Head Start is administered by HHS’ Administration for Children and Families (ACF). Services are provided at the local level by public and private nonprofit agencies that receive their funding directly from HHS. These agencies include public and private school systems, community action agencies, government agencies, and Indian tribes. Grantees may contract with one or more other public or private nonprofit organizations—commonly referred to as delegate agencies—in the community to run all or part of their local Head Start programs. Grantees may choose to provide center-based programs, home-based programs, or a combination of both. Once approved for funding as a result of a competitive application process, Head Start grantees do not compete for funding in succeeding years. However, they are required to submit applications for continuation awards (hereafter called awards) to support their programs beyond the initial grantee budget year. After Head Start receives its annual appropriation from the Congress, the respective HHS regional offices make awards to grantees in their administrative service areas at the beginning of each grantee’s budget year as shown in table 1. Grantees use their awards for the following purposes, among others, to: purchase or rent a facility if providing a center-based program; hire qualified teachers, aides, and support staff; coordinate or contract with Public Health agencies and local health providers to deliver medical and dental services; buy or lease vehicles to transport children to Head Start centers; purchase utilities, services, and supplies needed to operate a center and administer the program; and comply with program standards and local building and health codes that ensure quality and safety. During a grantee budget year, grantees may also receive supplemental awards for specific purposes (such as expanding enrollment) or to cover normal, though sometimes unexpected, expenses such as repairing a roof or purchasing a new heating system. In addition, grantee accounts may be adjusted as the result of a routine financial audit or Head Start regional office review of grantees’ files. These activities sometimes identify unspent funds that the grantee did not report due to an error or oversight. HHS requires grantees to get their Head Start accounts audited every 2 years, though many grantees hire accountants to perform an audit every year. As shown in figure 1, grantees, as expected, may not necessarily spend all of their award by the end of their budget year. HHS permits grantees to carry over unspent funds into the next grantee budget year to complete any program objectives that remain unmet from the previous year. HHS regional offices generally handle carryover funds in two ways: 1. Carryover balances from a previous year or years are added to an award that a grantee receives in a subsequent year. This procedure is known as “reprogramming” funds, and the amount of carryover funds added to a grantee’s award is called total obligating authority (TOA). 2. Carryover balances from a previous year or years offset or reduce the award that a grantee receives in a subsequent year. This procedure is known as “offsetting” funds, and the amount of carryover deducted from the award is called new obligating authority (NOA). New $ (TOA) New $ (NOA) The growth in Head Start funding since 1990 (see fig. 2) reflects the federal government’s commitment to expanding the number of children in the program and to ensuring program quality. Overall program funding increased from about $1.5 billion in fiscal year 1990 to about $3.5 billion in fiscal year 1995. Twice in fiscal year 1990 and once each in fiscal years 1991, 1992, and 1993, the Congress appropriated additional funding for Head Start to, among other things, increase local enrollments, strengthen the program’s social, health, and parent involvement components; improve services for disabled children; initiate and improve literacy programs; and enhance salaries, benefits, training, and technical assistance for program staff. ACF allocated these expansion funds on the basis of a formula as required by statute. Despite this dramatic growth in Head Start appropriations, HHS awarded virtually all program funding to eligible grantees. Head Start’s program obligation rates for each of these years stayed at or above 99 percent, while the total number of grantees increased from 1,321 in fiscal year 1990 to about 1,400 in fiscal year 1994. Overall program outlay rates (that is, the ratio of outlays to budget authority) during this period indicate that outlays remained stable as grantees received infusions of Head Start expansion or quality improvement funding. However, at the grantee level, this funding growth increased grantee awards and unspent balances for the grantees included in our universe during the grantee budget years we examined. We found that total grantee awards for the 1,197 Head Start grantees covered by our review increased from $1.4 billion to $2.3 billion from grantee budget years 1992 through 1994, while mean awards rose from $1.2 million to $1.9 million in these same years. (See table 2.) During grantee budget years 1992, 1993, and 1994—a period of intense growth—about two-thirds of the 1,197 grantees had unspent balances at the end of each budget year. Almost 40 percent of these 1,197 grantees had unspent balances every year. As shown in table 2, these balances totaled approximately $54 million, $101 million, and $130 million, in grantee budget years 1992, 1993, and 1994, respectively, and varied greatly by grantee. However, these unspent balances were a small part of grantees’ total awards. On the basis of our analysis, unspent balances represented from about 5 to 8 percent of the award for those grantees with unspent balances and from 4 to 6 percent of total awards for all grantees in the aggregate. (See app. II for the reported unspent balances of the 108 grantees included in our sample.) Unspent balances resulted from (1) small differences between the amount of a grantee’s annual award and its actual expenditures at the end of its grantee budget year, (2) situations that delay a grantee’s expenditure of funds or that hamper a grantee’s ability to spend funds before the year’s end, and (3) a combination of these and other reasons. We found that almost two-thirds of grantees in grantee budget year 1992 and about half in grantee budget years 1993 and 1994 had small differences between their total award approved at the beginning of a grantee budget year and the amount spent at year’s end. We considered these spending variances small if the amount of unspent funds was 5 percent or less of a grantee’s award in a given year. These small budget variances could have occurred because, for example, (1) grantees’ projected budgets—upon which grant awards are based—did not equal their actual expenditures or (2) grantees did not purchase an item or service as originally planned. For example, a grantee in Ohio had ordered two buses and playground equipment for its Head Start center. However, these items were not delivered nor paid for before the grantee’s budget year ended, resulting in an unspent balance of $84,762. We found that from 10 to 24 percent of grantees with unspent balances in grantee budget years 1992 through 1994 (1) had problems renovating or building a center, which delayed planned expenditures until subsequent years, or (2) received additional funding late in a grantee budget year, making it difficult for grantees to spend all of their funds before year’s end. For example, a Head Start grantee in Colorado received funding to increase its program enrollment in early September 1991—about 2 months before the grantee’s budget year was to end on October 30. Due to the short time remaining, the grantee could not spend $89,980 of the amount awarded for expanding program enrollment. This same grantee had agreed verbally with a private company to prepare a site so that the grantee could place a modular unit on it to serve as a Head Start center. Site preparation would have involved establishing water, sewer, gas, and electrical hookups at the site. Before any work began, however, new owners took over the company and did not honor the verbal agreement between the grantee and the previous owner. It took the grantee 2 years to find another site suitable for the center, and that facility required extensive renovations. HHS’ Office of Inspector General reported in 1991 and 1993 that acquiring adequate, affordable space was a major problem for Head Start grantees attempting to expand program enrollments. Grantees told the Inspector General’s office that it can take up to a year to find suitable space that then may have to be renovated. Strict construction licensing requirements and delays in license approval could also slow spending for center construction or renovation. The Inspector General reported that space problems were most prevalent among grantees funded to increase enrollment by more than 200 children. The grantees believed that being notified at least 6 months in advance of funding disbursements would help to alleviate this problem. Head Start grantees interviewed by the Inspector General’s staff also said that receiving expansion funding late in the budget year results in carryover fund balances. After expansion, more than twice as many grantees interviewed had carryover balances of over $50,000. Many grantees believe that even with adequate lead time large expansions should not occur annually. According to the grantee files we reviewed, unspent balances sometimes occurred for reasons other than small budget variances or timing issues.