Corporation for National and Community Service: Preliminary Observations on the National Service Trust and AmeriCorps
Released: 2003-04-10T00:00:00

Letter

Background

The Corporation for National and Community Service was created to help meet community needs in education, the environment, and public safety and to expand educational opportunity by rewarding individuals who participate in national service. The Corporation is part of USA Freedom Corps, a White House initiative to foster a culture of citizenship, service, and responsibility and help all Americans answer the President’s call to service. The Corporation receives appropriations to fund program operations and the National Service Trust. The Corporation makes grants from its program appropriations to help grant recipients carry out national service programs.

AmeriCorps is one of three national service programs the Corporation oversees. Most of the grant funding from the Corporation for AmeriCorps programs goes to state service commissions, which award subgrants to nonprofit groups and agencies that enroll the AmeriCorps’ participants. Participants in the AmeriCorps program can receive a stipend as well as health benefits and childcare coverage. For example, about one-half of AmeriCorps’ participants received an annual living allowance of $9,300 and health benefits. Those participants who successfully complete a required term of service earn an education award that can be used to pay for undergraduate school, or graduate school, or to pay back qualified student loans. In exchange for a term of service, full-time AmeriCorps participants earned an education award of $4,725 in program year 2002. Participants have up to 7 years from the date of completion of service to use the education award. AmeriCorps also enrolls participants on a part- time basis and as “education awards only” participants. Part-time participants who serve 900 or fewer hours annually earn education awards proportional to those earned by full-time participants. Under the “education awards only” program, AmeriCorps does not pay the participant a living allowance or other benefits, but provides grant funding for administrative purposes only, about $400 per full-time participant annually. However, each participant receives an education award equivalent to that earned by a paid AmeriCorps participant. The number of AmeriCorps participants increased by nearly 20,000 from 1998 to 2001. The program year 2002 data indicate the number of positions awarded will decrease by about 8,000. (See figure 1.)

In November 2002, the Corporation suspended enrollments in AmeriCorps because total enrollments were potentially higher than the Corporation had expected. No new funds had been requested by and appropriated to the Trust for fiscal year 2002, and under the continuing resolution at the start of fiscal year 2003, no new funds would be deposited into the Trust until the Corporation’s fiscal year 2003 appropriations were enacted. The Corporation concluded that if its grantees and subgrantees were to fully enroll new participants up to the maximum number of enrollments the Corporation had approved in its grants, the Trust would not have a sufficient amount to provide the educational awards to those participants. Enrollments in AmeriCorps were frozen from November 2002 through March 2003.

Three Factors Contributed to the Need to Suspend AmeriCorps Enrollments

Three factors contributed to the Corporation’s need to suspend enrollments in AmeriCorps. Although the Corporation specified the maximum number of new participants in the grants it awarded, the Corporation did not recognize its obligation to fund participant education awards until it actually paid the benefits. Had the Corporation properly tracked and recorded its obligations in the Trust at the time of grant award when it approved new enrollments, it likely would not have needed to suspend enrollments. In addition, there was little, if any, communication among the AmeriCorps program office, the grants management office, and the Trust about the number of positions that the Trust could support. Furthermore, by allowing grantees various flexibilities and not requiring them to provide timely enrollment information, the Corporation and AmeriCorps managers could not be certain about the number of participants.

Inappropriate Obligation Practices

The Corporation did not appropriately record or track its obligations for education awards to program participants. Generally, an agency incurs an obligation for the amount of the grant award with the execution of a grant agreement. The Corporation enters into grant agreements with state service commissions in which it specifies the budget and project period of the award, the total number of positions approved, the total amount awarded for program costs for the approved positions, and the terms of acceptance. The award for the program costs is used to pay participants’ stipends and health and child care coverage. The Corporation incurs an obligation for these program costs at the time of grant award. While the costs of education awards for the new participants are not specified in the grants, in the grant agreements the Corporation commits to funding education awards for all of the qualified positions initially approved in a grant if the subgrantee enrolls all of the participants before the Corporation modifies the terms or conditions of the grant. In other words, upon award of the grant, the Corporation, at a minimum, has accepted “ legal duty … which could mature into a legal liability by virtue of actions on the part of the other party beyond the control of the United States.” However, the Corporation has concluded that it is not necessary to obligate funds until an individual actually enrolls in AmeriCorps. Therefore, the Corporation recorded education award obligations on an outlay basis. That is, obligations were recorded at the time of the quarterly drawdown of amounts for education awards from the Trust.

By failing to recognize and record its obligations at the time of grant award, the Corporation had no assurance that the number of positions approved in grant awards did not exceed the amount of educational awards the Trust could support. Proper recording of obligations serves to protect the government by ensuring that it has adequate budget authority to cover all of its commitments and prevent agencies from over-obligating its budget authority.

Lack of Communication

Corporation executives we interviewed said that there was little if any coordination between the AmeriCorps program office and officials responsible for the management of the Trust about the number of positions that the Trust could support. The AmeriCorps director said that she considered the grant budget independent from the Trust and she neither consulted with nor received direction from the Trust director when making decisions about the grants. In addition, in recent years, AmeriCorps has tried to increase the number of participants by enrolling them in the “education awards only” program. Under this program, which was an effort to lower the per participant program cost, AmeriCorps provides funding to grantees for administrative purposes only, currently about $400 per full-time participant annually. Increasing the number of participants in this way is at a low cost to the AmeriCorps program appropriation, but at full cost to the Trust, which funds the education awards, because each participant receives an education award equivalent to that earned by a paid AmeriCorps participant. Consequently, the number of positions funded by AmeriCorps grants was not reconciled with the number supportable by the Trust. According to Corporation officials we spoke with, the Trust’s funding needs were based on an expected enrollment of 50,000, while the AmeriCorps program office approved grants for about 75,000 participants.

Corporation officials also said that prior to suspending enrollments in AmeriCorps, the Trust was so well funded it did not warrant their attention. They told us that early in the AmeriCorps program, a goal of 50,000 participants annually was used for Trust budgeting purposes. However, it was found that fewer than that number of participants enrolled, and not all of those who participated earned education awards. Additionally, a Corporation budget official said that in the past those who earned education awards were not using them as quickly as expected. Even as the number of AmeriCorps participants grew, the Trust’s accounting records showed an unobligated balance that was high enough for Congress to rescind $111 million over fiscal years 2000 and 2001, resulting in the deobligation of the Trust by this amount. Given this history, Corporation managers did not see the need to reconcile the number of positions created by grant funding with the number the Trust could support. The Trust balance was not viewed as a constraining factor. Because the number of positions approved in the grants was not reconciled with the Trust before grants were awarded, there was the potential for grantees to enroll more participants than the Trust could support.

Grantees Allowed to Adjust Authorized Positions and Not Required to Provide Timely Participant Information

Two program management policies affected the number and type of participants and, therefore, the use of Trust funds. One policy permitted grantees to over enroll participants under certain circumstances with approval from their AmeriCorps program officer. Specifically, the policy allowed grantees to over enroll up to 20 percent. The program year 2002-03 data indicate that while only a few of the grantees increased their enrollment, some increased theirs by more than 20 percent. Another policy allowed grantees to convert positions from full-time to part-time as long as the total number of full-time equivalents supported by the grant did not change. While this practice did not affect the program funds, it did affect the Trust. After the enrollments were suspended, Corporation officials determined that part-time participants used their education awards at a higher rate than full-time participants and therefore the number of part- time participants resulted in a relatively higher level of use for the education award.

The Corporation did not have reliable data on the number of AmeriCorps participants during the period leading up to the suspension. Enrollments are recorded by grantees through the Corporation’s Web-Based Reporting System (WBRS). While the enrollment information in WBRS was uploaded into the Corporation’s database and used to track education award obligations on a weekly basis, Corporation officials said that discrepancies existed between the number of participants enrolled and the number the Corporation was aware of, because of the length of time between when a participant started to serve and when the grantee entered information into WBRS. A Corporation official said that it was not unheard of for some grantees to be 60 to 90 days late in entering an enrollment into WBRS.

By allowing grantees the flexibility to change the number and type of participants coupled with delays in receiving information on enrollments, the Corporation and AmeriCorps managers could not be certain about the number of participants. Corporation officials said that this resulting lack of confidence in the data was a contributing factor to the decision to suspend enrollments.

New Policies Established, but Additional Changes May be Needed

In response to concerns that the AmeriCorps program may have enrolled participants without adequately providing for their education awards, the Corporation has developed several new policies. While the Corporation is modifying its practice of when it records obligations, the Corporation overlooks the legal duty it incurs at the time of grant award. Other policy changes are directed to improving communication among key executives, limiting grantees’ flexibilities and requiring more timely information on participants. While these policies were only recently introduced, they could, if implemented, help the Corporation keep track of the day-to-day aspects of the AmeriCorps program and provide information needed to monitor the use of the Trust in order to determine whether the Corporation should make adjustments, such as deobligating excess funds. However, data integration problems between WBRS and the program the Corporation uses to track the education awards earned by AmeriCorps participants may hamper the effectiveness of the new procedures.

New Policies for Obligating Funds

The Corporation is in the process of modifying its practices regarding when it will record obligations. The Corporation’s General Counsel explained that the Corporation will record obligations at the time of enrollment, instead of on a quarterly drawdown basis and that the obligations will be based on estimates of what these enrolled members will draw down in the future. The Corporation is of the opinion that it does not incur an obligation for an education award until the time of enrollment because it may modify the terms and conditions of a grant, including a reduction in the number of new participants the grantee may enroll, prior to the enrollment of all positions initially approved in a grant, to prevent a shortfall in the Trust. The General Counsel also said “…a binding agreement between the Government and an AmeriCorps member exists only upon the member’s authorized enrollment in the Trust.”

While it may be true that the Corporation has no binding agreement with a participant until the participant enrolls in AmeriCorps, this is not the controlling consideration for fund control purposes. In our opinion, this view overlooks the legal duty the Corporation incurs at the time of grant award when it commits to funding a specified number of participants and the constraint imposed on the Corporation by the National and Community Service Act. Specifically, the act says “…he Corporation may not approve positions as national service positions…for a fiscal year in excess of the number of positions for which the Corporation has sufficient available funds in the National Service Trust for that fiscal year…”. The Corporation, by its own admission, may modify the number of approved participants only if it amends the grant agreement to reduce the number of enrolled positions prior to enrollment. When a grant is awarded, the number of new participants approved in the grant establishes a legal duty that can mature into a legal liability for education awards by virtue of actions of the grantee, unless the Corporation modifies the grant prior to participant enrollment. While the Corporation may unilaterally reduce the number of authorized positions awarded to a grantee prior to participant enrollment, from the time of grant award until the Corporation acts to reduce the approved number of positions, the grantee and its subgrantee, not the Corporation, will control the number of participants who may enroll, up to the maximum number of participants the Corporation has approved in the grant agreement.

It is also significant to note that the grantee and subgrantee, by their actions in enrolling participants, not the Corporation, control the amount, ultimately, of the Corporation’s liability. If the amount of liability to the government is under the control of the grantee, not the Corporation, the government should obligate funds to cover the maximum amount of the liability. As more information is known, the Corporation should adjust the obligation—deobligate funds or increase the obligation level—as needed.

The Corporation also said that at the time a member enrolls it would record its “…best estimate of the Government’s ultimate liability of education awards provided to members enrolled in the National Service Trust.” According to the Corporation’s General Counsel, the Corporation’s estimates of the amount that enrolled members will draw down is based on historical information, such as attrition rate and actual usage by participants who complete a term of service and earn an education award. It appears to us that the Corporation is confusing its accounting liability—projections booked in its accounting systems for financial statement purposes, with its legal liability—amounts to be recorded in its obligational accounting systems and tracked in order to ensure compliance with fiscal laws. One of the federal financial accounting standards states that a liability for proprietary accounting purposes is a probable and measurable future outflow or other sacrifice of resources as a result of past transactions or events. Traditionally, projections of accounting liability consider the same factors, such as historical trends, that are considered in the Corporation’s model. To track its obligations, the Corporation should be recording its unmatured legal liability for the education awards, which is the total cost associated with the enrollment of all approved positions. The Corporation’s obligation should be recorded as it is incurred and should be calculated by multiplying the number of approved positions in a grant by the total cost of a national service educational award.

More Communication Planned among Key Corporation Managers

Policy changes at Corporation headquarters are designed to improve communication between several key offices and officials. A major change is that the Trust balance is to be a limiting factor on grant awards and, therefore, enrollment levels. In addition, beginning with the 2003 grant cycle, one new policy calls for the AmeriCorps director to work with the grants director, the Chief Financial Officer (CFO), and the Trust director to compare projections of positions to be approved in grants with those supported by actual appropriations, and the Chief Executive Officer (CEO) will only approve the number of positions the Trust can support. Additionally, the CEO will approve all AmeriCorps grants after consultation with the CFO on the number of education awards that can be supported by the Trust. Also, the policy states that the CEO, CFO, the Trust director, and the AmeriCorps director will meet at least monthly to review and reconcile enrollment data and Trust data. Through bi-weekly reports, the AmeriCorps director and the Trust director are to keep the CEO and CFO informed of the number of approved and filled positions. The Trust director is to monitor factors relevant to forecasting Trust liabilities and report regularly to the CFO, highlighting deviations from assumptions in the model. Each month the CFO is to use actual enrollment data to re-evaluate the model for forecasting Trust liabilities. If the revision results in a need to change enrollment targets, the CFO will notify the CEO and AmeriCorps director immediately. The CEO will take appropriate action and report any such action to Congress, the Corporation’s Board, and the Office of Management and Budget.

Regular meetings and attention to the enrollment data should help the Corporation keep track of the day-to-day aspects of the AmeriCorps program. Such updated information is an important step in monitoring the use of the Trust in order to determine whether the Corporation should make adjustments. For example, if the Corporation obligated the full cost for each of the positions approved at the time of grant award, and later determined that many of the positions will not be filled, it could reduce the number of approved positions and deobligate some of the funds. The policy changes and new procedures were announced in January. We will continue to monitor the implementation of these policy changes.

Grantees No Longer Permitted to Change Authorized Positions

The Corporation has changed policies regarding its grantees ability to over enroll participants, replace participants who leave with new enrollees and change positions from full-time to part-time. In a January 22, 2003, memorandum, the director of AmeriCorps cancelled the policy that allowed grantees to over enroll members by up to 20 percent over the ceiling established in the grant award in order to take account of attrition. Furthermore, an official said AmeriCorps now considers a position to be filled for the term of the grant once the grantee enrolls a participant, even if the participant later drops out of the program, whether or not an education award was earned. The official said that in the past, grantees could enroll a new member to serve out the balance of the term if grant funds were available. A Corporation official also said that there is a new policy that restricts grantees from converting full-time positions to part- time positions. Grantees must now request and receive approval from the Corporation before such changes can be made.

Since grantees will not be permitted to modify the number and type of authorized positions, the Corporation’s ability to manage the AmeriCorps program should improve. Most 2003 grant positions have not yet been awarded; therefore, it is too early to tell whether these new policies will be effective. We will monitor these policies and assess the extent to which they have been implemented as we complete our work.

Grantees Will Be Required to Report Participant Information within 30 days, but Data Reconciliation Problems May Need To Be Addressed

In January 2003 the Corporation informed all grantees that AmeriCorps will require timely reporting of participant information to ensure that the Trust database receives current information on the number of participants eligible for an education award. Grantees will be required to keep AmeriCorps informed of the number of participants offered positions and the number who accept and enroll and to document enrollment through WBRS no later than 30 days after participants start working. The memorandum warns grantees that failure to comply with this requirement could result in reductions in the number of positions or termination of the grant. Additionally, the memorandum directs state commissions and other AmeriCorps grantees—the organizations responsible for the oversight of subgrantees—to implement procedures to ensure that timely notification of participant commitments and enrollments is part of their review and oversight functions.

Furthermore, the Corporation has made changes to WBRS, which is used to track participant, grant, and budget information. First, controls have been put in place to limit the number of positions listed in WBRS to no more than the number of approved positions. The Corporation’s Biweekly Trust Enrollment Summary, as of March 2003, shows that award totals are being tracked and compared with the data estimates in the Trust. However, officials told us that there are some data reconciliation problems between WBRS and the program used by the Corporation to track the education awards earned by AmeriCorps participants. Corporation staff have had to make manual adjustments to reconcile the data.

Accurate and timely information about enrollments should help the Corporation and AmeriCorps manage the program. As grants are awarded, we will be able to assess whether the policies have been fully implemented.

Conclusion

The Corporation’s new policies, if fully implemented, should help the Corporation manage the AmeriCorps program by providing better information on day-to-day operations. However, without obligating the full amount associated with all of the positions authorized in the grants, the Corporation remains at risk of having the actual number of enrollments exceed the estimated number the Trust can support. We will monitor the implementation of the Corporation’s new policies as we continue our review.

GAO Contact and Acknowledgments

For further information regarding this statement, please call Cornelia M. Ashby at (202) 512-8403 or Susan A. Poling at 202-512-5644. Individuals making key contributions to this testimony included Carolyn M. Taylor, Tom Armstrong, Anthony DeFrank, Joel Marus, and Hannah Laufe.

Appendix I: Obligational Practices of the Corporation for National and Community Service

Appendix I: Obligational Practices of the Corporation for National and Community Service This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.