RWTMA reauthorized CARE Act programs for fiscal years 2007 through 2009. Part D grants—one of the types of grants under the act—are for entities that provide HIV/AIDS services to women, infants, children, and youth. In fiscal year 2007, HRSA provided $68,500,000 in Part D grants to 90 grantees, ranging from about $230,000 to over $2 million per grant. This represented about 3 percent of all CARE Act funding. CARE Act Part D Grantees Part D grantees compete for grant funding to provide a range of services— both medical and support—to women, infants, children, and youth in a variety of settings. Medical services are those outpatient and ambulatory care services that are part of essential medical care. They can include, for example, primary medical care and HIV/AIDS drug assistance. Support services are nonmedical services necessary to use the medical services. They can include, for example, client transportation to medical appointments, child care, or food assistance services. Applicants generally submit applications to HRSA for 5-year project periods. Grantees receive funding for the first year and then submit annual noncompeting applications to HRSA to receive the remaining funding and to update HRSA on their projects’ spending and services. Although the grant applications and federal funds are released by fiscal year, HRSA refers to grantee spending in each of the 5 years constituting a project period as budget years. Within Part D, there are two types of grants, each of which has a slightly different budget year. For example, in 2007, one Part D budget year ran from August 1, 2007, until July 31, 2008, and another budget year ran from September 1, 2007, until August 31, 2008. Because the Part D grants discussed in this report are from fiscal year 2007 funds and the grant applications and accompanying guidances use the term fiscal year, we use the term throughout this report. Part D grantees include state and local government entities, CBOs—which may or may not be specifically focused on HIV/AIDS—hospitals and medical centers, university/college hospitals and medical centers, and universities/colleges. (See app. I for additional information.) Part D grantees can (1) operate a network of Part D subgrantees that provide services, (2) directly provide the services, or, as most do, (3) both operate a network of subgrantee service providers as well as directly provide services. In addition to spending Part D funds on medical and support services for clients, Part D grantees may also use their Part D grant funds to pay for certain administrative expenses and indirect costs. Indirect costs differ from administrative expenses in that indirect cost rates for specific activities are typically negotiated with the federal agency from which the grantee receives the greatest amount of federal awards and that rate then applies to all relevant federal award programs that permit indirect costs, unless it conflicts with a legislative indirect cost cap. The Office of Management and Budget (OMB) cost principles provide guidance as to the expenses that can be included in indirect costs to the cognizant agencies and grantees according to entity type. Within HHS, the Division of Cost Allocation performs this role. HRSA, following OMB cost principles, defines indirect costs as costs “incurred for common or joint objectives, which cannot be readily identified but are necessary to the operations of the organization.” HRSA defines administrative expenses as “funds that are to be used by grantees for grant management and monitoring activities, including costs related to any staff or activity unrelated to services or indirect costs.” Some expenses can be considered to be either administrative or indirect. For example, rent and utilities could be considered either administrative expenses or indirect costs. However, for a grantee to claim any expenses as indirect costs, it must have an approved indirect cost rate. Smaller organizations or ones that receive only one federal grant may not have approved indirect cost rates, but organizations that receive multiple federal grants would need to have approved rates. For example, a university that receives multiple federal grants would have an indirect cost rate to cover different grants’ shares of costs such as rent, utilities, as well as library expenses. However, a small organization that receives only one federal grant might not have an indirect cost rate since it may be able to account for all of those expenses for the single federal grant it receives. If a grantee does not have an approved indirect cost rate agreement, the grantee must charge (account for) expenses such as rent and utilities as administrative expenses in order to pay for those expenses with grant funds. This means that grantees with approved indirect cost rates have greater latitude than those without such rates to pay for expenses that might otherwise be considered administrative expenses as they can spend more than 10 percent of their Part D grant on expenses such as rent and utilities. The CARE Act now caps at 10 percent the amount of the Part D grant awards that grantees can spend on administrative expenses. HRSA reports that the purpose of this cap is to maximize the amount of federal funds spent on services for Part D clients. HRSA reports that the cap only applies to grantees’ administrative expenses; there is no cap on indirect costs. Prior to RWTMA, there was no cap on administrative expenses for Part D grantees. HRSA project officers are responsible for overseeing the Part D program by reviewing grant applications; writing and revising grant application guidance; responding to grantees’ questions; providing technical assistance and training to grantees; monitoring grantees’ performance and compliance with grant guidance, program expectations, and legislative requirements; and recommending approval on program budget submissions. Project officers are Part D grantees’ primary contact with HRSA, and they are expected to contact their assigned grantees at least once every 3 months. Required audits assist HRSA in providing financial oversight of some Part D grantees’ spending. Organizations that receive Part D grants are generally subject to the requirements of the Single Audit Act, as amended, and the implementing OMB guidance. These provisions require grantees that expend $500,000 or more in federal awards in a year to have either single or program-specific audits for that year conducted by an independent auditor. Single audits are organizationwide audits, not intended to focus specifically on an individual grant awarded by a particular agency. They include a review of the grantee’s financial statements, schedule of federal expenditures, internal controls, and compliance with laws and regulations pertaining to major programs that affect all federal funding, including grants—defined with reference to dollar thresholds—for which the grantee expends federal funds. Generally, grantees that expend federal funds under only one federal program may choose to have a program-specific audit. Among other things, such an audit includes a review of compliance with laws and regulations that affect that program. Grantees reported providing a range of medical and support services to women, infants, children, and youth infected with HIV/AIDS, as well as support services for affected family members. The majority of survey respondents reported that they have not made any changes to the services they provide to their clients in response to the cap, which, according to HRSA, was meant to maximize the amount of federal funds spent on services for Part D clients. However, four grantees reported increasing services and three grantees reported reducing client services. While most grantees reported not making changes to client services, the majority reported that the administrative expense cap, by reducing administrative services, has had a negative effect on their programs. Some grantees, however, reported experiencing positive effects on their programs as a result of the cap. Grantees reported providing a range of medical and support services to women, infants, children, and youth infected with HIV/AIDS, as well as their families (see table 1). Survey respondents reported providing medical services such as outpatient and ambulatory health services, medical case management—including treatment adherence services—mental health services, and HIV counseling and testing. They also reported providing support services such as referrals to health care and supportive services, outreach services, transportation, family advocacy, case management services, and child care. Grantees reported in our survey that they spent an average of 53 percent of their fiscal year 2007 Part D grants on medical services for clients, ranging from 0 percent to 95 percent. They also reported spending an average of about 33 percent of their fiscal year 2007 Part D grants on support services for their clients, ranging from 1 percent to 90 percent. Grant money not spent on medical and support services was used to pay for administrative expenses, indirect costs, and other services not directly related to clients. Grantees reported serving a range of clients with their Part D funds, including affected family members of HIV-infected individuals. Grantees reported serving varying numbers of clients ranging from 75 to over 10,000 clients. Of those clients, grantees reported serving an average of 37 infants less than 24 months of age; an average of 59 children from 2 to 12 years old; an average of 194 youths from 13 to 24 years old; and an average of 443 adults over 25 years of age. The number of clients served varied by type of grantee, with CBOs and universities/colleges serving fewer clients on average (667 and 554, respectively) and government entities, hospital/medical centers, and university/college hospital/medical centers serving more clients on average (1,047, 1,471, and 1,125, respectively). In addition, grantees varied in the types of clients they served. For example, several grantees had no infant or child clients, while one grantee served over 300 infants and another served over 1,100 children. Representatives of Part D grantees, including the AIDS Alliance for Children, Youth & Families, stated that providing both HIV-infected individuals and their uninfected family members with medical and support services makes grantees of the Part D program unique compared to other CARE Act programs. Some grantees stated that this family-centered care can include educating the family members of HIV-infected individuals and providing prevention information, medical care, and HIV counseling and testing to family members. These grantees told us that by providing medical and support services to uninfected family members, Part D programs help to keep the infected family member’s support system intact and help to eliminate barriers to the infected family member receiving care. The majority of survey respondents (63 of the 83) reported that they have not altered the amount or type of services that they provide to their clients in response to the administrative expense cap. In addition, all eight of the HRSA project officers we interviewed reported that they were aware of only minor or no changes to the services that their Part D grantees provided in response to the administrative expense cap. Of the 19 grantees that said they made changes to their services in response to the cap (1 grantee did not respond to this question), 4 described spending more on client services, such as oral health care. However, 3 described reducing client services. For example, 1 grantee reported that, because of the cap, the grantee has been unable to upgrade older computers, causing delays in services, and reducing staff time spent on client services. Grantees also reported effects that the administrative expense cap had on their programs other than changes to services. In our survey, 57 of the 83 respondents reported that the administrative expense cap has had a negative effect on their programs that did not involve reducing client services. Fifty-two of the 57 provided specific examples of how the cap has had a negative effect at a time when some commented they are seeing more clients. For example, one grantee commented that the cap has reduced its ability to fund necessary administrative services, such as data tracking and program management, and another commented that clinical staff must now perform administrative duties. However, 19 grantees reported that the administrative expense cap has had positive effects on their programs, while not necessarily changing their services. These survey respondents reported that the administrative expense cap has led them to review how they spend their Part D funds or take steps to save money or change staff roles. Some grantees reported that they were unable to pay for all of their Part D programs’ administrative expenses with their Part D grants because of the administrative expense cap. Almost all grantees charged administrative expenses to their Part D grants (82 of the 83 survey respondents). However, about half (41 of the 83) of the grantees that responded to the survey reported that not all of their administrative expenses for the Part D program were covered by the 10 percent allowance. Grantees that needed additional funding to cover their Part D administrative expenses reported using money from their organizations’ general operating budgets (26 of the 41 grantees), funds from other government grants (17 of the 41), and in- kind donations (14 of the 41). HRSA officials told us that Part D funding is not intended to cover all of a program’s expenses and that the agency encourages Part D grantees to seek other sources of funding to pay for any administrative expenses that are not covered by the 10 percent allowance. Part D grantees report their planned administrative expenses and indirect costs in their grant applications, budget revisions, and other documents they submit to HRSA. HRSA officials review that information to ensure that grantees adhere to their spending plans. Starting in fiscal year 2009, Part D grantees will complete standardized budget forms that will provide information to HRSA on the grantees’ final spending on administrative expenses and indirect costs. Documents submitted to HRSA by grantees indicated that grantees complied with the administrative expense cap. However, responses to our survey indicate that the amount grantees spent on the types of items that would generally be covered by the administrative expense cap if a grantee did not have an approved indirect cost rate was up to 36 percent of their grants in fiscal year 2007, with grantees with approved indirect cost rates spending more on those expenses. Part D grantees report planned administrative expenses and indirect costs to HRSA in their grant applications, which the agency uses to oversee grantees’ compliance with the Part D program. Part D grantees submit grant applications to HRSA that include planned expenses in line-item budgets and budget justifications. Grantees are required to include in the grant applications explanations of how they plan to spend their Part D grant funds. They do this using line-item budgets, in which each expense is shown on one line. They also provide budget justifications, which are narratives of how the grantee plans to spend its grant money. These budgets and justifications show a range of expenses, such as the grantee’s estimated expenses for medical services and support services, as well as the grantee’s estimated indirect costs and—starting in fiscal year 2007, the first year of the administrative expense cap—administrative expenses for the year. HRSA uses the budget information grantees submit to oversee their spending. Grantees must report to HRSA any changes to the budgets they submitted in their grant applications and HRSA must review and approve those changes before a grantee can change how it spends its Part D grant funds. HRSA also receives the annual audits of Part D grantees conducted under the Single Audit Act. Among other things, these audits examine grantees’ Part D spending, which may include whether the grantees comply with the administrative expense cap. HRSA officials reported that the project officers and other HRSA staff review all of the grantees’ budget information to ensure that the grantees are meeting the obligations of the Part D program. Starting in fiscal year 2009, HRSA will require Part D grantees to report more detailed information, including administrative expenses, at the beginning and end of each fiscal year. HRSA officials stated that, starting in fiscal year 2009, Part D grantees will be required to complete forms at both the beginning (planned allocation report) and end (final expenditure report) of the fiscal year. In the planned allocation reports, grantees will be required to report their expected administrative expenses and indirect costs at the beginning of the fiscal year. In the final expenditure reports, grantees will be required to report the actual administrative expenses and indirect costs they incurred by the end of the fiscal year. Both reports note that administrative expenses cannot exceed 10 percent of the Part D grant award. The reports will also require grantees to provide detailed information about the services they provide with their Part D funding. The reports include a list of possible Part D medical and support services— such as outpatient services, mental health services, case management, and child care—and the grantees will be required to note what amount, if any, they spent on each of those. The reports also state that HRSA will use the information from the allocation and expenditure reports to prepare an annual report to Congress on the use of Part D funds. Grantees reported to HRSA that they spent 10 percent or less of their Part D grants on administrative expenses, but those with approved indirect cost rates were able to spend more on the types of expenses that could otherwise be considered administrative expenses. In the fiscal year 2007 grant applications, grantees reported administrative expense estimates that ranged from 0 to the maximum allowed 10 percent. However, 60 of the 83 grantees reported in our survey that they had federally approved indirect cost rates and that, with these rates, they charged to their Part D grants an average of 10 percent for indirect costs in addition to the 10 percent allowed for administrative expenses. In our survey, the highest rate grantees reported charging to the Part D grant was 26 percent, although the maximum approved indirect cost rate was 66 percent. Taking into account the maximum approved indirect cost rate in our survey, as well as the 10 percent that all grantees are allowed for administrative expenses, some grantees could use as much as 76 percent of their Part D grants to pay for items that could qualify as indirect costs or administrative expenses, such as rent, utilities, and photocopying. In our survey, while most of the grantees reported using their full rate for the Part D program (46 of the 60), the highest reported combined percentage of a Part D grant spent on administrative expenses and indirect costs was 36 percent. The primary reason grantees reported for not charging their full indirect cost rate was because they chose to use a greater portion of their grant award to pay for medical and support services for clients, rather than for indirect costs. To implement the fiscal year 2007 administrative expense cap, HRSA reported revising its grant application guidance, approving grants with the condition that the grantee comply with the cap, and developing training for both its staff and grantees to implement the administrative expense cap. While 33 of the 83 grantees reported that the new guidance was helpful, others suggested that their project officers could have been more helpful in assisting them to meet the new administrative expense cap and some grantees expressed interest in receiving additional guidance. To implement the administrative expense cap, HRSA revised and issued new written grant application guidance, approved grants with the condition that the grantee comply with the cap, and developed training for both its staff and grantees. To implement the administrative expense cap, HRSA revised its Part D grant application guidance. In 2007, the first year of the administrative expense cap, HRSA issued grant guidance for Part D grantees that included guidance on how to define and calculate administrative expenses. Prior to RWTMA, there was no cap on Part D grantees’ administrative expenses so there was no guidance on administrative expenses specific to Part D grantees. The fiscal year 2007 grant application guidance stated that “a grantee may not use more than 10 percent of amounts received under a grant award under Part D for administrative expenses.” That guidance also defined administrative expenses as the CARE Act does as “funds that are to be used by grantees for grant management and monitoring activities, including costs related to any staff or activity unrelated to services and indirect costs.” HRSA included additional revisions related to the administrative expense cap in the fiscal year 2008 grant application guidance and plans to provide grantees with further guidance in the fiscal year 2009 application. In fiscal year 2008, HRSA added the following sentences to its definition of administrative expenses in its Part D grant application guidance: “Administrative costs also include rent, utilities and telephone services, as well as other costs not directly related to patient care. Administrative expenses are separate from those of indirect costs.” HRSA officials reported that the fiscal year 2009 grant guidance will be further revised to include more detail about how grantees should categorize their expenses, including administrative expenses. HRSA officials stated that the fiscal year 2009 grant guidance will be available to grantees in January 2009. In addition to the revised grant application guidance, HRSA issued a letter to all Part D grantees in May 2008 clarifying the definition of administrative expenses that appeared in the fiscal year 2008 guidance. The letter stated that the following are administrative expenses that are subject to the administrative expense cap: routine grant administration and monitoring activities, contracts for services awarded as part of the grant, and “costs which could qualify as either indirect or direct costs but are charged as direct costs,” such as rent, utilities, and telecommunications. The letter also described activities that are not subject to the administrative expense cap, such as indirect costs. HRSA officials reported that they placed conditions on all fiscal year 2007 Part D grant awards to ensure that all grantees met certain new requirements mandated in RWTMA, including the administrative expense cap, in order to avoid having their grant funds restricted. Some grantees reported that HRSA’s conditions required them to revise multiple documents, such as their budgets and work plans, in order to comply with the Part D program requirements. HRSA officials reported that, before they awarded the fiscal year 2008 grants, they had removed the conditions on all fiscal year 2007 Part D grant awards because the grantees had met all of the necessary requirements for the Part D grant awards, including the administrative expense cap. The amount of time grantees reported having conditions on their awards varied. In their survey responses, grantees reported that it took from over 2 weeks to almost 11 months to have the conditions removed. Following the enactment of RWTMA, HRSA provided its project officers and grantees with training on the changes resulting from the law. The training for project officers included briefing slides, a handout highlighting changes due to RWTMA, the creation of a model budget form, and additional guidance for responding to grantee questions about the administrative expense cap. The eight project officers we interviewed reported receiving the training, consistently defining administrative expenses as they are defined by HRSA, and rarely requiring their supervisors to provide additional guidance to their grantees on administrative expenses. In addition to training the project officers, HRSA provided training for grantees. HRSA officials reported conducting multiple telephone and Internet technical assistance training sessions with grantees. In our survey, grantees reported both positive and negative reviews of the guidance HRSA provided related to the administrative expense cap. In addition, some grantees indicated the need for additional guidance from HRSA on the administrative expense cap. Grantees reported receiving various types of guidance from HRSA on the administrative expense cap. In addition to the grant application guidance that is included in the grant application that all grantees must complete, grantees that responded to our survey reported receiving verbal (63 of 83) and written (43 of 83) guidance from their project officers on the administrative expense cap. Fewer reported receiving technical assistance (6 of 83) and verbal (13 of 83) and written (19 of 83) guidance from other HRSA officials. Some grantees reported that HRSA’s guidance was helpful when implementing the administrative expense cap. Specifically, 33 of 83 grantees reported that the guidance on administrative expenses was very or somewhat helpful. In written comments on the survey, grantees that reported that HRSA’s guidance was helpful commented that the guidance made clear how to categorize expenses, their project officers could answer any questions, and what was required of the grantees to comply with the cap was clear. We also heard similar comments during our interviews. For example, one grantee reported that its project officer provided specific advice and was very helpful and explicit, speaking with the grantee daily when necessary. Another grantee stated that its project officer was “knowledgeable and helpful.” Some grantees, however, reported that HRSA’s guidance was not helpful when implementing the administrative expense cap. Thirty of the 83 survey respondents reported that they found the guidance not at all helpful or somewhat unhelpful. In written comments on the survey, grantees that reported that HRSA’s guidance was unhelpful commented that the guidance did not provide clear definitions of allowable expenses and that the guidance was unclear or poorly written. Twelve of the 30 commented that they had received conflicting guidance from HRSA. Five of the grantees commented that the project officers could not answer questions or provide explanations regarding the grant application guidance or that the project officers provided different information to different grantees. A poll of the group interview participants showed that none thought that either the formal guidance or the informal guidance, such as guidance from project officers, was adequate. Some grantees reported seeking more detailed guidance about what should be considered an administrative expense. For example, during the group interviews, an official from one grantee stated that she would like to receive a list of approved administrative expenses from HRSA. In an interview with an official of a grantee, the official reported that there are “several gray areas” between what is considered an administrative expense and an indirect cost and HRSA had provided few definitions of those expenses. In addition, 16 of the 83 survey respondents sought guidance from sources other than HRSA on administrative expenses and the cap, such as from the AIDS Alliance for Children, Youth & Families. HRSA officials reported that the agency has received feedback from grantees about the grant application guidance and has worked to improve the guidance each year. These officials explained that the agency’s latitude is somewhat limited when revising the grant guidance. One official explained that the agency does not have complete control over the Part D guidance because all HRSA grant applications and guidance must follow a standard template. Moreover, one official stated that grantees often do not carefully read the guidance. Officials stated that in response to questions about the grant application guidance, project officers will often refer grantees back to the grant application guidance and might not provide additional clarification to ensure fairness in the application process by not providing existing grantees with information unavailable to new applicants. HHS provided technical comments on a draft of the report, which we incorporated as appropriate. We are sending copies of this report to the Secretary of Health and Human Services and the Administrator of HRSA. This report also is available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me on (202) 512-7114 or crossem@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs can be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. We examined the administrative expense cap, which took effect in fiscal year 2007, placed on grants for family-centered medical and support services for women, infants, children, and youth with HIV/AIDS and their families (Part D grants) under the Ryan White Comprehensive AIDS Resources Emergency Act of 1990 (CARE Act). Specifically, we examined (1) the services that Part D grantees provide and what effect, if any, the administrative expense cap has had on those services and on grantee programs; (2) how Part D grantees report on administrative expenses, indirect costs, and compliance with the administrative expense cap; and (3) how the Department of Health and Human Services’ Health Resources and Services Administration (HRSA) implemented the Part D administrative expense cap and grantees’ views on that implementation. To determine what services Part D grantees provide and what effect the administrative expense cap has had on those services; how Part D grantees report on administrative expenses, indirect costs, and compliance with the administrative expense cap; and how HRSA has implemented the Part D administrative expense cap, we analyzed data from our Web-based survey sent to all 90 Part D grantees. We obtained the e-mail addresses and the names of grantee contacts from HRSA. The survey contained questions on grantees’ services and clients, administrative expenses and indirect costs, and HRSA’s implementation of the administrative expense cap. The questions focused on changes that occurred in fiscal year 2007, the first year the administrative expense cap was in effect. Fiscal year 2007 was the only full year of information we were able to obtain from grantees. Because the Part D grants are generally awarded in August of each year— the beginning of what HRSA officials refer to as the budget year—a full year of information was not available for fiscal year 2008. Of the 90 Part D grantees, 83 completed the survey for a 92 percent response rate (see table 2). During the development of our survey, we pretested it with three Part D grantees from New York, Washington, D.C., and Maryland. We opened the survey on May 14, 2008. During the course of the survey, we sent two follow-up e-mails to each nonrespondent and then made telephone follow- up calls to remaining nonrespondents to address any problems they had and to encourage them to complete the survey. We closed the survey on July 10, 2008. Because this survey was conducted with all of the Part D grantees, it is not subject to sampling error. However, the practical difficulties of conducting any survey may introduce other errors. For example, difficulties in interpreting a particular question or sources of information available to respondents can introduce unwanted variability or bias into the survey results. We took steps to minimize such nonsampling errors in developing the questionnaire and collecting and analyzing the data. While the response rate of 92 percent is high, if those not responding differed materially from those responding on any particular question we analyzed, our analysis may not accurately represent the group surveyed. Our results therefore best represent only those responding to our survey. However, given our analysis of the nonresponders, we determined that we could generalize our findings to all Part D grantees. To obtain information on grantees’ fiscal year 2007 spending, including administrative expenses and indirect costs, we reviewed the grantees’ 2007 Part D grant applications that contain their proposed budgets. Because the Part D grant applications did not contain standardized spending information that met our reporting objectives, we also included questions in the survey on grantees’ fiscal year 2007 Part D spending. To gain further information on Part D grantees and the administrative expense cap, we visited two Part D grantees and one Part D subgrantee in the Washington, D.C., metropolitan area and conducted telephone interviews with officials from six Part D grantees. We selected the grantees for visits and interviews through a nongeneralizable sample based on their size, location, and organizational structure. We also conducted two group interviews held at the AIDS Alliance for Children, Youth & Families conference in May 2008. The 18 grantees that participated were self-selected volunteers representing universities, hospitals, community-based organizations, and government entities. To determine how HRSA has implemented the Part D administrative expense cap, we interviewed HRSA officials and reviewed relevant documents. We interviewed HRSA officials responsible for overseeing the Part D program. We also conducted one-on-one interviews with 8 of the approximately 30 project officers who oversee at least one Part D grant. These project officers write program guidance that defines the grant program objectives, monitor grantees’ performance, and evaluate grantee achievements. We selected the 8 project officers based on unbiased selection criteria by project officers’ service areas. We excluded project officers who were hired in 2008 because those officers did not oversee grantees during the entire first year of the administrative expense cap. Finally, we reviewed HRSA’s technical assistance tools and training provided to grantee staff and project officers, including fiscal years 2007 and 2008 grant application guidance, and reviewed Part D fiscal year 2007 grant applications. We did not consider how HRSA’s treatment of administrative expenses differed from other programs. We conducted this performance audit from January 2008 through November 2008 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Tom Conahan, Assistant Director; Stefanie A. Bzdusek; Shaunessye Curry; Kelly L. DeMots; Cathy Hamann; Christopher Howard; Martha Kelly; and Eden Savino made key contributions to this report.

Summary: The Ryan White Comprehensive AIDS Resources Emergency Act of 1990 (CARE Act) makes federal funds available to assist those infected and affected by HIV/AIDS. Through the CARE Act, the Health Resources and Services Administration (HRSA), part of the Department of Health and Human Services (HHS), awards grants (known as Part D grants) to provide services to women, infants, children, and youth with HIV/AIDS and their families. These grantees incur administrative expenses and indirect costs, such as rent and utilities. The Ryan White HIV/AIDS Treatment and Modernization Act of 2006 (RWTMA), which took effect in fiscal year 2007, capped at 10 percent the amount that Part D grantees could spend on administrative expenses. According to HRSA, there is no cap on indirect costs, but grantees must have an indirect cost rate to use funds for indirect costs. RWTMA directed GAO to examine Part D spending. In this report GAO describes (1) the services that Part D grantees provide and what effect, if any, the administrative expense cap has had on those services and on grantee programs; (2) how Part D grantees report on administrative expenses, indirect costs, and compliance with the cap; and (3) how HRSA implemented the cap and grantees' views on that implementation. GAO surveyed all Part D grantees, interviewed selected grantees, reviewed Part D grant applications and guidance, and interviewed HRSA officials. Part D grantees reported in our survey that they provide a range of services to clients, and the majority of these grantees reported that they have not made changes to services in response to the administrative expense cap implemented in fiscal year 2007. These services included both medical services, such as outpatient health services, as well as support services, such as child care. The majority of the 83 grantees that responded to our survey reported that the cap has not affected the services they provide. However, 4 grantees reported increasing services and 3 grantees reported reducing client services in response to the cap. In addition, the majority of grantees also reported that the cap has had a negative effect on their Part D programs, even if it has not changed client services, because it has, for example, made it necessary for clinical staff to perform administrative tasks. In addition, about half of the grantees reported that not all of their Part D administrative expenses were covered by the 10 percent allowance. Part D grantees report planned administrative expenses and indirect costs to HRSA and, starting in fiscal year 2009, HRSA will require additional reporting. In their grant applications, Part D grantees provide HRSA with budgets that include administrative expenses and indirect costs. Grantees must then update HRSA on any changes to that information, and some provide the results of independent financial audits. Starting in fiscal year 2009, HRSA will require all Part D grantees to report more detailed budget information at both the beginning and end of each year. In fiscal year 2007, the first year of the administrative expense cap, grantees reported to HRSA that they were in compliance with the cap. Grantees with approved indirect cost rates could include expenses such as rent and utilities in their indirect costs rather than in their administrative expenses and so were able to spend more than 10 percent of their Part D grants on such expenses. Beginning in fiscal year 2007, HRSA took multiple steps to implement the administrative expense cap but, while some grantees reported that HRSA's guidance on how to implement the cap was helpful, others reported difficulties in implementing the cap due to unclear guidance from HRSA. HRSA reported revising its grant application guidance and developing training for both its staff and grantees in response to the cap. HRSA also included additional revisions related to the administrative expense cap in the fiscal year 2008 grant application guidance and plans to provide grantees with further guidance in the fiscal year 2009 application. While some grantees reported that HRSA's guidance was helpful, others reported receiving conflicting information. In the first year of the cap, some grantees also indicated a need for additional guidance on the administrative expense cap and reported that they sought such guidance from sources other than HRSA. HHS provided technical comments on a draft of the report, which GAO incorporated as appropriate.