EPA offers two types of grants—nondiscretionary and discretionary: Nondiscretionary grants support water infrastructure projects, such as renovating municipal drinking water facilities, and continuing environmental programs, such as the Clean Air Program for monitoring and enforcing Clean Air Act regulations. For these grants, Congress directs awards to one or more classes of prospective recipients who meet specific criteria for eligibility. These continuing environmental grants are often awarded on the basis of formulas prescribed by law or agency regulation. In fiscal year 2002, EPA awarded about $3.5 billion in nondiscretionary grants. EPA has primarily awarded these grants to states or other governmental entities. Discretionary grants fund a variety of activities, such as environmental research and training. EPA has the discretion to independently determine the recipients and funding levels for these grants. In fiscal year 2002, EPA awarded about $719 million in discretionary grants. EPA has awarded these grants to nonprofit organizations and universities in addition to governmental entities. EPA administers and oversees grants through the Grants Administration Division within the Office of Grants and Debarment, 12 program offices in headquarters, and EPA’s 10 regional offices. The Grants Administration Division develops overall grants policy. About 102 grant specialists in headquarters and the regions are responsible for overseeing the administration of grants. EPA also has approximately 3,000 project officers within headquarter program offices and the regions. These officers are responsible for overseeing the technical or programmatic aspects of the grants. While grant specialists are dedicated to grants management, EPA staff members who serve as project officers have other primary responsibilities. The grant process has four phases: Pre-award. EPA reviews the application paperwork and makes an award decision. Award. EPA prepares the grant documents and instructs the grantee on technical requirements, and the grantee signs an agreement to comply with all requirements. Post-award. EPA provides technical assistance and oversight; the grantee completes the work, and the project ends. Closeout of the award. The project officer ensures that the project is completed; the grants management office prepares closeout documents and notifies the grantee that the grant is completed. EPA has had persistent problems in managing its grants. In 1996, EPA’s Inspector General testified before Congress that EPA did not fulfill its obligation to properly monitor grants. Acknowledging these problems, EPA identified oversight, including grant closeouts, as a material weakness—a management control weakness that the EPA Administrator determines is significant enough to report to the President and Congress. EPA’s fiscal year 1999 Integrity Act report indicated that this oversight material weakness had been corrected, but the Inspector General testified that the weakness continued. In 2002, the Inspector General and the Office of Management and Budget recommended that EPA, once again, designate grants management as a material weakness. EPA ultimately decided to maintain this issue as an agency-level weakness, which is a lower level of risk than a material weakness. EPA made this decision because it believes its ongoing corrective action efforts will help to resolve outstanding grants management problems. However, in adding EPA’s grants management to GAO’s list of EPA’s major performance and accountability challenges in January 2003, we signaled our concern that EPA has not yet taken action to ensure that it can manage its grants effectively. EPA faces four major, persistent problems in managing its grants. It must resolve these problems in order to improve its grants management. Specifically, EPA has not always awarded its discretionary grants competitively or ensured that it solicits these grants proposals from a large pool of applicants; effectively overseen its grantees’ progress and compliance with the terms managed its grants so that they are effectively used to achieve effectively managed its grants management resources by holding its staff accountable for performing their duties, ensuring that the staff are adequately trained and appropriately allocated, and providing them with adequate management information. Until September 2002, EPA did not have a policy for competing the discretionary grants that might be eligible for competition—about $719 million of its total $4.2 billion in grant funding in fiscal year 2002. Consequently, EPA was not promoting competition. According to EPA’s own internal management reviews and an Inspector General report, EPA did not always compete its discretionary grants when competition might have been warranted. By competitively soliciting grants, EPA would be able to choose the best project at the least cost to the government and is encouraged by the Federal Grant and Cooperative Agreement Act of 1977. EPA can award its discretionary grants noncompetitively; however, it is required by agency guidance to document the reasons for these decisions in a “decision memorandum.” It has not consistently done so, according to EPA’s internal management reviews. Lack of documentation raises questions about the award process and ultimately about whether EPA is providing its grant funds to the best-qualified applicants. Furthermore, EPA has not always engaged in widespread solicitation when it could be beneficial to do so. This type of solicitation would provide greater assurance that EPA receives proposals from a variety of eligible and highly qualified applicants who otherwise may not have known about grant opportunities. According to a 2001 EPA Inspector General report, program officials indicated that widespread solicitation was not necessary because “word gets out” to eligible applicants. Applicants often sent their proposals directly to these program officials who funded them using “uniquely qualified” as the justification for a noncompetitive award. This procedure creates the appearance of preferential treatment by not offering the same opportunities to all potential applicants. In addition, the agency provided incomplete or inconsistent public information on its grant programs in the Catalog of Federal Domestic Assistance and therefore the public and potential applicants may not have been adequately informed of funding opportunities. EPA has faced five persistent problems in overseeing its grants. First, EPA’s internal reviews found that grantees’ progress reports, one of the best sources of information for monitoring recipients, did not include required financial information, and grantees had not always submitted progress reports in a timely fashion. EPA generally requires recipients to submit progress reports to the project officer within a specified time frame. These reports are to include progress to date, any difficulties encountered, a discussion of expenditures compared to work completed, and an explanation of significant discrepancies. Although the recipient is responsible for submitting timely progress reports that discuss the project’s financial status, the project officer is responsible for ensuring that the recipient has done so. Second, project officers and grant specialists did not always document their monitoring activities, which raises questions about the extent of the monitoring they did conduct. According to an EPA internal review, for example, one grants management office developed a form to ensure monitoring activities were completed, but the form was missing from 50 percent of the grant files reviewed, and when the monitoring form was used, it was not always completed. Furthermore, project officers did not always document that they had monitored required key areas, such as ensuring compliance with the terms and conditions of the grant award. Third, EPA has not always ensured that different types of grantees have adequate financial and internal controls to ensure that they use federal funds properly. For example, in 2001, we reported that EPA’s oversight of nonprofit grantees’ costs did not ensure that grant funds were used for costs allowed under guidance published by the Office of Management and Budget. In particular, EPA’s on-site reviews were flawed. The reviews did not include transaction testing to identify expenditures that are not allowed, such as lobbying. We also found that EPA had conducted on-site reviews at only 4 percent of nonprofit grantees who might have had inexperienced staff and inadequate financial and internal controls. In 2000 and 2002, the EPA Inspector General reported that one state’s department of environmental management and two tribes, respectively, lacked adequate financial and internal controls. These problems could have been identified through EPA oversight of grantees. Fourth, EPA has sometimes not ensured that grantees are complying with certain grant regulations, such as those pertaining to grantee procurement and conflict-of-interest. In 2002, the EPA Inspector General reported that EPA did not monitor grantees’ procurements to determine if the grantees were using a competitive process to obtain the best products, at the best price, from the most qualified firms. In 1999 and 2002, the EPA Inspector General reported conflict-of-interest problems because grant recipients had awarded contracts to parties who had assisted them in preparing their grants and therefore had advance knowledge about grantees’ plans to award contracts. Finally, EPA has not fully ensured that recipients are submitting final reports in a timely manner and meeting grant objectives. For example, in 2000, we reported that EPA had not adequately tracked its Science To Achieve Results research grants to ensure their on-time completion. We found that 144 of the nearly 200 grants we reviewed had missed their deadline for submitting final reports, even after some extensions had been given. Also, in 1998, EPA’s Inspector General reported that EPA had not monitored training assistance grants to nonprofit grantees to determine how many students were being trained or how much the training cost. EPA awarded some grants before considering how the results of the grantees’ work would contribute to achieving environmental results. In 2001, we reported that EPA program officials treated EPA’s strategic goals and objectives not as a tool to guide the selection of grants, but rather as a clerical tool for categorizing grants after the funds were already awarded. By assessing the relevance of these grants to EPA’s strategic plan after selecting the grantees, EPA cannot ensure that it is selecting the projects that will best help it accomplish its mission. EPA has also not developed environmental measures and outcomes for all of its grant programs. In 2000, we reported that EPA did not have program criteria to measure the effectiveness of its Science To Achieve Results program. Instead, EPA’s management of the program focused on the procedures and processes of awarding grants. As a result, EPA was uncertain what the program was achieving. Similarly, the Office of Management and Budget recently evaluated four EPA grant programs to assess the programs’ effectiveness at achieving and measuring results.