrative costs for any one grant program.

For the grant programs we reviewed, financial reporting systems varied in  their ability to aggregate program-wide administrative cost information.  HUD’s Integrated Disbursement & Information System—a nationwide  database that provides HUD with current information on CDBG and  HOME program activities—includes grant administrative cost information.  In contrast, the Head Start program does not currently have a system in  place that allows it to aggregate grant administrative cost information  across grantees. Instead, Head Start grantees report their expenses after  they are incurred on a SF-425 paper form retained at the regional office  level. HHS officials are planning to collect the SF-425 electronically on the  GrantSolutions platform beginning in late 2015 and should be able to  display these data electronically in the Head Start Enterprise System.  According to HHS officials, the new method of data collection and  management should enable Head Start staff to aggregate actual  expenditure data—categorized as programmatic or administrative costs— for analysis and reporting at the headquarters level, which would  potentially facilitate reporting these costs. This mechanism should  facilitate program-wide aggregation of administrative costs and is a  necessary first step to obtain an overall understanding of a program’s  administrative costs.

Just as the mechanisms to collect information differ across the grant  programs we reviewed, there is also variation in guidance and training  regarding the reporting of grant administrative costs. The six programs we  reviewed provide some form of written guidance or instruction regarding  the allocation of administrative and program costs. Head Start provides  program-specific resources, written guides, and interactive training  modules on its website—the Early Childhood Learning and Knowledge  Center. The AITR, CCDF, CDBG, and HOME programs also provide  resources and guidance online. Applicable administrative cost  definitions for MHSC are not included in the management handbook for  the grant program. However, officials explained that a list of allowable  administrative costs does exist in the grant’s Notice of Funding  Availability. With regard to training, program officials with Head Start,  CDBG, HOME, and CCDF told us they provide grantees across the  country with training on a wide variety of program-specific and fiscal  management issues. For example, HUD officials explained that they offer  training on identifying allowable administrative costs and that they plan to  provide training in financial management via interactive modules online.

NIH officials told us they provide written guidance and offer special  training upon request, but NIH does not provide training to all of its  grantees for the AITR grant program. NIH officials said that grantees tend  to hire external consultants to assist them with preparing indirect cost rate  proposals. MHSC officials said that they do not provide centralized  training on administrative costs to grantees, but training is provided by  some field offices that determine a need for such training. In addition to  written guidance on fiscal information, all six of the programs we reviewed  described processes for providing technical support to grantees on  request.

Grant recipients of all the programs we reviewed told us that since  administrative costs are not always reimbursed by their federal grants  they must cover some administrative expenses themselves. The Urban  Institute made the same point in a survey of nonprofits that receive  government grants. This review found that half of survey respondents  said their government grants and contracts expressly excluded or limited  reimbursements for their program and organizational administrative costs.

Unreimbursed administrative costs in the programs we reviewed ranged  from costs related to the grant managers who oversaw the grant program  to costs that covered centralized business services such as accounting or  human resources. Functions like these support the administration of the  grant but are not directly related to its aims or purposes. We found  examples of grantees absorbing part of the costs to administer a grant.  An official at a state department of health receiving a CCDF grant  explained that she analyzes administrative costs and when her  organization approaches its federal cost cap she pays these expenses  from the state’s general fund. Another CCDF state grantee told us that he  relies on state appropriations to cover the majority of administrative costs,  and therefore his organization’s federally reported administrative costs  remain well under the cap set by the program. Since state funds were  available to cover a portion of the administrative expenses, he explained  that the organization did not have to claim from the federal government all  the administrative expenses to which they were entitled. To the extent  that only administrative costs charged to the grant are reported, these  reports may understate the actual administrative costs.

The actual cost to administer a grant may also be affected by whether  oversight responsibilities are extended over long periods, as is required  by some federal grant programs. If a grantee has oversight  responsibilities for an ongoing portfolio of work it may incur greater  administrative costs than a grantee with a shorter-term project with  defined beginning and end dates. For example, primary grant recipients  of the HOME program are required to oversee HOME-funded rental  properties for up to 20 years after construction. According to a HOME  grantee, as the portfolio of properties grows the HOME oversight  requirements cause the grantee’s oversight costs to increase year after  year. However, the HOME grant administrative cost cap does not  increase to cover these increased oversight costs associated with a  grantee’s growing portfolio of properties over time. Because of this, a  HOME grantee told us that as these costs increase over time she will  need to absorb these costs, covering them with resources from both  HOME administrative funds and state funds. In some cases, the grantee  has reviewed HOME grant amounts and actual HOME administrative  costs and chosen to allocate funds to fewer units and to fewer projects  because of the oversight costs that will be incurred over time.

section_title: Variations in Administrative Cost Caps and Definitions Hinder Meaningful Comparisons of Grant Administrative Cost Data across Programs
paragraphs: Two challenges to comparing administrative costs across grant programs  are the variation in cost caps and differences in administrative cost  definitions. These two issues are different, but they intersect. The  variation in administrative cost caps—the limit to the amount of the grant  that may be charged as administrative costs to the federal government— presents challenges to comparing costs across programs. Of the six grant  programs we reviewed, administrative cost caps ranged from 5 percent  for CCDF to a 26 percent administrative cost cap for education institutions  receiving AITR grants. The Multifamily Housing Service Coordinators  grant program has no cap. As a result of this variation, the  administrative costs of some programs may appear more expensive than  others. For example, CDBG’s 20 percent cost cap could result in higher  administrative charges to the grant than the CCDF’s 5 percent cost cap.  According to HUD data, CDBG administrative and planning expenses in  fiscal year 2012 were approximately 16 percent and, according to HHS  data, CCDF administrative expenses in fiscal year 2012 were  approximately 3 percent. As we have previously concluded, because  there are differences in which activities are defined as administrative  costs for financial reporting purposes, a program with high administrative  spending is not necessarily less efficient than a program with low   Programs with higher administrative cost caps  administrative spending.may be assumed—incorrectly—to have higher administrative costs; so it  is important to have an understanding of individual caps in place before  any cross program comparisons are made.

There is no government-wide definition of what constitutes an  administrative cost. Programs have different missions, priorities, services,  and clients, and jurisdiction for the programs are often spread among  numerous congressional committees; federal agencies’ definitions of  allowable (or prohibited) administrative costs vary from program to  program. Additionally, the definition of administrative costs varies across  different federal grant programs even though many of the same activities  are performed. For example, the salary of an enrollment specialist at  Head Start, who enrolls children in the program, is considered a program- related cost. However, the salary of similar position as an intake specialist  for the Low Income Home Energy Assistance Program, who determines  the eligibility and benefit level for participants, may be an administrative  cost in some states where the program is administered. When the same  expenses are treated differently across programs, this results in different  administrative cost totals for similar functions. Regardless of the reasons  for variation in definitions of these costs, the existence of differences in  definitions limits their comparability. Monitoring programs entails  collection and use of program-related operational and financial data, but  for information to be effective for decision making, it has to be pertinent to  the individual program. OMB staff we spoke with stated that collecting  grant administrative cost information government-wide would not identify  whether funds for administrative costs are being spent effectively.  Specifically, they told us that analysis of administrative costs and the  identification of potential administrative cost savings should occur at the  program level. They said that when comparing administrative costs  across programs it is important to remember that some programs are  inherently more expensive to administer than others.

Comparing unlike costs across different programs would lead to  erroneous comparisons. However, comparisons of costs may be more  appropriate when comparing programs that fulfill similar missions or  provide similar services. Additionally, different definitions for  administrative costs could present a challenge in situations when multiple  grant programs are consolidated into one program.

section_title: Concluding Observations
paragraphs: Administrative activities—such as reporting on project status, managing  finances, and ensuring quality—are an essential part of the grant process.  Selected programs track administrative costs in different ways and not all  of the grant programs we reviewed have systems in place that could  readily aggregate these costs from their grant recipients. Additionally, the  actual cost of administering a given program may be paid by sources  other than the federal government and the current collection of grant  administrative cost data only reflects the federally reimbursed portion of  these costs. Efficient and effective use of federal grant funds has always  been important, but attention to the balance between program costs and  administrative costs grows as budgets come under increasing pressures  and the resources available for achieving federal grants’ goals become  further constrained. Although looking at administrative costs may seem  like a logical first step when identifying opportunities to reduce expenses  in such a budgetary environment, our review identified a number of  factors that hinder the comparability of administrative costs across grant  programs. Differences in cost caps and definitions are among the most  important of these factors and make comparisons across grant programs  very challenging, particularly when comparing programs with diverse  missions and objectives. Comparing dissimilar costs leads to  inappropriate conclusions that may have a perverse impact on federal  policy making.

Comparisons of costs may be appropriate when reviewing programs that  fulfill similar missions or provide similar service. However, comparisons of  administrative costs across grant programs that provide different services  should be made with caution. Any comparisons of administrative cost  data should consider variation in administrative cost caps and cost  definitions.

section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretary of the Department of  Health and Human Services and the Secretary of the Department of  Housing and Urban Development. The Department of Health and Human  Services had technical comments, which we incorporated as appropriate.  The Department of Housing and Urban Development did not provide  comments. We also provided an informational copy to the Director of the  Office of Management and Budget.

We are sending this report to interested congressional committees, the  Secretary of the Department of Health and Human Services, the  Secretary of the Department of Housing and Urban Development, the  Director of the Office of Management and Budget, and other interested  parties. In addition, the report is available at no charge on the GAO  website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-6806 or irvings@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. Major contributors to this report are listed in appendix  III.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) the extent to which selected federal agencies  and grantees have mechanisms and guidance in place to distinguish  between administrative and program costs and to facilitate the availability  of these data to Congress and the public; and (2) the extent to which  there are challenges that hinder the comparability of grant administrative  cost data. To address these objectives, we selected two agencies for our  review—the Departments of Health and Human Services (HHS) and  Housing and Urban Development (HUD). HHS manages the largest share  of federal grant making both in terms of grant obligation amount and the  number of grant programs. We included HUD to obtain management   Collectively, the  perspectives on a different set of programs and issues.selected agencies provide diversity in the number of grant programs and  grant obligations and management perspectives on administrative and  program costs.

At each selected agency, we identified three programs that provided a  combination of the high dollar grant obligation in fiscal year 2012 and  different grant types, such as project and formula, as well as grantee  type, including state and local government and nonprofit and for-profit  entities.and Development Fund; (2) Head Start; and (3) Allergy, Immunology and  Transplantation Research. At HUD we selected the following grant  programs: (1) HOME Investment Partnerships Program; (2) Community  Development Block Grant; and (3) Multifamily Housing Service  Coordinators. There were certain programs that met the criterion of high  grant obligation at each selected agency but we did not consider them for  selection for one or more reasons, including: administrative features of  the grant program that made them unique and distinctly atypical of the  grants at these agencies or planned consolidation of the program that  made the review less relevant.

At HHS we selected the following grant programs: (1) Child Care  To determine the extent to which selected federal agencies and grantees  have mechanisms and guidance in place to distinguish between  administrative and program costs, we reviewed each program’s  authorizing statutes and regulations, where applicable, program  guidance, and grant documents. We interviewed agency officials  responsible for each of the selected grant programs to understand how  these programs collect grant administrative cost data, the type of  guidance, training, and technical assistance they provide grantees, and  their requirements and experiences with determining and reporting  administrative costs. To inform our work on government-wide efforts to  collect grant administrative cost information, we interviewed staff at the  Office of Management and Budget’s (OMB) Office of Federal Financial  Management, which oversees the financial management policy of the  federal government.

To examine the extent to which there are challenges that hinder the  comparability of grant administrative cost data we performed work at the  primary recipient level. Based on fiscal year 2012 grant obligation data for  selected grant programs to state and local governments from OMB’s  Analytical Perspectives, we selected two states—Massachusetts, which  receives a relatively high amount of federal grant funds and was in the top  quarter of fiscal year 2012 federal grant obligations, and New Hampshire,  which receives a relatively low amount of federal grant funds and was in  the bottom quarter of fiscal year 2012 federal grant obligations. We then  selected primary grant recipients within those states with the highest  grant obligation for each selected grant program. We next confirmed  USASpending grant obligation amounts with HHS and HUD officials. We  subsequently replaced certain primary grant recipients that had met the  criteria of highest grant obligation for each selected grant program within  the selected states because we determined that USASpending did not  fully or correctly identify the grantee. Although the results of our review  are not generalizable to other grant programs in other agencies, they are  indicative of the wide variation associated with the mechanisms and  guidance for tracking grant administrative costs and the utility of these  costs for program management.

We conducted a literature review to identify issues raised, including those  in our previous reports as well as the Congressional Research Service  and the Congressional Budget Office, related to grant administrative  costs, grants management, and cost principles. Additionally, we reviewed  research reports from research groups and state representative  organizations that discuss grant administrative costs from the perspective  of grantees. We reviewed relevant HHS and HUD websites and related  agency documents to understand grant administrative costs guidance for  selected grant programs.

We conducted this performance audit from January 2014 to December  2014 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.

section_title: Appendix II: Selected Grant Programs, Administrative Costs Caps, and Administrative Cost Definitions
subsections: section_title: Administrative cost cap 10%
paragraphs: Types of expenses included in administrative cost caps  Includes program planning costs and salaries of participating jurisdiction’s staff  who perform activities, including compliance, developing interagency  agreements, monitoring of HOME-assisted housing, reporting to HUD, program  evaluation, audit resolution, providing public information, and travel costs; third- party audit, legal and accounting services; rental and purchase of equipment,  insurance, utilities, office supplies and office space; the costs of administering  tenant-based rental assistance programs; and indirect costs.

Includes program planning costs and salaries of staff who perform activities,  including providing information to the public, preparing budgets, monitoring and  compliance, developing interagency agreements, preparing reports for HUD,  audit resolution, program evaluation and supervising employees engaged in the  same; travel costs incurred for official business; third-party legal, accounting  and audit services; rental or purchase of equipment, insurance, utilities; office  supplies and office space; and indirect costs.

No applicable regulatory or statutory definitions.

5%  (15% for  Indian tribes)

Includes salaries of administrative and implementation agency staff; costs  related to planning, developing, and designing the program; public outreach  and hearings; preparing the application; monitoring and reporting on program  activities; coordinating with federal, state and local officials; official travel;  accounting and audit services; rental and purchase of equipment, utilities, and  office supplies; and indirect costs.

Includes costs related to overall management, including salaries of the  executive director, personnel officer, fiscal officer/bookkeeper,  payroll/insurance/property clerk, and janitor for administrative office space, and  costs associated with volunteers carrying out administrative functions; fringe  benefits, travel, transportation and training; expenses related to bookkeeping  and payroll services, audits, and bonding; administrative office insurance,  supplies, copy machines, postage, and utilities; and occupying, operating and  maintaining space for administrative activities.

Indirect charges that typically include depreciation on buildings and equipment;  costs of operating such facilities; salaries of executive officers attributable to  administrative functions; salaries of clerical staff; office supplies; and library  expenses.

AITR grantees do not have statutory or individual program administrative cost caps. However, OMB  Circular No. A-21 (now codified in Title 2 of the Code of Federal Regulations) imposes a 26 percent  cap on administrative (but not facilities) expenses for universities. Costs for administration are limited  to 26 percent of total direct costs.

section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Peter Del Toro (Assistant  Director), Keith O’Brien (Analyst-in-Charge), Gerard S. Burke, Stanley J.  Czerwinski, Catherine Myrick, Carol L. Patey, and George H. Schadler III  made key contributions. Also contributing to this report were Thomas M.  Beall, Amy R. Bowser, Robert L. Gebhart, Josephine Perez, and Robert  Robinson.


Question-summary annotations: questions: question: How did the reviewed grant programs capture administrative costs charged to them?
answer: All six of the grant programs GAO reviewed had mechanisms in place to capture the administrative costs charged to their grant programs, either via a computerized system or paper reporting. All the programs reported that they reviewed their grantees' costs for appropriateness. Two of the programs make administrative cost data available online.
child_questions: question: What are the differences in how grant programs track administrative costs?
answer: The programs GAO reviewed track administrative costs in different ways. For some programs administrative and program costs are reported separately, while for others they are included in the same line items.

question: How do reported costs differ from actual costs reported to the federal government?
answer: Administrative costs reported to the federal government may understate the actual cost to administer a grant program.
child_questions: question: What did GAO find that supports the existence of this?
answer: GAO found examples of grantees absorbing part of the costs to administer a grant. Some primary grant recipients stated that when such costs were not reimbursed by the federal grant, they would cover those expenses themselves. Another grantee said he relies on state appropriations to cover the majority of administrative costs.

questions: question: What are cost caps?
answer: These caps limit the amount of the grant that may be charged as administrative costs, and thereby affect what is reported to the federal government as administrative costs.
child_questions: question: How did cost caps vary between the programs GAO reviewed?
answer: For the programs GAO reviewed caps ranged from 5 to 26 percent, with one program having no cap.

question: What factors make it difficult to compare administrative costs between programs?
answer: This variation can make some programs look more administratively expensive than others. Second, differences in what is defined as an administrative cost can present an even greater challenge to comparing costs across programs.
child_questions: question: How can the definition of administrative costs make it a challenge to compare costs across programs?
answer: Programs have different missions, priorities, services, and clients; as a result definitions of administrative costs vary from program to program. Therefore, different programs may treat similar costs differently. A cost that may be classified as administrative in one program may be considered a direct program delivery cost by another. For example, the salary of an employee who enrolls participants in one Department of Health and Human Services (HHS) program is considered a program cost but an employee who holds a similar position determining the eligibility of participants in another HHS program may be considered an administrative cost depending on the state where it is administered.

question: What does the variation in definitions mean for a program with high administrative costs?
answer: This variation in definitions means that a program with high administrative costs may not be less efficient than a program with low administrative costs.

questions: question: What should be done when collecting comparable information for different grant programs?
answer: Given these issues, it is challenging to collect comparable information for different grant programs. Any use of information on administrative costs needs to recognize these concerns particularly when comparing programs with different types of objectives, projects, or services.

question: Under what circumstances might comparisons of costs be appropriate?
answer: Comparisons of costs may be appropriate when reviewing programs that fulfill similar missions or provide similar services.
child_questions: question: What should be done differently when comparing different types of grant programs?
answer: However, comparisons across different types of grant programs should be made with caution.

questions: question: Why does the federal government spend money on grants?
answer: The federal government spends billions of dollars on various grants to achieve diverse purposes.

question: What makes up the cost of a grant?
answer: The total cost of a grant includes both program costs that directly support the grant's mission and services and administrative costs to run the program.
child_questions: question: Why are administrative costs included in a grant program?
answer: These administrative activities, such as managing finances, are essential. It is important for agencies to track the cost of these activities to provide accountability for efficient use of federal resources.

questions: question: What was GAO asked to do?
answer: GAO was asked to review how costs associated with the administration of grants are tracked and the availability of this information.
child_questions: question: What did GAO do to accomplish this review?
answer: GAO examined (1) the extent to which selected federal agencies and grantees have mechanisms and guidance in place to distinguish between administrative and program costs and to facilitate the availability of these data to Congress and the public; and (2) the extent to which there are challenges that hinder the comparability of grant administrative cost data.

question: What criteria did GAO use to select which grant programs it reviewed?
answer: Agencies and grant programs were selected in part based on obligation amounts and grant types.
child_questions: question: How did the GAO go about reviewing each program?
answer: GAO reviewed each program's statutes, regulations, guidance, and grant documents, as applicable, and interviewed agency officials.

question: What results can be drawn from GAO's findings?
answer: Although GAO's findings are not generalizable, they are indicative of the wide variation associated with the mechanisms and guidance for tracking grant administrative costs.