EPA used over two-thirds of its fiscal year 2003 budget on grants and contracts to carry out its environmental programs and obtain services. Out of an $7.6 billion fiscal year 2003 budget, EPA awarded $4.2 billion in grants and $934 million in contracts, as shown in figure 1. In fiscal year 2002, EPA made over 8,000 grant awards and amendments, covering 72 separate grant programs to 4,100 grant recipients. EPA offers two types of grant programs—nondiscretionary and discretionary: For nondiscretionary grants, Congress directs awards to prospective recipients who meet specific eligibility criteria, often awarded on the basis of formulas prescribed by law or agency regulation. For example, nondiscretionary grants support water infrastructure projects, such as the drinking water and clean water state revolving fund program, and continuing environmental programs, such as the Clean Air Program for monitoring and enforcing Clean Air Act regulations. In fiscal year 2003, EPA awarded about $3.6 billion in nondiscretionary grants. EPA has awarded these grants primarily to states and other governmental entities. For discretionary grants, EPA has the legislative authority to independently determine the recipients and funding levels. These grants fund a variety of activities, such as environmental research and training. In fiscal year 2003, EPA awarded $656 million in discretionary grants. EPA awards these grants primarily to state and local government entities, nonprofit organizations, universities, and Native American tribes. In fiscal year 2003, EPA awarded about 40 percent of the discretionary grant dollars through program offices at EPA headquarters, while its 10 regional offices awarded the remaining 60 percent. Additionally, at its own discretion, EPA took 6,745 total contract actions totaling $934 million in fiscal year 2003. EPA contracting activities range from long-term clean-up and remediation support contracts under the agency’s Superfund program, contracts to support research at EPA laboratories, contracts for management consultant services, and contracts for janitorial services and building maintenance. With discretionary funding, EPA needs to choose the appropriate award instrument—a procurement contract, a grant, or a cooperative agreement. The Federal Grant and Cooperative Agreement Act of 1977 established governmentwide criteria that agencies must use in selecting the most appropriate award instrument. Specifically: Procurement contracts are to be used when “the principal purpose of the instrument is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government,” or when “the agency decides in a specific instance that the use of a procurement contract is appropriate.” Grant agreements are to be used when “the principal purpose of the relationship is to transfer a thing of value to the to carry out a public purpose of support or stimulation authorized by [federal law],” and when “substantial involvement is not expected between the executive agency and the when carrying out the activity contemplated in the agreement.” Cooperative agreements are to be used when “the principal purpose of the relationship is to transfer a thing of value to the to carry out a public purpose of support or stimulation authorized by ,” and when “substantial involvement is expected between the executive agency and the when carrying out the activity contemplated in the agreement.” Under the act, grants and cooperative agreements are closely related to one another. The essential distinction between a grant and a cooperative agreement is the degree of federal involvement. EPA Order 5700.1 is the agency’s policy to implement the 1977 Act and guides EPA in its selection of the appropriate award instrument. The order’s purpose is “to clarify the criteria for and to achieve consistency in the selection and use of contracts, cooperative agreements and grants by all EPA offices and laboratories.” According to the order, the decision to use a contract or an assistance agreement (a grant or a cooperative agreement) must be based solely on the principal purpose of the relationship, and EPA offices and laboratories must determine whether the government is the direct beneficiary or user of the activity. The order identifies activities that must be funded through a contract, such as activities that produce specific information that EPA will directly incorporate into technical, policy, or regulatory decisions, and activities that may be funded through an assistance agreement, such as state and local government cleanup of hazardous waste sites. The order also gives examples to clarify areas of ambiguity, such as which instrument to select to fund a conference when EPA may be attending, and what qualifies as substantial involvement in the selection of a cooperative agreement. The order also specifies the roles and responsibilities of both EPA program and grants management offices, including the responsibilities of those personnel who handle funding and “technical, legal, and administrative evaluations.” Additional project officer training guidance specifies that project officers at EPA headquarters and in regional program offices receive grant proposals resulting from agency advertisements and solicitations, or through a grantee’s unsolicited proposal. Project officers are responsible for ensuring that grants meet technical and programmatic requirements. EPA’s Office of Grants and Debarment develops agency grant policies and guidance, and, through its grants management offices at headquarters and in regions, is responsible for the administration and management of individual grants. Grants management offices work with project officers to evaluate whether individual grant proposals should be approved as a grant, a cooperative agreement, or referred to EPA’s Office of Acquisition Management, which oversees agency contracting. Figure 2 describes the process that the EPA offices follow in choosing a grant or a contract. To document compliance with the 1977 Act, EPA Order 5700.1 requires that a designated approval official sign a decision memorandum prepared by the responsible project officer verifying the selection of the appropriate award instrument. Additional Office of Grants and Debarment guidance listed in its project officer training manual requires that the decision memorandum must include, among other items, the objectives of the project or program, the total amount of the award, and a brief justification why the award should be awarded as a grant or a cooperative agreement. Internal management reviews conducted by the Office of Grants and Debarment note that the justification should address the criteria identified in the order: principal purpose of the relationship, direct benefit or use, support or stimulation, and legislative authority to enter into a grant relationship. In addition, if the award is to be a cooperative agreement, the memorandum must include a description of the substantial federal involvement. For proposals to fund conferences or Web sites, the Office of Grants and Debarment has developed separate, specific guidance for project officers to use in order to determine whether EPA is the direct beneficiary of the conference or Web-site proposal. EPA’s funding for discretionary grants and contracts have had similar trends from fiscal years 1993 through 2003, and this trend suggests there has been limited migration between discretionary grant and contract funds in EPA’s budget over this period. However, the data EPA provided to us had little information on goods and services obtained and cannot be compared with each other to determine whether activities once funded under contracts are now being funded under discretionary grants. We estimate, on the basis of our survey responses from recipients of discretionary grants closed in fiscal years 2001 and 2002 and that had project start dates after October 1, 1997, that the majority of discretionary grants’ goods and services fell into three categories: research and development; training, workshops, and education; and journals, publications, and reports. A large number of grants were also used to fund conferences and smaller presentations and meetings. Although fewer in number, discretionary grants used for cleanup and monitoring activities, such as support for state leaking underground storage tank programs, made up one of the largest dollar categories of discretionary grant funding for any spending category we identified. For fiscal years 1993 through 2003, both discretionary grant and contract spending show similar trends, as figure 3 shows. Both the overall and annual trends suggest there has been limited migration between discretionary grant and contract funds in EPA’s budget over this period. In total, EPA funded $6.4 billion in discretionary grants and $11.3 billion in contracts over the 11-year period. For discretionary grants, annual funding decreased by $18 million over the period, from $674 million to $656 million; annual funding for contracts decreased by $130 million, from $1.06 billion to $934 million—decreases of 3 and 12 percent, respectively. See table 7 in appendix II for annual funding levels for EPA discretionary grants and contracts for fiscal years 1993 through 2003. Table 8 in appendix II shows annual funding levels for EPA discretionary grants at EPA headquarters and regional offices for fiscal years 1993 through 2003. EPA’s databases do not provide sufficient information to identify and track specific goods and services obtained with grants and contracts. EPA currently uses two databases for grant management purposes—the Grants Information and Control System (GICS) and the Integrated Grants Management System (IGMS). Both databases are useful for retrieving information about specific grants, but neither is useful in analyzing the kinds of goods and services funded by discretionary grants. For our grant analysis, EPA was able to query these databases by Catalog of Federal Domestic Assistance (the catalog) program codes. As shown in table 1, the catalog codes provide little information on goods and services obtained through discretionary grants because single codes can encompass broad miscellaneous groupings of goods and services, and several codes have been merged with other codes between fiscal years 1993 and 2003. In 6 of the 11 fiscal years, EPA program offices awarded the most EPA discretionary grant funds under a miscellaneous catalog code, 66.606, called Surveys, Studies, Investigations, and Special Purpose Grants. This code also received the most funds overall during the 11-year period, or $1.4 billion. Because this code is not program-specific, it provided limited use in drawing conclusions about goods and services obtained under this code. In 2002, the EPA Inspector General found that EPA could have awarded many of its assistance agreements under a program-specific catalog code, rather than the miscellaneous 66.606 code, that would better link activities to measurable assistance agreement outcomes. EPA substantially reduced its use of this code in 2003. In addition, several grant programs were merged under new catalog codes.