EPA administers and oversees grants primarily through the Office of Grants and Debarment, 10 program offices in headquarters, and program offices and grants management offices in EPA’s 10 regional offices. Figure 1 shows EPA’s key offices involved in grants activities for headquarters and the regions. The management of EPA’s grants program is a cooperative effort involving the Office of Administration and Resources Management’s Office of Grants and Debarment, program offices in headquarters, and grants management and program offices in the regions. The Office of Grants and Debarment develops grant policy and guidance. It also carries out certain types of administrative and financial functions for the grants approved by the headquarters program offices, such as awarding grants and overseeing the financial management of these grants. On the programmatic side, headquarters program offices establish and implement national policies for their grant programs, and set funding priorities. They are also responsible for the technical and programmatic oversight of their grants. In the regions, grants management offices carry out certain administrative and financial functions for the grants, such as awarding grants approved by the regional program offices, while the regional program staff provide technical and programmatic oversight of their grantees. As of June 2003, 109 grants specialists in the Office of Grants and Debarment and the regional grants management offices were largely responsible for administrative and financial grant functions. Furthermore, 1,835 project officers were actively managing grants in headquarters and regional program offices. These project officers are responsible for the technical and programmatic management of grants. Unlike grant specialists, however, project officers generally have other primary responsibilities, such as using the scientific and technical expertise for which they were hired. In fiscal year 2002, EPA took 8,070 grant actions totaling about $4.2 billion.These awards were made to six main categories of recipients as shown in figure 2. EPA offers two types of grants—nondiscretionary and discretionary: Nondiscretionary grants support water infrastructure projects, such as the drinking water and clean water state revolving fund programs, 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 eligibility criteria; the 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 awarded these grants primarily 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 grants. In fiscal year 2002, EPA awarded about $719 million in discretionary grants. EPA has awarded these grants primarily to nonprofit organizations, universities, and government entities. The grant process has the following four phases: Preaward. 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. Postaward. After awarding the grant, EPA provides technical assistance, oversees the work, and provides payments to the grantee; the grantee completes the work, and the project ends. Closeout of the award. EPA ensures that all technical work and administrative requirements have been completed; EPA prepares closeout documents and notifies the grantee that the grant is completed. EPA’s grantees are subject to the same type of financial management oversight as the recipients of other federal assistance. Specifically, the Single Audit Act requires grantees to have an audit of their financial statements and federal awards or program-specific audit if they spend $300,000 or more in federal awards in a fiscal year., Grantees submit these audits to a central clearinghouse operated by the Bureau of the Census, which then forwards the audit findings to the appropriate agency for any necessary action. However, the act does not cover all grants and all aspects of grants management and, therefore, agencies must take additional steps to ensure that federal funds are spent appropriately. In addition, EPA conducts in-depth reviews to analyze grantees’ compliance with grant regulations and specific grant requirements. Furthermore, to determine how well offices and regions oversee grantees, EPA conducts internal management reviews that address grants management. The Office of Management and Budget, as authorized by the act, increased this amount to $500,000 in federal awards as of June 23, 2003. closeouts, as a material weakness—an accounting and internal control system weakness that the EPA Administrator must report to the President and Congress. EPA’s fiscal year 1999 Federal Managers’ Financial 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 again recommended that EPA designate grants management as a material weakness. The Office of Management and Budget (OMB) also recommended in 2002 that EPA designate grants management as a material weakness. In its fiscal year 2002 Annual Report, EPA ultimately decided to maintain this issue as an agency-level weakness, which is a lower level of risk than a material weakness. EPA reached this decision because it believes its ongoing corrective action efforts will help to resolve outstanding grants management challenges. However, in adding EPA’s grants management to our list of EPA’s major management challenges in January 2003, we signaled our concern that EPA has not yet taken sufficient action to ensure that it can manage its grants effectively. We identified four key challenges that EPA continues to face in managing its grants. These challenges are (1) selecting the most qualified grant applicants, (2) effectively overseeing grantees, (3) measuring the results of grants, and (4) effectively managing grant staff and resources. In the past, EPA has taken a series of actions to address these challenges by, among other things, issuing policies on competition and oversight, conducting training for project officers and nonprofit organizations, and developing a new data system for grants management. However, these actions had mixed results because of the complexity of the problems, weaknesses in design and implementation, and insufficient management attention. EPA has not selected the most qualified applicants despite issuing a competition policy. The Federal Grant and Cooperative Agreement Act of 1977 encourages agencies to use competition in awarding grants. To encourage competition, EPA issued a grants competition policy in 1995. However, EPA’s policy did not result in meaningful competition throughout the agency, according to EPA officials. Furthermore, EPA’s own internal management reviews and a 2001 Inspector General report found that EPA has not always encouraged competition. Finally, EPA has not always engaged in widespread solicitation of its grants, which 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. EPA has not always effectively overseen grant recipients despite past actions to improve oversight. To address oversight problems, EPA issued a series of policies starting in 1998. However, these oversight policies have had mixed results in addressing this challenge. For example, EPA’s efforts to improve oversight included in-depth reviews of grantees but did not include a statistical approach to identifying grantees for reviews, collecting standard information from the reviews, and a plan for analyzing the results to identify and act on systemic grants management problems. EPA, therefore, could not be assured that it was identifying and resolving grantee problems and using its resources more effectively to target its oversight efforts. EPA’s efforts to measure environmental results have not consistently ensured that grantees achieve them. Planning for grants to achieve environmental results—and measuring results—is a difficult, complex challenge. However, as we pointed out in an earlier report, it is important to measure outcomes of environmental activities rather than just the activities themselves. Identifying and measuring the outcomes of EPA’s grants will help EPA better manage for results. EPA has awarded some discretionary grants before considering how the results of the grantees’ work would contribute to achieving environmental results. EPA has also not developed environmental measures and outcomes for all of its grant programs. OMB found that four EPA grant programs lacked outcome-based measures—measures that demonstrated the impact of the programs on improving human health and the environment—and concluded that one of EPA’s major challenges was demonstrating program effectiveness in achieving public health and environmental results. Finally, EPA has not always required grantees to submit work plans that explain how a project will achieve measurable environmental results. In 2002, EPA’s Inspector General reported that EPA approved some grantees’ work plans without determining the projects’ human health and environmental outcomes. In fact, for almost half of the 42 discretionary grants the Inspector General reviewed, EPA did not even attempt to measure the projects’ outcomes. Instead, EPA funded grants on the basis of work plans that focused on short-term procedural results, such as meetings or conferences. In some cases, it was unclear what the grant had accomplished. In 2003, the Inspector General again found the project officers had not negotiated environmental outcomes in work plans. The Inspector General found that 42 percent of the grant work plans reviewed—both discretionary and nondiscretionary grants—lacked negotiated environmental outcomes. EPA has not always effectively managed its grants staff and resources despite some past efforts. EPA has not always appropriately allocated the workload for staff managing grants, provided them with adequate training, or held them accountable. Additionally, EPA has not always provided staff with the resources, support, and information necessary to manage the agency’s grants. To address these problems, EPA has taken a number of actions, such as conducting additional training and developing a new electronic grants management system. However, implementation weaknesses have precluded EPA from fully resolving its resource management problems. For example, EPA has not always held its staff— such as project officers—accountable for fulfilling their grants management responsibilities. According to the Inspector General and internal management reviews, EPA has not clearly defined project officers’ grants management responsibilities in their position descriptions and performance agreements.