[Senate Hearing 108-366]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-366

        GRANTS MANAGEMENT AT THE ENVIRONMENTAL PROTECTION AGENCY

=======================================================================

                                HEARING

                               before the

               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 3, 2004

                               __________

  Printed for the use of the Committee on Environment and Public Works


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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                      one hundred eighth congress
                             second session

                  JAMES M. INHOFE, Oklahoma, Chairman
JOHN W. WARNER, Virginia             JAMES M. JEFFORDS, Vermont
CHRISTOPHER S. BOND, Missouri        MAX BAUCUS, Montana
GEORGE V. VOINOVICH, Ohio            HARRY REID, Nevada
MICHAEL D. CRAPO, Idaho              BOB GRAHAM, Florida
LINCOLN CHAFEE, Rhode Island         JOSEPH I. LIEBERMAN, Connecticut
JOHN CORNYN, Texas                   BARBARA BOXER, California
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
CRAIG THOMAS, Wyoming                THOMAS R. CARPER, Delaware
WAYNE ALLARD, Colorado               HILLARY RODHAM CLINTON, New York
                Andrew Wheeler, Majority Staff Director
                 Ken Connolly, Minority Staff Director




                            C O N T E N T S

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                                                                   Page

                             MARCH 3, 2004
                           OPENING STATEMENTS

Crapo, Hon. Michael D., U.S. Senator from the State of Idaho, 
  prepared statement.............................................    26
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     1
Jeffords, Hon. James M., U.S. Senator from the State of Vermont..     3

                               WITNESSES

Ellis, Steve, vice president for programs, Taxpayers for Common 
  Sense..........................................................    10
    Prepared statement...........................................    66
Heist, Melissa, Assistant Inspector General for Audit, 
  Environmental Protection Agency................................     5
    Prepared statement...........................................    27
    Responses by Inspector General Nikki Tinsley to additional 
      questions from Senator Inhofe..............................    32
O'Connor, David, Acting Assistant Administrator for the Office of 
  Administration and Resources Management, Environmental 
  Protection Agency..............................................     8
    Prepared statement...........................................    51
    Responses to additional questions from:
        Senator Crapo............................................    65
        Senator Inhofe...........................................    56
        Senator Jeffords.........................................    64
Stephenson, John B., Director, Natural Resources and Environment, 
  General Accounting Office......................................     6
    Prepared statement........................................... 33-50

                          ADDITIONAL MATERIAL

Audit Report, March 1, 2004, Consumer Federation of America 
  Foundation-Costs Claimed Under EPA Cooperative Agreements 
  CX825612-01, CX825837-01, X828814-01, CX824939-01, and X829178-
  01, Office of the Inspector General, Environmental Protection 
  Agency.........................................................69-153

Chart, Percentage of Key Pre-Award Steps Not Completed...........    31
Letters from Consumer Federation of America...................... 17-18

 
        GRANTS MANAGEMENT AT THE ENVIRONMENTAL PROTECTION AGENCY

                              ----------                              


                        WEDNESDAY, MARCH 3, 2004

                                       U.S. Senate,
                 Committee on Environment and Public Works,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:30 a.m., in 
room 406, Senate Dirksen Building, Hon. James M. Inhofe 
(chairman of the committee) presiding.
    Present: Senators Inhofe and Jeffords.

 OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM 
                     THE STATE OF OKLAHOMA

    Senator Inhofe. The hearing will come to order.
    I want to thank our witnesses for their testimony. The 
committee will receive testimony this morning regarding the 
grants management at the Environmental Protection Agency. Each 
year the EPA awards over half its annual budget in grants to 
various recipients, including State, local, tribal government 
entities, educational institutions, nonprofit organizations, 
and others.
    Historically, the EPA has awarded over $4 billion in grants 
each year for the past several fiscal years. The majority of 
the grants are awarded to governmental agencies. As a former 
mayor, I can tell you that the greatest problem that we faced 
was not crime and was not poverty, but it was unfunded 
mandates. These grants are well placed to take care of that. It 
is something that is very meaningful.
    The mission of the EPA is to protect human health and the 
environment. I believe that grants to locate recipients can be 
one of the best tools to accomplish that mission. However, the 
EPA Inspector General, the General Accounting Office, and the 
Office of Management and Budget have consistently criticized 
the EPA for persistent problems in grants management.
    The OMB, the EPA, and the IG recommend as recently as 2002, 
that the Agency designate grants management as a material 
weakness which is the most severe category of weakness under 
the Federal Management Financial Integrity Act. For nearly the 
last 10 years, the EPA has even acknowledged that grants 
management has been a weakness which, to me, proves that this 
should be a nonpartisan issue. These problems have persisted 
regardless of change in Administration. We have had the same 
problems when Carol Browner was here, as we do currently, and 
certainly during the Clinton administration, the Bush 
administration, or going on back into the past years.
    The committee has an obligation to ensure that the EPA 
budget is consistent with its mission to protecting human 
health and the environment. One week from today we will have 
the EPA Administrator, Mike Leavitt, in for a budget hearing. 
He will testify before this committee. Most importantly, 
however, the EPA has an obligation to ensure taxpayers that it 
is accomplishing its mission with the funds it awards each 
year.
    However, for the last 10 years, the story of grants 
management is seemingly a revolving door of the EPA, IG audits, 
the GAO reports, congressional hearings, and new EPA policies 
and response. Even with this constant cycle of criticism, 
hearings, and new policies, the GAO reported late last year 
that the EPA continues to demonstrate the same persistent 
problems in grants management. These problems include a general 
lack of oversight of the grantees, a lack of oversight of the 
Agency personnel, a lack of any measurement of environmental 
results, and a lack of competition in awarding grants. It is 
imperative that Agency personnel are accountable for monitoring 
grants. The measurable environmental results are clearly 
demonstrated.
    Interestingly, the GAO characterized changing part of the 
deficiencies in the last 10 years of grants management as 
required a major cultural shift at the EPA. I realize GAO was 
specifically referring to implementing a new competition policy 
in awarding grants. However, it appears that a major cultural 
shift is only the beginning of a number of reforms needed to 
create the culture of accountable to which you, Mr. O'Connor, 
refer in your testimony that is necessary within the Agency for 
new and effective grants.
    I want to announce to all of you today that this committee 
is going to take this oversight responsibility seriously in 
regards to grants management. I can remember back when the 
Nuclear Regulatory Commission had not an oversight hearing in 
something like 5 years. We started having very serious 
oversight hearings. It totally changed things. I think we are 
going to stay on top on this.
    I am going to make a personal commitment that is going to 
change this time. They have always said that it is going to, 
but this time, Senator Jeffords, we are going to change it. We 
are going to have accountability and the revolving door will 
stop, with your help.
    With that, I will recognize the Ranking Member, Senator Jim 
Jeffords.
    [The prepared statement of Senator Inhofe follows:]
         Statement of Hon. James M. Inhofe, U.S. Senator from 
                         the State of Oklahoma
    Good morning. I want to open this hearing thanking our witnesses in 
advance for their testimony. The committee will receive testimony this 
morning regarding grants management at the Environmental Protection 
Agency. Each year the EPA awards over half its annual budget in grants 
to various recipients including State, local, and tribal governmental 
entities, education institutions, non-profit organizations, and others. 
Historically, the EPA has awarded over $4 billion in grants each year 
for the past several fiscal years. The majority of grants are awarded 
to governmental entities for implementation of environmental programs. 
As a former mayor I can appreciate the availability of funds to local 
governments to pay for local implementation of Federal programs 
designed to ensure such benefits as water pollution control and 
maintaining air quality. Last year my hometown, the city of Tulsa, 
Oklahoma received about $3 million from the EPA for such projects as 
implementation of air quality standards and city water supply security.
    The mission of the EPA is to protect human health and the 
environment. I believe that grants to local recipients can be one of 
the best tools to accomplish that mission. However, the EPA Inspector 
General, the General Accounting Office, and the Office of Management 
and Budget have consistently criticized the EPA for persistent problems 
in grants management. The OMB and EPA IG recommended as recently as 
2002 that the agency designate grants managements as a material 
weakness, which is the most severe category of weakness under the 
Federal Managers Financial Integrity Act. For nearly the last 10 years, 
the EPA has even acknowledged that grants management has been a 
weakness which to me proves that his should be a non-partisan issue. 
These problems have persisted regardless of changes in Administration.
    This committee has an obligation to ensure that the EPA budget is 
consistent with its mission of protecting human health and the 
environment. One week from today, EPA Administrator Mike Leavitt will 
testify before this committee concerning the fiscal year 2005 EPA 
budget. Most importantly, however, the EPA has an obligation to ensure 
taxpayers that it is accomplishing its mission with the funds it awards 
each year. However, for at least the last 10 years, the story of grants 
management is seemingly a revolving door of EPA IG audits and GAO 
reports, congressional hearings, and new EPA policies in response. Even 
with this constant cycle of criticism, hearings, and new policies; the 
GAO reported late last year that the EPA continues to demonstrate the 
same persistent problems in grants management. These problems include a 
general lack of oversight of grantees, a lack of oversight of agency 
personnel, a lack of any measurement of environmental results, and a 
lack of competition in awarding grants. It is imperative that agency 
personnel are accountable for monitoring grants and that measurable 
environmental results are clearly demonstrated. Interestingly, the GAO 
characterized changing part of the deficiencies in the last 10 years of 
grants management as requiring a ``major cultural shift'' at the EPA. I 
realize GAO was specifically referring to implementing a new 
competition policy in awarding grants. However, it appears that a major 
cultural shift is only the beginning of a number of reforms needed to 
create the culture of accountability to which you, Mr. O'Connor, refer 
in your testimony that is necessary within the agency for new and 
effective grants management.
    I want to announce to all of you today that this committee is going 
to take its oversight responsibilities seriously in regards to grants 
management. We are going to stay on top of this issue until real 
changes are made.

    Senator Inhofe. Senator Jeffords.

OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Senator Jeffords. Thank you, Mr. Chairman.
    The Environmental Protection Agency is charged with a very 
important mission: to protect human health and safeguard the 
natural environment. I am pleased that the committee is engaged 
in oversight of the EPA. However, I hope that in the near 
future this committee will also hold hearings on important 
health issues, such as lead levels in the water supply of the 
District of Columbia, and mercury pollution from power plants, 
as well as hearings on new source review, climate change, and 
water pollution.
    Today we are looking at the ways EPA can improve its use of 
resources to protect the environment. These resources include a 
substantial amount of funding for grants. Last year, EPA grants 
funding amounted to over $4 billion. Much of this grant money 
has been put in very good use. Notable examples include the 
highly successful Clean Water and Drinking Water State 
Revolving Fund Program.
    EPA grant money is also used to support continuing 
programs, such as the Clean Air Program for monitoring and 
enforcing clean air regulations, and to fund environmental 
research and training. In short, grants funding is a central 
means by which EPA can accomplish important environmental 
goals.
    Unfortunately, for some time now, studies by the General 
Accounting Office and the EPA Office of Inspector General have 
documented persistent shortcomings in EPA's grants management. 
EPA continues to face several challenges in managing its 
grants. These challenges include selecting the most qualified 
applicants, effectively overseeing grantees, measuring the 
results of grants, and effectively managing staff and 
resources.
    Addressing these challenges should be a priority for EPA. I 
am pleased to see that EPA recently has taken noteworthy steps 
to improve the grants management. EPA is moving in the right 
direction by instituting competition and oversight policies, 
and by developing a comprehensive 5-year grants management plan 
that is designed to address many of the shortcomings that we 
have seen in the past.
    EPA now must successfully carry out these plans for 
improvement. At the same time, there is still more that EPA can 
do to enhance the effectiveness and efficiency of the grants 
programs. I am concerned about the Inspector General's recent 
report that alleges a group of illegally accepted Agency grant 
funds. However, I would like to know whether EPA knowingly 
awarded funds to an ineligible organization and whether any 
funds were actually misused.
    I look forward to hearing more about EPA's progress and 
implementing the new policies and comprehensive plan, and also 
about how EPA is responding to further suggestions for 
improvement.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Jeffords follows:]
        Statement of Hon. James M. Jeffords, U.S. Senator from 
                          the State of Vermont
    Thank you Senator Inhofe.
    The Environmental Protection Agency is charged with a very 
important mission--to protect human health and safeguard the natural 
environment.
    I am pleased that this committee is engaged in oversight of the 
EPA. However, I hope that in the near future this committee will also 
hold hearings on important health issues such as lead levels in the 
water supply of the District of Columbia and mercury pollution from 
power plants, as well as hearings on New Source Review, Climate Change, 
and water pollution.
    Today we are looking at ways EPA can improve its use of resources 
to protect the environment. These resources include a substantial 
amount of funding for grants. Last year EPA grants funding amounted to 
over four billion dollars.
    Much of this grant money has been put to very good use. Notable 
examples include the highly successful clean water and drinking water 
state revolving fund programs. EPA grants money is also used to support 
continuing programs, such as the Clean Air Program for monitoring and 
enforcing clean air regulations, and to fund environmental research and 
training. In short, grants funding is a central means by which EPA can 
accomplish its important environmental goals.
    Unfortunately, for some time now, studies by the General Accounting 
Office and the EPA Office of the Inspector General have documented 
persistent shortcomings in EPA's grants management. EPA continues to 
face several challenges in managing its grants. These challenges 
include selecting the most qualified applicants, effectively overseeing 
grantees, measuring the results of grants, and effectively managing 
staff and resources.
    Addressing these challenges should be a priority for EPA, and I am 
pleased to see that EPA recently has taken noteworthy steps to improve 
its grants management.
    EPA is moving in the right direction by instituting competition and 
oversight policies and by developing a comprehensive 5-year grants 
management plan that is designed to address many of the shortcomings 
that have been identified.
    EPA now must successfully carry out these plans for improvement.
    At the same time, there is still more that EPA can do to enhance 
the effectiveness and efficiency of its grants programs. I am concerned 
about the Inspector General's recent report that alleges a group 
illegally accepted agency grant funds. However, I would like to know 
whether EPA knowingly awarded funds to an ineligible organization and 
whether any funds were actually mis-used.
    I look forward to hearing more about EPA's progress in implementing 
its new policies and comprehensive plan, and also about how EPA is 
responding to further suggestions for improvement.

    Senator Inhofe. Thank you, Senator Jeffords.
    We are going to go from left to right. We will first hear 
from Melissa Heist who is the Assistant Inspector General for 
Audits. Second, we will hear from Mr. John Stephenson, Director 
of Natural Resources and Environment at the General Accounting 
Office. Third will be David O'Connor, the Acting Assistant 
Administrator for the Office of Administration and Resources 
Management, Environmental Protection Agency. Last, we will hear 
from Steve Ellis, vice president for Programs, Taxpayers for 
Common Sense.
    Without objection, your entire statements will be made a 
part of the record. You may go ahead and abbreviate as you so 
desire.
    Ms. Heist, would you begin?

  STATEMENT OF MELISSA HEIST, ASSISTANT INSPECTOR GENERAL FOR 
             AUDIT, ENVIRONMENTAL PROTECTION AGENCY

    Ms. Heist. Thank you. Good morning, Mr. Chairman, and 
members of the committee. I am Melissa Heist, the Assistant 
Inspector General for Audit, at the Environmental Protection 
Agency. I am pleased to be here today representing Nikki 
Tinsley, the Inspector General.
    Thank you for the invitation to inform you about the work 
we have done reviewing EPA's management of assistance 
agreements, also known as grants. Our recent audit work has 
focused on crosscutting national issues and has included grants 
made to States, local and tribal governments, and not-for-
profit organizations. Our audits have identified systemic 
problems in awarding and overseeing grants. These problems 
prevent EPA from achieving the maximum results from the more 
than $4 billion awarded in assistance agreements every year.
    Inadequate review and oversight has both financial and 
environmental consequences. I am going to talk briefly about 
our findings in three areas: pre-award reviews, post-reward 
oversight, and staff accountability.
    Pre-award review ensure that grants are planned to deliver 
results at an acceptable cost. We reported on pre-awards in 
1998, 2002, and most recently in March of last year. For this 
audit, we selected a statistical sample of agreements awarded 
so that our findings would address EPA-wide issues. The chart I 
have brought along today summarizes what we have found. I will 
highlight a few of these findings.
    In 79 percent of grants over $100,000, project officers did 
not document cost reviews or proposed budgets. Statistically 
this equates to over $500 million spent without a cost 
analysis. In 42 percent of the grants, EPA did not negotiate 
environmental outcomes. We saw a $200,000 grant proposal to 
regulate costs charged by power companies that said specific 
projects would be established later. The project officer wrote 
on the application, ``Why this? Why now?'', yet still approved 
the work plan. We even found one agreement where EPA awarded 
$700,000 without knowing specific objectives, milestones, 
deliverables, or outcomes.
    Post-award reviews ensure that grants stay on track to 
deliver environmental results at a reasonable cost. We have 
reported on EPA shortcomings in overseeing assistance 
agreements for over 10 years. A particularly relevant example 
is a recent report in which we questioned $4.7 million because 
the work was performed by an ineligible lobbying organization. 
EPA awarded the cooperative agreements to an associated 
organization that did not have any employees, space, or 
overhead expenses.
    In addition, the ineligible organization's financial 
management practices did not comply with Federal regulations. 
The recipient did not adequately identify and separate lobbying 
expenses in its accounting records. As a result, lobbying costs 
may have been charged to the Federal projects. The ineligible 
organization also claimed that it had not always followed 
Federal regulations because EPA employees directed the 
recipient to use a particular contractor.
    The deficiencies I have discussed were not due to the lack 
of policies or training. They were due to staff not following 
existing policies, and to staff not being held accountable. If 
EPA is to improve its management of assistance agreements, it 
needs to ensure that adequate resources are devoted to the 
function, and that management and staff are held accountable 
for adhering to Agency policies that promote good management.
    Let me conclude by saying that I believe that EPA takes its 
assistance agreement challenges seriously. However, after years 
of policy and staff training, the problems remain. EPA recently 
issued guidance requiring all employees involved with managing 
grants to have performance standards that address these 
responsibilities. EPA managers now need to carry through and 
hold staff accountable for managing EPA's grant programs in a 
way that maximizes results.
    Thank you, Mr. Chairman and members of the committee, for 
the opportunity to participate in the discussion of such an 
important topic. We are committed to working with Congress and 
EPA to ensure that the money awarded through assistance 
agreements every year is producing the intended environmental 
and public health benefits.
    This concludes my prepared remarks. I will be happy to 
respond to questions. I would ask that my written statement be 
placed in the record in its entirety.
    Senator Inhofe. Thank you, Ms. Heist. You might instruct 
your staff to leave that chart up. There are some things that I 
do not understand about it. In the question and answer time, 
perhaps you could elaborate on that.
    Mr. Stephenson.

 STATEMENT OF JOHN B. STEPHENSON, DIRECTOR, NATURAL RESOURCES 
           AND ENVIRONMENT, GENERAL ACCOUNTING OFFICE

    Mr. Stephenson. Thank you, Mr. Chairman, and Senator 
Jeffords.
    We are also pleased to be here today to discuss the 
Environmental Protection Agency's management of its grants. My 
testimony today is based primarily on our August report from 
last year.
    As you have already stated, grants account for over half of 
EPA's annual budget, or about $4.2 billion annually. EPA's 
ability to accomplish its primary mission of protecting human 
health and the environment depends largely on how well it 
selects, manages, and optimizes the benefits of these grants. 
EPA has over 4,000 grant recipients, including State and local 
governments, tribes, universities, and nonprofit organizations. 
So, effective management of this broad portfolio is a daunting 
task.
    Congressional hearings in 1996, 1999, and last year have 
highlighted EPA's long-standing grants management problems. GAO 
and EPA IG have chronicled them in numerous reports.
    The bottom line is that EPA continues to face key grants 
management challenges despite its efforts to address them. 
These challenges, as you have mentioned, Senator Jeffords are, 
No. 1, selecting the most qualified grant applicants; No. 2, 
effectively overseeing grants; No. 3, measuring the results of 
grants; and No. 4, effectively managing its own grants staff 
and resources.
    EPA has and is taking 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 managements. However, these actions have had 
mixed results because of the complexity of the problems, 
weaknesses in design and implementation, and insufficient 
management attention.
    EPA's new policies, and its 5-year grants management plan, 
requires strengthening, enhanced accountability, and sustained 
commitment to succeed. For example, EPA's September 2002 policy 
on competition should improve EPA's ability to select the most 
qualified applicants by requiring competition for more grants. 
However, effective implementation of the policy will require a 
major cultural shift for EPA managers and staff because the 
competitive process will require significant planning and take 
more time than awarding grants noncompetitively. Right now less 
than 15 percent of the grants are awarded competitively.
    Similarly, EPA's December 2002 oversight policymakes 
important improvements in oversight, but it does not enable EPA 
to identify systemic problems in grants management. For 
example, the policy does not incorporate a statistical approach 
to selecting grantees for review. As a result, EPA cannot 
effectively use the reviews to better target corrective 
actions, or to ensure expenditure of its oversight resources.
    Finally, while EPA's 5-year grants management plan does 
offer for the first time a comprehensive road map with 
objectives, goals, and milestones for addressing grants 
management challenges, it does not provide a mechanism for 
holding all managers and staff accountable for successfully 
fulfilling their grants management responsibilities. For 
example, EPA relies on about 1,800 project officers to oversee 
grants. These project officers are spread over headquarters and 
the ten field regions for EPA.
    But their grant responsibilities often fall into the 
category of other duties as assigned. Without increased 
accountability for these project officers, as well as other 
staff and managers, EPA cannot ensure the sustained commitment 
needed for the planned success. While EPA has begun 
implementation actions in the plan, GAO believes that given 
EPA's historically uneven performance in addressing its grants 
challenges, continued congressional oversight will indeed be 
needed to ensure that EPA's administrator, managers, and staff 
remain firmly committed to implementing the 5-year plan's 
ambitious targets and timeframes.
    In our report, we make specific recommendations to the EPA 
Administrator for addressing these weaknesses and strengthening 
grants management. The EPA has agreed to implement most of 
these recommendations as part of its 5-year plan. However, EPA 
is just entering the second year of the 5-year plan, and it is 
really too soon to tell whether its corrective actions will 
effectively address the problems.
    Mr. Chairman, that concludes my statement. I will be happy 
to take questions as well. I would ask that my written 
statement be placed in the record in its entirety.
    Senator Inhofe. Thank you, Mr. Stephenson.
    Mr. O'Connor.

STATEMENT OF DAVID O'CONNOR, ACTING ASSISTANT ADMINISTRATOR FOR 
    THE OFFICE OF ADMINISTRATION AND RESOURCES MANAGEMENT, 
                ENVIRONMENTAL PROTECTION AGENCY

    Mr. O'Connor. Good morning, Mr. Chairman, and Senator 
Jeffords. It is a pleasure to be here this morning. As has been 
noted, EPA awards some $4 billion in grants, representing about 
half of the Agency's budget each year. This is the key 
mechanism by which EPA and its grant recipients deliver 
important environmental protection to the public.
    Most of these grant funds, about 89 percent, go to States, 
tribes, and local governments, with the remainder going 
primarily to nonprofit organizations and educational 
institutions. Some of this funding is the result, as you know, 
of congressional earmarks. In 2003, about 13 percent of our 
grant dollars were earmarked and about 51 percent of our total 
grant dollars to nonprofit organizations.
    We at the EPA have an obligation to manage these grant 
dollars effectively and to ensure that they are used to further 
the Agency's mission. However, for a number of years, our grant 
management practices have been criticized by the General 
Accounting Office and the Inspector General, and our 
credibility has suffered. Grants to nonprofit organizations 
have been especially criticized for inadequate management and 
oversight.
    Over the period of 1995 to 2001, EPA did take steps to 
respond to grant management concerns. For example, we virtually 
eliminated a backlog of 20,000 grants awaiting grant closeout. 
We trained over 4,000 project officers, and we issued a number 
of post-award monitoring policies.
    While these steps resulted in some progress, it has been 
clear that we continue to face significant challenges in grants 
management, especially in the area of grantee selection, 
oversight, accountability, and environmental results. In 2001, 
we recognized the need to address grants management concerns in 
a much more comprehensive and strategic manner. In April 2003, 
as GAO just noted, we did issue for the first time a long-term 
5-year grants management plan with associated performance 
measures.
    The plan commits EPA to accomplishing five goals: No. 1, 
enhancing the skills of EPA personnel involved in grants 
management; No. 2, promoting competition in the awarding of 
grants; No. 3, leveraging technology to improve performance; 
No. 4, strengthening our oversight of grants; and No. 5, 
identifying and documenting environmental results.
    I would like to touch on some of these very briefly. In 
goal one, a key component of our strategy is ensuring that all 
of our project officers are certified to manage grants. Project 
officers now must complete a basic 3-day grants management 
training program and take periodic refresher courses to 
maintain their certification. We are improving our training 
program through the development of a long-term training plan 
linked to EPA's human capital strategy. This long-term plan 
will establish an Agency-wide process for ensuring that grants 
managers are timely trained on new policies and regulations and 
that we have measures for determining how our training 
activities contribute to improved grants management.
    In goal two, EPA is firmly committed to increasing 
competition for grant awards. As was noted, our grants 
competition policy went into effect in October 2002. In its 
first year of implementation, EPA competed 75 percent of new 
awards that are covered under the policy. This means that over 
900 grants were competed in 2003. This accounted for 85 percent 
of the dollars awarded subject to the policy.
    In goal three, we recently deployed an enhanced Integrated 
Grants Management System which we consider essential to 
strengthening grants management. This is a paperless system 
that fully automates the grants process from cradle to grave. 
It provides electronic tracking of milestones, products, post-
award activities, and other information vital to our project 
officers' ability to manage grants. We have now deployed this 
system across all 10 of our regions and are beginning to deploy 
it across our headquarters offices.
    In goal four, in December 2002, we issued a comprehensive 
post-award monitoring policy that significantly expands our 
program for monitoring grants after they have been awarded. It 
requires baseline monitoring of all active grants and advance 
monitoring on at least 10 percent of active grantees. We 
focused our early attention on nonprofit organizations where we 
know there have been poor performing grant recipients. In 2003, 
we conducted 408 events monitoring reviews. Where we found 
problems, we were largely successful in having them corrected, 
or we placed controls on grantee expenditure pending 
resolution.
    Mr. Chairman, in conclusion I would like to say that EPA 
has set in motion a comprehensive plan to address grants 
management weaknesses. It is a serious plan, and one that will 
require our full effort and attention to implement, but we are 
determined to do it. It will not be easy, and it will not 
happen overnight, but we have the full support of EPA's 
leadership as we implement this plan. I am very encouraged by 
the genuine commitment of our regional and program offices to 
work with us to make this plan a successful one.
    Last, let me say that I am very proud to have a grant 
office under me that has the right leaders to make this plan 
successful and a staff that is very committed to the task. They 
are determined, and they are working very hard to make this 
plan a success.
    Thank you very much, Mr. Chairman. I would ask that my 
written statement be placed in the record in its entirety.
    Senator Inhofe. Thank you, Mr. O'Connor.
    Mr. Ellis.

    STATEMENT OF STEVE ELLIS, VICE PRESIDENT FOR PROGRAMS, 
                   TAXPAYERS FOR COMMON SENSE

    Mr. Ellis. Thank you very much, Chairman Inhofe. Good 
morning, Senator Jeffords. Thank you for inviting me to 
testify. Thank you for holding this hearing. I am Steve Ellis, 
vice president for programs at Taxpayers for Common Sense, a 
national nonpartisan budget watchdog organization.
    Rather than revisiting the comments that have already been 
made, which we agree with, I would like to put some of this 
into context and provide a few additional recommendations.
    The EPA must clearly define missions and goals expected 
from its grants program so that the taxpayer can be sure that 
every dollar is being spent wisely. After several false starts 
and criticism from virtually everyone, EPA appears to have 
instituted reforms that could lead the Agency toward 
responsible management of its grants portfolio. But time will 
tell whether they have truly turned the corner.
    TCS recommends additional measures to help buttress EPA's 
reform efforts, including development and implementation of 
grants management, evaluation criteria for program officers, 
and other grant management personnel, annual progress reporting 
to Congress, and rapid deployment in the centralizing of the 
proposed grant database systems, which I understand is ongoing.
    As has already been said, roughly half of the EPA budget is 
awarded in the form of assistance agreements or grants, but 
breaking it down would be instructive. In fiscal year 2002, 
$3.5 billion of this grant money was allocated in non-
discretionary programs such as drinking and clean water State 
resolving funds, and a few other programs that are typically 
formula grants and earmarks.
    The remaining amount, $719 million, was awarded in 
discretionary grants to State and local governments, tribes, 
non-profits, and universities. We applaud the committee for its 
role in reviewing these programs, and urge the committee to 
look more closely at the non-discretionary programs to ensure 
that they are properly structured and meeting the Nation's 
goals at appropriate costs.
    The four key areas the EPA has to improve--and these 
parallel the GAO's--are competitive grant awards, effective 
grantee oversight, ensuring grants help achieve Agency goals, 
and supporting and holding staff accountable for performance.
    EPA seems to be responding. In September 2002, EPA issued 
the first policy to govern the competitive awarded grants. In 
2002, a new grant oversight policy was issued. Finally, in 
April 2003, the Agency issued its grants management plan for 
2003 to 2008. This plan touched on all four of our key areas 
for improvement.
    However, any EPA plan must be evaluated based on both the 
fine print and the follow through. The grants management plan 
outlines several objectives for training grants personnel. One 
of these is to increase the percentage of grants managed by 
certified project officers from the 2003 baseline of 85 percent 
to 100 percent in 2004. But considering that, as Ms. Heist 
indicated earlier, the IG identified glaring shortcomings in a 
large number of randomly sampled EPA assistance agreements 
shortly before the grants management plan was released. The 
certification process itself may be flawed.
    Promoting competition for grant awards clearly comes down 
to Agency commitment. Plain and simple, if EPA cracks down on 
allowing sole source and similar type grants, competition will 
flourish. If the Integrated Grants Management System, IGMS, is 
fully deployed, it could significantly help in grant tracking. 
Strengthening oversight on achieving outcomes requires a 
commitment by EPA at both the national and regional level to 
look over grantee shoulders and demand basic information 
grantees are supposed to supply.
    While we support the reforms that EPA has proposed, there 
are some additional improvements that must be made. To inject 
responsible grant management throughout the Agency, the EPA 
must develop performance standards for EPA grant management 
staff at all levels. Reform will only be effective if program 
officers and all staff charged with grant management embrace 
these efforts. If personnel are not evaluated on grant 
management performance, it will be perceived as a lower 
priority and we will be back discussing grant management 
failures at EPA every few years.
    Similarly, EPA officials have to commit to making reforms 
stick. To concentrate their attention, we believe it is vital 
that EPA report to Congress annually on its progress and that 
this committee, the GAO, and the EPA IG exercise the vigorous 
oversight that has gotten us this far in the reform process.
    Finally, we strongly believe that centrally and publicly 
available grant and tracking data will make reform efforts more 
enforceable and efficient. We urge the EPA to deploy the IGMS 
system as quickly as possible, but again, any system will only 
be as effective as the people inputting the data. To that end, 
we urge the EPA to investigate centralizing and streamlining 
grant management to fewer, more highly trained, individuals.
    Although it is apparent that there has been much done to 
increase accountability in the EPA grants system, there is much 
more to do. However, we believe that with vigilant oversight, 
EPA has turned the corner on reforms. We are in difficult 
budget times, as you well know. With a $521 billion deficit, we 
have to be sure that every dollar we spend is being spent cost 
effectively to further our Nation's goals.
    Thank you for the opportunity to testify. I would be happy 
to answer any questions you might have. I would ask that my 
written statement be placed in the record in its entirety.
    Senator Inhofe. Thank you, Mr. Ellis, for an excellent 
opening statement. I thank all of you.
    We are going to go ahead, if it is all right, Senator 
Jeffords, and do ours in a series of 5-minute questions. Other 
Senators will come and I would like to have them fall in line 
as they come in, if that is acceptable with you.
    I would start off by saying in your one, two, three, four, 
you might add a fifth one and that is that those who are 
involved, obey both the intent and the letter of the law. It 
appears to me that there are many of them that are just being 
very nonchalant about the work that they are doing. That is 
what we anticipate should change.
    Ms. Heist, you have your chart up there. I do not 
understand it.
    Ms. Heist. Let me explain. On mission relevance, this would 
be looking at whether or not the project officer, in reviewing 
the grant application, documented that there was some 
connection between the work that was to be performed and the 
Agency's strategic goals. We found in the end that there were 
19 percent of the cases that we looked at, where that was not 
the case.
    In 19 percent of the cases, we found that there was not a 
link between the work that was to be performed and a strategic 
goal of the Agency. On probable success, we found that there 
was 31 percent of the cases where the project officer did not 
look at whether or not the grantee was technically competent, 
and what their past performance was like for the Agency.
    Senator Inhofe. On those two, how does that relate to $42 
million and $88 million?
    Ms. Heist. We projected the results to the $1 billion 
universe we looked at. So, of the $1 billion, there would be 
$42 million where there was not a link to mission relevance, 
and there would be $88 million where there would not be a link 
or there was not an indicator that the grantee would be 
successful.
    Senator Inhofe. Now, reasonable costs?
    Ms. Heist. Reasonable costs would be about half the dollars 
that we looked at in the universe. The person reviewing the 
grant application did not document that they had reviewed the 
costs and the costs seemed reasonable for the work that was 
being proposed.
    Senator Inhofe. That is pretty shocking. Do all the costs 
on your chart from deficiencies in the pre-award process only 
relate to discretionary grant recipients?
    Ms. Heist. No, it goes beyond discretionary grants. We also 
looked at some continuing environmental programs which would be 
grants to States. These are air and water grants that we looked 
at as a part of this sample.
    Senator Inhofe. Is the major problem in the discretionary 
grants?
    Ms. Heist. We found that there were problems with 
discretionary grants. We also found some instances where in the 
grants to States there was not a clear link, and there was not 
a clear statement of what environmental results should be 
happening.
    Senator Inhofe. On your grants to States, and your grants 
to cities, having been a mayor, I am familiar with that. Is not 
part of that that they are given to the States to, say, upgrade 
a water purification system or something, and they make those 
determinations as to how that is being spent at the State 
level? Is that correct?
    Ms. Heist. That is correct. Although what we would like to 
see is some mutual agreement about what is going to happen. 
Now, the actual water project that you are talking about, we 
did exclude those from our samples.
    Senator Inhofe. I see. You are testifying that the EPA 
mismanagement of only discretionary grants costs the taxpayers 
hundreds of millions of dollars each year?
    Ms. Heist. Of predominately discretionary funds; yes.
    Senator Inhofe. Why do you focus on discretionary 
recipients in particular?
    Ms. Heist. In the past we found the most problems was with 
discretionary grants. We found problems with, as has been 
mentioned here today, competition. We found Agency managers 
continued to use the same grantees year-after-year and there 
has not been a lot of competition. Predominantly, that is where 
we found the problems, so we continue to focus in that area.
    Senator Inhofe. Mr. Stephenson, the EPA largely awards 
either discretionary grants or non-discretionary grants. What 
is the average amount awarded in each category? Can you break 
that down in percentages?
    Mr. Stephenson. Of the $4.2 billion--I do not know if I can 
do the percentages in my head--but there is about $719 million 
that are, in fact, discretionary. The majority, $1.2 billion, 
is like clean water revolving that goes primarily to the States 
on the basis of a formula. There is $0.8 billion in drinking 
water revolving funds. Then there is about another $1 billion 
in what is called continuing environmental programs. All those 
are what we would call formula grants or non-discretionary 
grants that go to the States primarily.
    Senator Inhofe. OK; that is fine. Where does that leave 
discretionary grants?
    Mr. Stephenson. $719 million of the $4 billion. So whatever 
percentage that is.
    Senator Inhofe. Your testimony references grant recipients 
sometimes being subject to the Single Audit Act. But with the 
comparatively low average of a discretionary grant, would not 
recipients rarely be subject to a $500,000 a year expenditure 
threshold of the Act?
    Mr. Stephenson. Yes, the Single Audit Act, of course, looks 
from a grantee perspective on how many total Federal grants 
they have, regardless of the Agency that it comes from. 
Therefore, EPA awards many small grants that fall below the 
threshold for audit. So it would not be picked up in that form 
of oversight. EPA, of course, does its own oversight. That is 
just another Federal requirement for grantees.
    Senator Inhofe. All right.
    Senator Jeffords.
    Senator Jeffords. Ms. Heist, in your written testimony you 
report that senior resource officials at EPA cited the limited 
availability of resources for staffing, travel, and training as 
a factor that contributes to EPA's difficulties with oversight. 
Would you elaborate on that?
    Ms. Heist. We did a review. This is based on interviews of 
these officials. That is what they told us, that they did lack 
funding to do some of the oversight that they were being asked 
to do.
    Senator Jeffords. Did the senior resource officials 
consider this a very serious problem, a limiting factor?
    Ms. Heist. I cannot really comment on that. They did 
believe that it was necessary to do this work, so they did 
consider it to be serious work. This is the reason they gave us 
for not doing it.
    Senator Jeffords. What kinds of projects were supposed to 
be carried out using the grant money awarded to the Consumer 
Federation of American Foundation? Is there any evidence that 
the grant money was not used for these projects, or that the 
goals of the projects were not accomplished?
    Ms. Heist. The projects were for various indoor air 
projects. They were for educating the public about various 
indoor air issues. The work that we did was a financial audit. 
We focused on how the money was spent. We have been told by the 
recipient in responding to the report that EPA was satisfied 
with the work that was performed.
    Senator Jeffords. Did you find that any of the EPA funding 
awarded to the Foundation was spent on lobbying?
    Ms. Heist. We were not able to determine that because of 
the way the accounting records were maintained by the 
recipients. So we could not determine that.
    Senator Jeffords. Mr. O'Connor's written testimony 
indicates that 51 percent of the nonprofit grant dollars in 
fiscal year 2003 came from earmarks. Nonprofit organizations 
have been a focus of the concern about the use of EPA grants 
funding. Have you found that problem with nonprofit grant 
recipients are equally pervasive among earmarked and non-
earmarked?
    Ms. Heist. We have not done a study that would specially 
address that. I cannot comment on that.
    Senator Jeffords. Are there other groups besides non-
profits that have been found to have problems managing their 
EPA grants funding?
    Ms. Heist. A few years ago we did a series of studies on 
tribal grants. We also found issues in that area. Many of these 
issues dealt with the need to have better accounting records.
    Senator Jeffords. What kinds of problems are common and 
what kinds are most worrying?
    Ms. Heist. When we go out and do financial audits of 
grantees, the problems we typically find are inadequate support 
for labor costs, or the grantee is not competitively acquiring 
contracts. Those would be the predominant areas that we focus 
on or see when we go out and audit the actual grantees.
    Senator Jeffords. Thank you.
    Mr. Stephenson, EPA has a history of issuing policies to 
help remedy to grants management shortcomings. But problems 
have nevertheless persisted. Do you think that EPA's latest 
policies and plan are likely to change that pattern?
    Mr. Stephenson. They have potential, but again it is 
important how effectively they are implemented. That is why we 
put so much stock in individual staff accountability. The 1,800 
project officers are key in effectively overseeing grants, but 
it is not their primary function. They work in the Office of 
Water, the Office of Air, and the like. We think that 
individual accountability and even reducing the number of total 
project officers that are involved in grants oversight needs to 
happen to effect that cultural change that we talk about. So 
no, I do not think it will be effective unless there is that 
cultural change.
    Senator Jeffords. In your written testimony you suggest 
that the decentralization of grants management staff--some 
working at EPA headquarters and others working at regional 
offices--presented a challenge to holding staff accountable and 
improvement of grant management. Do you think that this 
decentralization contributes significantly to EPA's grants 
management problem? How do you think the challenge can be best 
overcome?
    Mr. Stephenson. Yes, that is the 1,800 project officers 
that I just mentioned. I think as a first step you need to 
build into their own performance statements and their job 
descriptions grants management as one of their key functions. 
Unless you do that, they are going to accept these as other 
duties as assigned and not as important as their primary 
duties. It seems like a simple step, but we think that would go 
a long way toward changing their behavior.
    Senator Jeffords. In their new comprehensive grants 
management plan, EPA sets a number of goals for improving 
grants management. Which one of these goals, if achieved, would 
bring about the biggest improvement? Do you think the plan 
adequately outlines a path for achieving that goal?
    Mr. Stephenson. I do. As I mentioned they are in the first 
year of the 5-year plan right now. What is missing is that 
individual accountability that we were looking for and how it 
is going to be built into performance evaluations of the 
individual staff responsible for grants oversight.
    Senator Jeffords. Thank you. Thank you, Mr. Chairman.
    Senator Inhofe. Mr. Stephenson, if we are relying solely on 
the EPA for monitoring to ensure proper use of grant funding, 
would not the discretionary grant recipients be the most 
difficult? It is my understanding that they would average 
around $150,000 of the discretionary grants; is that a ballpark 
figure?
    Mr. Stephenson. I am not sure. They range all over the 
place.
    Senator Inhofe. OK. Let us assume it is because I think it 
is. Would they be the most difficult to monitor?
    Mr. Stephenson. I would think so. The non-discretionary 
grants go by formula to the States based on the need. There is 
a little more specificity in place as to how you oversee that 
category of grants. So I would agree that the non-discretionary 
grants are probably more problematic.
    Senator Inhofe. Ms. Heist, you responded to a question from 
Senator Jeffords concerning money that might be going for 
illegal uses, such as lobbying. In your audit you said, ``I am 
especially interested in your March 1, 2004 audit of the 
Consumer Federation of America Foundation.''
    How often does the IG review audit grantees?
    Ms. Heist. Often we will do these types of audits when the 
Agency has, in fact, gone out and done a review and believes 
that there are problems that need further audit work on 
investigation.
    Senator Inhofe. Fifty percent?
    Ms. Heist. We do not know. Since they are covered by Single 
Audit, we will typically focus on ones perhaps were there is a 
problem in a Single Audit report, or one that the Agency brings 
to our attention. We probably do 20 of these a year ourselves.
    Senator Inhofe. What type of recipient was the Consumer 
Federation of America Foundation?
    Ms. Heist. By type do you mean competitive, noncompetitive, 
discretionary?
    Senator Inhofe. No, I mean, what do they do for a living?
    Ms. Heist. As far as I know they are an advocacy group.
    Senator Inhofe. It is a lobbying group; is it not?
    Ms. Heist. I do not know that.
    Senator Inhofe. You do not know?
    Ms. Heist. I know they do some lobbying because they are 
registered that way.
    Senator Inhofe. OK. Then they are a lobbying group.
    How much has this Foundation received from the EPA in 
grants?
    Ms. Heist. We looked at $5 million which I understand were 
the costs from 1996 to 2002.
    Senator Inhofe. Yes, I think that is consistent with my 
information. I have $4.6 million since July 1997 to September 
2003; do you think that is accurate?
    Ms. Heist. It should be fairly accurate.
    Senator Inhofe. Your audit revealed that EPA was providing 
millions to nonprofit recipients that was simply a front for a 
lobbying organization. I understand that there is a subsidiary 
and they are a chain to someone else who receives grants.
    Ms. Heist. The grant was made to a foundation.
    Senator Inhofe. Consumer Federation of America Foundation?
    Ms. Heist. Yes; that is correct.
    Senator Inhofe. But then you said in answer to my question 
that the Foundation received this amount of money. However, the 
Consumer Federation of America is a lobbying group. Let me just 
ask you the question this way. Do you have any reason to 
believe that they are not recipients of grants; this lobbying 
group?
    Ms. Heist. Directly recipients?
    Senator Inhofe. Either directly or indirectly. It makes no 
difference to me.
    Ms. Heist. We know that they indirectly receive money 
because the money went to the Foundation and the Foundation did 
not----
    Senator Inhofe. Is this legal?
    Ms. Heist. It will be the Agency's final determination, but 
we do not believe it was legal.
    Senator Inhofe. The EPA referred this group to the IG for 
an audit. At what point did this happen?
    Ms. Heist. In 2002.
    Senator Inhofe. I would assume, then, that this recipient 
has been disbarred from receiving grant funding?
    Ms. Heist. That would not be correct. The group continues 
to receive funding. However, they have reorganized so that they 
are now an eligible recipient.
    Senator Inhofe. Who has reorganized? Consumer Federation of 
America?
    Ms. Heist. Consumer Federation of America.
    Senator Inhofe. And you are saying to this committee here 
that they are a lobbying group anymore; is that right?
    Ms. Heist. No, I am not saying that.
    Senator Inhofe. Well, if you are trying to get over an act 
that is illegal, and you say that you are pinning your case on 
the fact that they have reorganized, you know, they can 
reorganize and still use Federal funds for lobbying; is that 
not correct?
    Ms. Heist. I believe that is correct.
    Senator Inhofe. Senator Jeffords.
    Senator Jeffords. To followup on that, is there any 
evidence that the CFA or CFA Foundation did not follow the law 
on EPA's instructions at any time regarding the separation 
between the organizations that was necessary for the Foundation 
to receive cooperative agreement funds?
    Ms. Heist. I do not know that we specifically looked at 
that. We looked at what happened when they received the grant 
and how the application was made. We looked at how the money 
was spent. I really cannot comment on that.
    Senator Jeffords. Mr. Chairman, I would ask unanimous 
consent that a letter that I have here from the Consumer 
Federation of America be submitted for the record.
    Senator Inhofe. Without objection, so ordered.
    [The referenced document follows:]

                            Consumer Federation of America,
                                                     March 2, 2004.
Hon. James M. Inhofe,
Chair, Senate Environment and Public Works Committee,
Washington, DC.

Hon. James M. Jeffords,
Ranking Member, Senate Environment and Public Works Committee,
Washington, DC.
    Dear Chairman Inhofe and Ranking Member Jeffords: We understand 
that you will hear testimony tomorrow at your hearing on grants 
management by the U.S. Environmental Protection Agency (EPA) about a 
series of cooperative agreements the Consumer Federation of America 
Foundation (CFAF) has received from EPA since 1996. A representative of 
the EPA Office of Inspector General apparently will discuss an audit 
report they just issued, which contends that $4.7 million in 
cooperative agreements received by CFAF should be disallowed.
    The Office of Inspector General (OIG) bases its conclusion on the 
allegation that CFAF is an ``ineligible lobbying organization'' that 
was not entitled to receive funds under Section 18 of the Lobbying 
Disclosure Act (LDA). The OIG contends that there was no discernible 
separation between CFA and its Foundation, ensuring that EPA funds 
received by the Foundation actually went to CFA, which was a lobbying 
501(c)(4) organization ineligible to receive Federal funds. (CFA has 
since been approved by the IRS to be a 501(c)(3) organization.)
    The OIG's conclusions are entirely without legal justification, not 
to mention unfair and unreasonable. The OIG report also completely 
ignores the high-quality, award winning work completed by CFAF for the 
EPA on important public health issues, like radon awareness and indoor 
air quality. (For more information on our concerns, please see the 
attached letter and CFA's complete rebuttal to the OIG, which is listed 
as Appendix B in the Audit Report the Committee has received.)
    We urge you to question the OIG's conclusions for several reasons:
    1. OIG's interpretation of Section 18 has no basis in the statutory 
text of legislative history, nor any support in case law. On the 
contrary, the legislative history, including a floor statement by 
Senator Simpson, clearly demonstrates that a close affiliation between 
a non-lobbying organization (such as the CFA Foundation) and a lobbying 
501 (c)(4) (such as CFA) does not make the non-lobbying organization 
ineligible to receive Federal funds, directly contradicting the OIG 
interpretation. The OIG interpretation is also inconsistent with the 
purposes of Lobbying Disclosure Act Section 18, and raises serious 
First Amendment issues--issues that Congress recognized and tried to 
avoid. Finally, the OIG interpretation would reverse EPA's apparently 
established interpretation of Section 18, on which the CFA Foundation 
relied when it accepted EPA cooperative agreements between 1997 and 
2002. Thus, OIG's interpretation, even if permissible, cannot be 
applied to the CFA Foundation retroactively.
    2. CFAF's work for EPA was of high-quality and widely praised--even 
by the OIG. In 1991, EPA solicited CFA to manage a program on indoor 
air quality; 2 years later, EPA asked CFA to manage a national public 
service campaign to educate consumers about the health risks of radon. 
Both awards were initiated by EPA. As a result of EPA awards received 
by the CFA Foundation just since 1996, over $100 million dollars in 
media was donated to air five public service advertising campaigns on 
radon dangers, as well as three environmental tobacco public service 
advertising campaigns. These advertisements reached millions of 
consumers who tested their homes for radon or who pledged to make their 
homes smoke-free. More than 40,000 consumers were counseled on how to 
rid their homes of high levels of radon. One of CFAF's radon campaigns 
received the 2000 National PSA Emmy Award from the National Academy of 
Television Arts and Sciences. The OIG has praised CFAF's work with EPA 
as well. Its website highlights EPA's work with CFAF on radon public 
services announcements as an example of good EPA management practices.
    3. CFAF's cooperative agreements were initiated, encouraged and 
closely supervised by EPA, which was well aware of the relationship 
between the CFA Foundation and CFA. The CFA Foundation closely 
cooperated with EPA and followed its directions explicitly. In 1996 and 
1997, when CFA--at that time a 501(c)(4) organization--became 
ineligible to receive Federal funds, EPA arranged for CFA's programs to 
be transferred from CFA to the CFA Foundation. In fact, EPA relied on 
the CFA/Foundation relationship to assure that the transferred programs 
would continue to be managed by the same personnel. On each program 
undertaken at EPA's request, the Foundation worked closely with EPA on 
a weekly and often daily basis. In fact, EPA was involved in all 
important program decisions, including the selection of sub-recipients 
and contractors. EPA, was, without question, extremely satisfied with 
the Foundation's work, and made two additional sole source awards to 
the Foundation in 2001.
    4. The OIG conclusions focus on technical defects in documentation 
and lack of sophistication of CFAF's financial management system, 
ignoring the fact that the underlying transactions were sound and 
adequately documented. The issues raised by the OIG relate almost 
exclusively to compliance with documentation requirements (such as 
procurement procedures, cost/price analysis, written procedures, and 
standard contract clauses) rather than with violation of substantive 
rules and regulations. These documentation issues were first called to 
CFAF's attention in March 2002 by EPA and were immediately corrected.
    We appreciate your attention to these concerns.
            Sincerely,
                                        Travis B. Plunkett,
                                              Legislative Director.
                                 ______
                                 
                            Consumer Federation of America,
                                                   January 20, 2004
Michael A. Rickey, Director,
Assistance Agreement Audits,
Office of Inspector General,
Environment and Public Works Committee,
Washington, DC.

Subject:  Draft Audit Report of ``Costs Claimed under EPA Cooperative 
Agreements CX825612-01, CX825837-01, X-828814-01, CX 824939-01 and X 
829178-01''; Comments of Consumer Federation of America

    Dear Mr. Rickey: This letter, and the Response and legal memorandum 
attached hereto, set forth the written comments of the Consumer 
Federation of America (``CFA'') on the draft audit report (``DAR'') on 
costs claimed by the Consumer Federation of America Foundation (the 
``Foundation'') under the above-referenced EPA cooperative agreements 
(``CAs''). The Response proceeds through the DAR point-by-point, 
presenting CFA's detailed response to questions in the report regarding 
the Foundation's compliance with EPA regulations and OMB Circulars. The 
legal memorandum analyzes OIG's claim that the Foundation was not 
eligible to receive Federal funds under Section 18 of the Lobbying 
Disclosure Act of 1995, that each CA awarded to the Foundation was 
therefore illegal, and that the Foundation must therefore refund every 
penny of the $4.7 million it received under the CAs. This letter sets 
forth a brief overview of CFA's comments.
    The DAR's analysis and recommendations are neither fair nor 
reasonable, for three reasons: First, the DAR is based on a fundamental 
misunderstanding of the circumstances under which the CAs were awarded 
and implemented. Second, it focuses on technical defects in 
documentation and lack of sophistication of CFA's financial management 
system, ignoring the fact that the underlying transactions were sound 
and adequately documented. Third, it proposes a $4.7 million 
disallowance based on a legal interpretation of LDA Section 18 that is 
untenable on its face, and whose retroactive application to the 
Foundation is prohibited by law.
    [1] In 1991, EPA asked CFA to manage a program on indoor air 
quality; 2 years later, EPA asked CFA to manage a national public 
service campaign to educate consumers about the health risks of radon. 
Both awards were initiated by EPA--that is, EPA determined the need for 
Federal action, defined the scope of the program, established the 
amount of available funding, and only then approached CFA to implement 
the program on its behalf. Each CA was awarded to CFA without 
competition. In 1996 and 1997, when CFA, a 501(c)(4) organization, 
became ineligible to receive Federal funds, EPA arranged for CFA's 
programs to be transferred from CFA to the Foundation under new CAs. At 
the time, EPA was well aware of the CFA/Foundation relationship--and, 
in fact, relied on that relationship to assure that the transferred 
programs would continue to be managed by the same CFA personnel. In 
1997, EPA asked the Foundation to undertake a public service campaign 
to alert consumers to the health effects of secondary smoke on 
children. This third CA was also awarded without competition.
    On each program undertaken at EPA's request, the Foundation worked 
closely with EPA on a weekly and often daily basis. Indeed, EPA was 
involved in all important program decisions, including the selection of 
sub-recipients and contractors. EPA was, without question, extremely 
satisfied with the Foundation's stewardship of the CA programs. It 
expressed that satisfaction by repeatedly praising the programs to the 
Foundation's staff, consultants, and contractors; by providing 
substantial additional funding to the programs each year; and by making 
two additional sole-source awards to the Foundation in 2001.
    [2] For each of its CAs, the Foundation kept detailed and accurate 
financial records, including job cost activity reports for each CA, 
that show the receipt and expenditure of the EPA funds disbursed under 
the CAs, and support the costs claimed under those awards.\1\ Its 
employees prepared personal activity reports and other timekeeping 
records sufficient to support all (or substantially all) of the labor 
hours charged to the CAs.\2\ Each of its procurement contracts was 
awarded on the basis of a competitive solicitation or, if awarded with 
less than ``open and free competition,'' on the basis of specific 
instructions from EPA (``directed contract'') or another well-
recognized sole-source justification.\3\ For each of those contract 
awards, it conducted a detailed price analysis, as required by EPA 
regulations.\4\ Finally, it complied with its contractual obligations 
regarding submission of indirect cost proposals.\5\ Moreover, final 
cost data for 1997 to 2002 show that the Foundation recovered 
significantly less in indirect costs than it was entitled to recover: 
the Foundation has under-recovered approximately $600,000 in indirect 
costs from EPA.
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    \1\ Response, Parts 1, 3[A] and 3[B], and 4.
    \2\ Response, Part 2.
    \3\ Response, Parts 7[A], 7[C] and 7[D].
    \4\ Response, Parts 7[B], 7[C] and 7[E].
    \5\ Response, Part 6.
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    The issues raised in the DAR relate almost exclusively to 
compliance with documentation requirements (e.g., procurement 
procedures, cost/price analysis, written procedures, standard contract 
clauses) rather than compliance with substantive rules and regulations. 
These documentation issues were first called to our attention in March 
2002 by the EPA Grants and Management Office. At that time, we took 
immediate steps to address EPA's concerns; by May 2002, EPA had 
approved our proposed plan of action, which we then implemented. 
Consequently, we do not believe that any of these documentation issues 
can reasonably support a disallowance of costs.
    [3] Finally, with respect to the Foundation's eligibility to 
receive Federal funds: According to the DAR, the Foundation, a 
501(c)(3) organization, was not sufficiently separated from CFA, then a 
501(c)(4) organization, to be treated as a separate organization for 
purposes of LDA Section 18. In addition, at the time CFA engaged in a 
small amount of lobbying. On that basis, the DAR concludes that the 
Foundation was not a 501(c)(3) organization, but was instead a 
501(c)(4) organization that engaged in lobbying, and it was therefore 
not eligible to receive Federal funds. Accordingly, every penny of the 
$4.7 million received by the Foundation must be refunded.
    As explained in detail in the legal memorandum, the DAR's 
interpretation of Section 18 is based on factual misrepresentations and 
flawed legal analysis.
     The DAR misrepresents the Foundation's history and 
corporate purpose. The Foundation was not, as the DAR suggests, 
established ``to receive the Federal funds'' that CFA, a 501(c)(4) 
organization that engaged in lobbying, was no longer eligible to 
receive. In fact, the Foundation was established in 1972, more than 20 
years before the enactment of the LDA, and in 1996, was a fully 
functioning 501(c)(3) organization. It was not a sham designed to 
mislead EPA
     The DAR understates the degree of separation between the 
Foundation and CFA. The organizations had separate Boards of Directors 
(including, in the Foundation's case, outside directors unconnected to 
CFA), separate financial accounts and separate funding.
     The DAR misreads the text of the LDA Section 18, where 
eligibility for Federal funds turns on the IRS classifications alone, 
and its legislative history, which suggests that separate incorporation 
and IRS recognition is sufficient to avoid the Section prohibition.
     EPA has no authority to adopt an expansive interpretation 
of Section 18. It is not the agency charged with enforcement of the 
statute, and it has no particular expertise in the issues arising 
thereunder, Furthermore, an expansive interpretation would raise 
difficult First Amendment issues, a situation that Congress anticipated 
when it passed Section 18, and attempted to avoid by making the statute 
clear and unambiguous.
     Even if the OIG interpretation were plausible, and EPA had 
the authority to adopt that interpretation and apply it to recipients, 
EPA could not apply that interpretation retroactively to the 
Foundation.
    In fact, it appears that EPA already considered and rejected the 
OIG interpretation of LDA Section 18 [i] in 1996 and 1997, when it 
transferred CFA's radon programs to the Foundation under new CAs even 
though EPA officials were aware of the very facts and circumstances 
which, according to OIG, made the Foundation ineligible to receive 
Federal funds, and [ii] in May 2002, when, after considering, once 
again, the relationship between the Foundation and CFA, it continued 
disbursing Federal funds to the Foundation under five separate 
cooperative agreements through the end of 2002.
    In light of the foregoing, OIG's proposed $4.7 million disallowance 
is entirely without legal justification. It is based on an 
interpretation of LDA Section 18 that is untenable and, indeed, has 
already been considered and rejected by EPA; and retroactive 
application of that interpretation to the Foundation would be 
arbitrary, capricious and a denial of due process of law.
    The proposed disallowance is also patently unfair and reasonable. 
It ignores the fact that the programs were undertaken by CFA at EPA's 
specific request, and were later transferred intact from CFA to the 
Foundation at EPA's specific request. It ignores 5 years of successful 
program performance by the Foundation, and the considerable benefits 
for public health and education that flowed from those programs. 
Finally, it ignores the fact that Foundation acted, at all times and in 
all matters, in the utmost good faith.
            Sincerely,
                                           Stephen Brobeck,
                                                Executive Director.

    Senator Jeffords. Mr. O'Connor, does EPA have adequate 
resources, including staff, to successfully implement its new 
grants management plan? If not, what further resources does EPA 
need for this purpose?
    Mr. O'Connor. Well, Senator, the plan we have laid out, and 
some of the components in particular, such as oversight of the 
grants once they are awarded, there is no way around the fact 
that they do require resources. The Agency in its budgeting 
this year, and I think it was acknowledged earlier, that this 
is a tight year, did provide some million dollars for us to use 
toward post-award management. Some small number of FTE have 
also been provided.
    Yes, we could use more and yes, we could do more monitoring 
with more resources. But I have to say that resources is pretty 
far down the list of things that I would highlight right now. 
There are a lot of things that are in our control with the 
resources that we have that we need to do before I would use 
resources as an excuse.
    Senator Jeffords. Cases have been reported of grantees who 
mismanage funds but are nevertheless allowed to continue to 
apply for, and in some cases receive, further grant money. Why 
does not the EPA respond more severely when grantees violate 
policies and management funds?
    Mr. O'Connor. Well, it is a matter of the nature of the 
violations and whether there is a persistent record. I do not 
know that we have had a system in the past to really track 
those as effectively as we should to know whether we have such 
track records. The new system that you heard discussed during 
our opening comments will give us that ability. But I think if 
we find that there have been willful violations of laws, that 
we are prepared to take such actions.
    On many of our reviews, as I mentioned earlier, where we 
have found problems, we prefer to work those out with the 
grantees so that the important work that we are both engaged in 
can continue. But in some cases we are not satisfied and we do 
put controls on the expenditure of those grant funds until we 
are satisfied that they have been corrected.
    Senator Jeffords. What kinds of policies does EPA have in 
place for responding when EPA staff fail to adequate perform 
their oversight duties?
    Mr. O'Connor. Well, I think as Mr. Stephenson might have 
mentioned, that is probably the million dollar question. We 
have taken a number of steps. Perhaps one of the most important 
first steps this year is putting language in the performance 
agreements of all of the 1,800 project officers who are engaged 
in grants management, as well as all of the supervisors and 
managers across the Agency. We do require now that in our 
annual process that offices and regions certify to how they 
have conducted those performance appraisals to assure us that 
they are, in fact, assessing performance against the standards.
    This is, by the way, an issue that goes far beyond grants 
management. The Agency right now is revising the performance 
agreement of all of its managers and by April to link our 
performance standards much more directly to the Agency's 
strategic plan and annual goals and crosscutting strategies. 
One of the most important of those crosscutting strategies is 
grants management.
    So the mechanism to do this is coming in to place right 
now. The very difficult question that I think everyone has 
acknowledged is how do we make sure that for every one of these 
1,800 individuals, it really happens. That is going to be our 
challenge. We are putting a lot of management attention on that 
issue. But I would not be truthful if I said that it is going 
to be easy and it is not going to take much of our attention.
    Senator Jeffords. Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Jeffords.
    First of all, Ms. Heist, I want to assure that I do not 
hold you responsible or certainly the IG responsible for the 
Consumer Federation grant. I just want to try to understand the 
facts in this case. This is something that we have the 
responsibility to do something about and we are going to. Your 
report, which could not be more current--it is March 1, 2004--
says:

          ``The Federation was a 501(c)(4), that, is a lobbying 
        organization that was prohibited from receiving Federal funds 
        under the Lobbying Disclosure Act and the arrangement between 
        the Foundation and the Federation violated the Lobbying 
        Disclosure Act prohibition.''

    To me that sounds like the EPA is giving money to groups 
who are lobbying. Again, I do not mean to single out this one 
Federation because I regretfully suspect that there are many 
others where this has taken place, too.
    We do not want to overlook you, Mr. Ellis. We will be right 
with you in a minute. But let me finish up something with Mr. 
O'Connor. You said these things are not going to happen 
overnight. I understand that. But in competition, the EPA's new 
competition policy requires that all grants recipients over 
$75,000 be competitively bid but references a ``managed 
competition.''
    How would this be any better than the previous policy that 
was supposed to ensure competition in this grants? Maybe you 
can define for us what ``managed competition'' is?
    Mr. O'Connor. Sir, unlike in the world of direct Federal 
procurement where the regulations that govern competition have 
been set in stone for a long time and are very clear, there are 
not such regulatory provisions for grants competition. So we 
provide for the ability to conduct a competitive process in 
different ways.
    To some extent it is driven by the size of the grant and 
the nature of the grant. For example, if it is a $75,000 grant, 
I am not so sure I want to spend a half million dollars doing a 
formal rigid competition, the type of which would be required 
if it were direct procurement. So we allow for there to be 
different ways to compete the grant. Of course, that is a 
complicating factor in trying to ensure that we are managing 
these competitions in a way that we are comfortable with.
    Senator Inhofe. The IG reported in 2001 in their report 
that the EPA practice on soliciting grant recipients was ``word 
gets out.'' What part of your 5-year management plan even 
addresses soliciting recipients?
    Mr. O'Connor. ``Word gets out,'' I am assuming meaning that 
people have their favorites. Obviously a principle way of 
addressing that is to the competition policy. As I mentioned, I 
think we have a pretty successful percentage of competitions in 
our first year under the policy. We are not necessary satisfied 
with how well those were done or documented, but nonetheless we 
did move significantly to competing grants. I think that first 
step is the most important step.
    Senator Inhofe. What would be wrong with putting all of 
these on a website where the public and anyone interested would 
have access to them?
    Mr. O'Connor. Well, we are actually moving toward that with 
our automated system--to be able to put all grant actions and 
announcements out electronically. That is something that we are 
participating in with much of the rest of the Government under 
an E-Government initiative.
    Senator Inhofe. Good. All right.
    Mr. Ellis, I appreciate very much your mission and what you 
are doing. I think you are trying to do the same thing that we 
are trying to do up here. Being a group that describes itself 
as environmentally conscious, has your organization done any 
publications documenting wasteful spending with EPA financial 
assistance?
    Mr. Ellis. I am not sure. You said something about 
environmentally conscious. I am not aware of that description 
of our organization.
    Senator Inhofe. That is fine. I appreciate that 
clarification.
    Mr. Ellis. Right. But your question, Senator, was have we 
done work looking into this before?
    Senator Inhofe. Has your organization done any publications 
documenting wasteful spending with reference to EPA financial 
assistance or grants?
    Mr. Ellis. Not prior to this actual hearing when we were 
publishing this information. This is something that we have 
followed. I know that we have talked with the Heritage 
Foundation on some of their analysis on grants governmentwide. 
They have documented $325 billion worth of Government grants 
that go out there and concerns about competition. I think this 
falls within that category. It is something that is of concern 
to us.
    Senator Inhofe. Then you would say that working then with 
groups like the Heritage Foundation, you both would have that 
common goal in disclosure, openness, and so forth?
    Mr. Ellis. Absolutely. I think the real goal in any kind of 
grants is that they actually further the mission and the goals 
of both the Agency, the Government, and the Nation.
    Senator Inhofe. All right. One last question. You 
identified discretionary grants as receiving ``well-earned 
criticism.'' Have you found any particular problematic grant 
recipients?
    Mr. Ellis. We have not really looked particularly at the 
grant recipients. We have looked more at the process. We think 
that if you have a bad process, you are going to have a bad 
result, regardless of who the recipient is. If people have 
laudable goals, if we are not really making sure that we are 
spending the money wisely, then we are not really doing them a 
favor and we are certainly not doing the taxpayer or the EPA a 
favor.
    Senator Inhofe. I would certainly agree with that. I might 
suggest that you consider expanding your realm into identifying 
some of these problematic areas. It makes it easier for others 
to go in to try to correct the problems.
    Senator Jeffords.
    Senator Jeffords. Mr. O'Connor, the August 2003 GAO report 
stated that effective implementation of EPA's competition 
policy would require a major cultural shift at EPA. In your 
written testimony you suggest that a cultural shift is now 
occurring at the EPA. What leads you to say this? What has 
changed EPA to bring about a cultural shift toward 
accountability in grants management?
    Mr. O'Connor. Senator Jeffords, with respect to the 
competition as was noted, for years and years, our project 
officers were accustomed to just selecting their grantee which 
led to at least the appearance that we had favorites and that 
we were not necessarily going out there sure that we were 
getting the best value for the Government.
    That policy, quite frankly, did not go over very well 
initially, with our 1,800 project officers because it does 
require quite a bit of additional work. This was something that 
they had to adjust to. Frankly, we set a goal of competing, I 
believe it was 30 percent of the covered grants in our first 
year. I was very pleased with achieving the 75 percent.
    But that is one of a number of major mindsets that we are 
trying to change, and will change, over the next couple of 
years in how we manage our grants.
    Senator Jeffords. In GAO's August 2003 report, the data 
seems to show that during 2002, no incidences of lobbying 
problems were found among over 1,200 in-depth reviews of 
grantees, including over 200 reviews of nonprofit 
organizations. Can you confirm that this is correct?
    Mr. O'Connor. To the best of my knowledge, that is correct, 
sir.
    Senator Jeffords. Mr. Ellis, in your written testimony, you 
recommended EPA investigate centralizing and streamlining grant 
management to fewer, more highly trained individuals. Can you 
elaborate on that recommendation?
    Mr. Ellis. Certainly. Much has been talked about with the 
1,800 project officers. There is going to be a balancing act, 
as I think was mentioned. These project officers are in other 
areas of EPA such as the Office of Water, or Office of Air. So 
you want to have some of the subject matter expertise still 
housed with these people, but you also want them to feel that 
they are properly trained and are being watched also for their 
grant management expertise.
    I think when you start looking at an Agency with a $8 
billion budget, and they have 1,800 different project officers 
that are managing all these different grants, I think you need 
to start looking at ways to consolidate the functions in some 
respects. Also, if you can consolidate, then you can make 
training and grant management more of that person's job. In my 
mind, that also professionalizes that particular part of that 
person's activities to a greater extent. Then you are going to 
get a better performance and better product.
    Senator Jeffords. The EPA Inspector General has found that 
EPA's problems with grants oversight can, in part, be 
attributed to its failure to sufficiently prioritize the 
activity. Do you think that the EPA's new grant management plan 
goes far enough in prioritizing oversight? What further steps, 
if any, do you think ought to be taken?
    Mr. Ellis. Well, before I got into this line of work, I was 
an officer in the military. I was an officer in the Coast 
Guard. I have to say that I did my job very well, thank you, 
but what I paid most attention to was what I was evaluated on 
and what I was going to have to respond to. I think that 
whatever you put together as far as words on paper and rules 
and guidelines are only going to be effective as the people who 
are implementing them, stick to them, and really require people 
to adopt those measures.
    Part of that, as has been mentioned by Mr. Stephenson, is 
making people recognize that they are going to be evaluated on 
these particular areas. They are going to be evaluated on their 
grants management. So, to me, that is going to be the key of 
really making any of these reforms, whether it be competitive 
grants, oversight, or any of these other areas stick. The fact 
is that EPA, from the bottom to the top, demands that people 
perform and manage these contracts efficiently and effectively.
    Senator Jeffords. Are you indicating that is not being 
done?
    Mr. Ellis. Well, I think that in the end it has not been 
done to date because that is why we are all sitting here. I 
think if this had been going on in the years past, then we 
would not have to be here. I am not going to pre-suppose a plan 
that just came out in April of last year, but I think the proof 
will be in the pudding as far as how we go forward from that 
date.
    Senator Jeffords. Thank you.
    That is all I have, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Jeffords.
    Mr. Stephenson, there has been talk about the EPA needs 
more resources when they testified only a few months ago, that 
the EPA had too many working in grants. The GAO reports that 35 
percent of project officers oversee only one grant. Would you 
not draw the conclusion here that they do not need more 
resources for that?
    Mr. Stephenson. Our first step always is to spend the 
resources you get more efficiently. There are several ways we 
think they can more efficiently oversee grants. That is the 
statistical approach I mentioned that they are not doing a job 
with the resources that they have in targeting grants and 
finding where the systemic problems are. That is one step.
    One project officer per grant is probably not an efficient 
way to oversee grants, but again there has to be this balance 
between technical expertise and air programs and water 
programs, and what the grantee and the grant are trying to 
accomplish. It just seems to me that 1,800 is too many.
    Senator Inhofe. If 35 percent are only overseeing one 
project, what types of projects would those be that would 
require 100 percent of a person's time?
    Mr. Stephenson. Remember, there is a grants management 
staff whose only function is to set policy and to provide 
guidance to the staff who are overseeing grants.
    Senator Inhofe. That is much smaller than your project 
officers?
    Mr. Stephenson. Right, much smaller.
    Senator Inhofe. It is 1,800 versus 100?
    Mr. Stephenson. Yes, the 1,800 are the ones with the 
technical expertise that are needed to effectively oversee 
grants. We have not done a specific analysis in that area, but 
one-per-one does not seem to be a good ratio.
    Senator Inhofe. All right; fine.
    Mr. O'Connor, it appears that you have a big job ahead of 
you. It concerns me that GAO identified a lack of management 
accountability and environmental results in competition and 
grant awards in its most recent report. More concerning is that 
GAO in that report identified a lack of methodology to identify 
systemic problems, lack of environmental results, and lack of 
accountability in grants management, even after reviewing the 
new EPA policies.
    I understand your testimony today addresses some of the 
GAO's conclusions. However, audits such as the one of the 
Consumer Federation of America cannot go unnoticed. We cannot 
simply trust in the promise of new policies to remedy this type 
of a problem. The witnesses have testified that particularly 
problematic are discretionary grants which compromise about 
one-quarter of grant awards each year. I would like to see who 
are receiving these grants and what they are producing.
    Accordingly, I have an information request of the Agency 
for fiscal year 2002. I would like a listing of the 
discretionary grants awarded. My staff will provide you with 
office correspondence immediately following the hearing 
detailing the information I would like to have included. I 
would like to have this prior to our budget hearing where we 
will have the Administrator before this committee a week from 
today.
    I like the idea of doing something, of opening the doors, 
and not just having a website where you show the various 
competitions coming up, but also where you show the grants that 
are issued. I think you will get a lot of help, Mr. Ellis, from 
the public if the questions are answered concerning the grants 
that go to various organizations.
    I look forward to that.
    I would say that I know that we have had initial hearings 
on this problem before, but the revolving door, as I said in my 
opening statement, just keeps revolving. I would like to tell 
you and look you in the eyes that the revolving door is going 
to stop.
    Senator Jeffords, do you have any concluding remarks?
    Senator Jeffords. I think you did a good job.
    Senator Inhofe. Thank you very much.
    We are adjourned.
    [Whereupon, at 10:37 a.m., the committee was adjourned, to 
reconvene at the call of the chair.]
    [Additional statements submitted for the record follow:]
  Statement of Hon. Michael D. Crapo, U.S. Senator from the State of 
                                 Idaho
    Thank you, Chairman Inhofe, Senator Jeffords. Let me begin by 
saying that I appreciate your hard work and the work of the committee 
in addressing the issue of grants management within the U.S. 
Environmental Protection Agency (EPA).
    Given the considerable amount of taxpayer dollars appropriated 
every year for EPA grants and the breadth of the agency's 
responsibility for assisting with environmental efforts, oversight of 
how this money is being spent is important.
    As a member of the Senate Budget Committee, we have been working to 
produce a budget resolution, and as we all know it will be an extremely 
tough budget year.
    With the current economic climate and our need to use the utmost 
discretion to ensure that hardworking Americans' dollars are wisely 
spent, it is now more timely than ever to address this issue.
    One of the issues I would like to raise today is the distribution 
of Brownfields program grants. Let me begin by saying, I support the 
Brownfields Program.
    Assistance through this program can go a long way toward assisting 
communities that contain property that is unavailable for development 
due to environmental contamination.
    Many communities that are dealing with the rehabilitation of 
Brownfield properties lack the funding necessary to revitalize the 
properties. These grants are vital sources of assistance, and are good 
for local economies, local communities, and the environment.
    However, it is essential that the EPA give all communities access 
to the program and make it truly a national program.
    I was alarmed to discover that Brownfields funds are not 
distributed equitably between the eastern and western United States and 
among urban and rural communities. Furthermore, only 10 of these grants 
were awarded in the intermountain West.
    This is an issue I have raised in the past with EPA. I have asked 
EPA to consider developing a specific ``rural'' component to the 
Brownfields program.
    Unemployment rates are often as high in many small rural 
communities as they are in inner cities, and rural communities are no 
less impacted by contamination, or the possibility of contamination 
which has hindered the re-development of these properties in rural 
towns--a key objective of the Brownfields program.
    I plan to ask the panel some questions regarding this important 
issue, but I will defer further discussion of this issue until later.
    Again, I thank the committee and the witnesses here with us today 
for your hard work in addressing the oversight of EPA grants. I look 
forward to continuing to work to ensure our limited resources are well 
spent. Thank you, Mr. Chairman.
                               __________
  Statement of Melissa Heist, Assistant Inspector General for Audit, 
                  U.S. Environmental Protection Agency
    Good morning, Mr. Chairman and members of the committee. I am 
Melissa Heist, Assistant Inspector General for Audit for the United 
States Environmental Protection Agency. I am pleased to be here today 
representing Nikki Tinsley, the Inspector General. Thank you for the 
invitation to inform you about the work we have done reviewing EPA's 
administration of assistance agreements, also known as grants.
    Assistance agreements are a primary means EPA uses to carry out its 
mission of protecting human health and the environment. More than half 
of EPA's fiscal 2003 budget was awarded to organizations outside the 
Agency through assistance agreements. EPA primarily awards assistance 
agreements to State, local, and tribal governments; universities; and 
nonprofit organizations. Because the amount is large, approximately 
$4.4 billion dollars, and it is the primary mechanism EPA uses to 
fulfill its mission, it is imperative that the Agency use good 
management practices in awarding and overseeing these agreements to 
ensure that they effectively contribute to attaining environmental 
goals.
    EPA's management of assistance agreements has been an area of 
emphasis for the Inspector General's office for many years. In fact, we 
have been issuing audit reports and raising concerns about EPA's 
management of assistance agreements for over 10 years. In addition to 
our audit work, we have also conducted a number of investigations 
related to the improper and illegal activities of some EPA grantees.
    Our grants management work has focused on cross-cutting national 
issues and has included grants made to States, local and tribal 
governments, and nonprofit organizations. We have looked at major 
program areas in EPA headquarters and regions. We designed our work to 
identify systemic problems preventing the Agency from achieving the 
maximum results from the billions of dollars awarded in assistance 
agreements every year. In my testimony I will include examples from our 
work that illustrate the types of problems we have found in EPA's 
grants management activities. The entire reports for these examples can 
be found on the OIG web page at www.epa.gov/oig.
    On Monday, March 1, 2004, we issued an audit report on an EPA 
grantee that we initiated at the Agency's request. We found an 
ineligible lobbying organization was performing work under cooperative 
agreements and the procurement process was circumvented. We questioned 
$4.7 million because the work was performed by an ineligible lobbying 
organization. EPA awarded the cooperative agreements to an associated 
organization that did not have any employees, space or overhead 
expenses. In addition, the ineligible organization's financial 
management practices did not comply with Federal regulations. For 
example, the ineligible organization did not adequately identify and 
separate lobbying expenses in its accounting records. As a result, 
lobbying costs may have been charged to the Federal projects. The 
ineligible organization also claimed that it had not always followed 
Federal regulations because EPA directed the recipient to use a 
particular contractor.
                          PRE-AWARD ACTIVITIES
    In May 2001, the OIG reported that EPA did not have a policy 
requiring program officials to competitively award discretionary 
assistance funds. EPA had done little to promote competition, and often 
did not provide adequate justification for not using competition to 
award grants. Assistance agreements were awarded without competition 
based on the project officer's opinion that the recipient was uniquely 
qualified. There was no documented evidence that no other organizations 
existed that could perform the desired work. We also found that EPA was 
not performing a widespread solicitation for assistance agreements. 
Without widespread solicitation, EPA limited the potential applicants 
and created the appearance of preferential treatment. Without 
competition, EPA cannot be sure that it is funding the best projects 
based on merit and cost-effectiveness to achieve environmental 
objectives, and accomplishing its mission with a reasonable return on 
the taxpayer's investment.
    Before EPA awards an assistance agreement, the EPA project officer 
must conduct a programmatic and technical review of the application 
package in order to select those applications that will most 
effectively contribute to EPA program objectives and priorities. A main 
focus of the project officer's review is the work plan, which should 
describe what will be done, when it will be accomplished, and the 
estimated costs. The pre-award review is critical to ensure that the 
results of the assistance agreement will contribute to protecting human 
health and the environment.
    In 1998, the OIG issued a report stating that project officers were 
not always negotiating work plans with well-defined commitments or 
adequately determining and documenting that costs for the assistance 
agreement were reasonable. In March 2002, the OIG reported that EPA was 
awarding assistance agreements without identifying expected outcomes, 
quantifying outputs, linking outputs to funding, or identifying 
milestone dates for completing work products.
    In a report issued in March 2003, we reported that project officers 
did not perform all the necessary steps when conducting pre-award 
reviews. For this audit, we selected a statistical sample of 116 
assistance agreements awarded by the Office of Air and Radiation, the 
Office of Water, and related regional offices. We found:
     EPA awarded $700,000 without knowledge of the work the 
recipient was going to perform. The work plan did not have clear 
objectives, milestones, deliverables, or outcomes.
    The recipient stated in the work plan: ``Because of the exploratory 
nature of these activities and the need to bring together various 
market players, exact deliverables and schedule will be determined 
based on what participants tell us they want from our project.''
     In 79 percent of the sampled assistance agreements over 
$100,000, project officers did not document cost reviews of proposed 
budgets. For example, a recipient was awarded $1.3 million to operate 
its air pollution control program without determining the 
reasonableness of the proposed costs to the expected benefits of the 
projects.
     In 42 percent of the sampled assistance agreements, EPA 
did not negotiate environmental outcomes. For example, EPA awarded a 
recipient $200,000 to regulate costs charged by power companies. The 
work plan contained no environmental outcomes, and stated that specific 
projects would be identified at a later date. In fact, the work plan 
itself only provided possible activities, and stated specific projects 
would be established later. The project officer wrote on the 
application, ``why this, why now?'' yet still approved the work plan.
    Without complete pre-award reviews of proposed projects, there was 
insufficient assurance that the funded projects would accomplish 
program objectives or desired environmental results. There was also 
insufficient assurance that proposed costs were reasonable, and that 
recipients were technically capable of performing the work. EPA may 
also have lost the opportunity to fund other projects that would have 
better achieved its mission.
                      POST-AWARD GRANTS MANAGEMENT
    OIG reports continue to find that improvements are needed in EPA 
oversight of assistance agreements after they are awarded. In 1995, we 
found that EPA staff were not (1) making site visits, (2) timely 
processing financial status reports, (3) obtaining or reviewing 
required audit reports, and (4) ensuring that final reports were 
completed. In 2002, we followed up on EPA's progress in improving 
oversight and found that weaknesses continued to exist. While EPA had 
developed policies and training to improve the oversight of assistance 
agreements, it did not ensure that the policies were followed 
consistently.
    OIG reports continue to identify examples of EPA staff not 
adequately overseeing awards to States for environmental programs and 
nonprofit organizations for specific projects.
     A February 2003 report found that EPA Region 6's oversight 
of Louisiana was insufficient and could not assure the public that 
Louisiana was protecting the environment. We initiated this review 
because EPA had received petitions from citizen groups to withdraw 
Louisiana's National Pollutant Discharge Elimination System, a water 
program; the Resource Conservation and Recovery Act, a hazardous waste 
program; and the Title V air permit program.
    Region 6 leadership (1) did not develop and clearly communicate a 
vision and measurable goals for its oversight of the State or emphasize 
the importance of consistently conducting oversight, (2) did not hold 
Louisiana accountable for meeting goals and commitments, and (3) did 
not ensure that data of poor quality was corrected so that it could be 
relied upon to make sound decisions. As a result, EPA was unable to 
assure the public that Louisiana was operating programs in a way that 
effectively protected human health and the environment. In its 
response, EPA's Region 6 said it would implement its new oversight 
protocol for use beginning in fiscal year 2005.
     A March 2002 report found that EPA had no assurance that 
as much as $187 million spent on procurements by assistance recipients 
was used to obtain the best products, at the best prices, from the most 
qualified firms. Recipients were not competing contract awards or 
performing cost or price analysis as required by the regulations. For 
example, a nonprofit recipient awarded two sole source contracts to its 
for-profit subsidiary. The recipient also awarded sole source contracts 
to three for-profit companies created by its for-profit subsidiary. The 
recipient entered into 23 contracts, 20 of which were awarded sole 
source. As a result, we questioned $1.3 million of costs claimed.
   INSUFFICIENT EPA REVIEW AND OVERSIGHT CONTRIBUTED TO RECIPIENT'S 
                                PROBLEMS
    Recent audits of grant recipients show how EPA's lack of review and 
oversight can contribute to problems for the grantee.
     We questioned $1.7 million in costs claimed because a 
recipient did not have an adequate time distribution system and an 
indirect cost rate, as required by EPA regulations. The EPA project 
officer focused his oversight on the technical performance of the 
recipient, with little emphasis on business and administrative aspects 
of the recipient's performance. The grants specialist did not respond 
to repeated requests from the recipient for assistance in developing 
the indirect cost rate. Further, the project officer did not conduct an 
onsite review of the recipient until almost 6 years after the first 
award.
     We questioned $1.6 million in costs claimed by another 
recipient for, among other things, improper procurement. The recipient 
did not competitively procure equipment and services, and did not 
perform cost or price analysis for the purchases. Furthermore, 
procuring goods and services for State agencies is not an authorized 
use of the funds provided under Section 103 of the Clean Air Act. EPA 
staff contributed to the problem when it wrote the sole source 
justification and scope of work for the contract. The justification for 
the sole source procurement was the EPA staff's familiarity with the 
contractor and the work that needed to be performed. EPA policy 
specifically prohibits employees from directing a recipient to award a 
contract to a specific individual or firm or participate in the 
negotiation of an award of a contract under an assistance agreement.
                     IMPROVED ACCOUNTABILITY NEEDED
    The deficiencies in EPA's pre-award reviews and post-award 
oversight were not due to the lack of policies, but rather existing 
policies and guidance were not always followed. EPA policies and 
guidance identify the reviews EPA staff are to perform prior to and 
after assistance agreements are awarded. However, EPA staff did not 
always follow the policies and were not held accountable when they did 
not do so.
     The project officer function is often a collateral duty 
for EPA staff. In some instances, the performance agreements and 
position descriptions did not identify project officer 
responsibilities. Even when the performance agreement identified the 
individual as a project officer, the agreement did not reference 
specific project officer duties such as determining the programmatic 
and technical merit of a project or conducting cost reviews.
     Senior Resource Officials did not emphasize the importance 
of post award monitoring. Senior Resource Officials are charged with 
strengthening Agency-wide fiscal resources management. They are 
typically Deputy Assistant Administrators or Assistant Regional 
Administrators. These officials stated that the level of post award 
monitoring was affected by the limited availability of resources for 
staffing, travel, and training.
                  EPA'S ACTIONS TO ADDRESS WEAKNESSES
    EPA has taken some corrective actions to address our 
recommendations to better manage assistance agreements.
     During 2002, the Administrator issued two orders to 
implement new changes--the Policy on Competition in Assistance 
Agreements and the Policy on Compliance, Review, and Monitoring. 
Through enhanced monitoring required by the new policy, EPA has 
increased the number of requests to the OIG for audit.
     During 2003, EPA issued its Grants Management Plan, a 5-
year strategy designed to ensure that grant programs meet the highest 
management and fiduciary standards.
     EPA initiated a review of performance standards for all 
employees involved with grants management and required new standards to 
be in place by January 2004.
     EPA has drafted a Long-term Grants Management Training 
Plan designed to improve the skills of those responsible for grants 
management activities.
    The challenge for EPA now will be to ensure that staff implement, 
and are held accountable for, following the new policies and for 
implementing the new grants management and training plans. Many of the 
deficiencies we found were due to EPA staff not following existing 
policies and not being held accountable.
    In issuing its Grants Management Plan, EPA stated its vision was to 
ensure that its grants programs meet the highest management and 
fiduciary standards and further the Agency's mission of protecting 
human health and the environment. The OIG will monitor the Agency's 
progress in implementing the Plan, and we will evaluate whether the 
actions are effective in improving the accountability of recipients.
    We are proud of the efforts the OIG staff have made in bringing 
these issues to light, and I thank you, Mr. Chairman and members of the 
committee, for the opportunity to participate in a discussion of such 
an important topic. We are committed to working with you and EPA to 
ensure that the money awarded every year through assistance agreements 
is producing the intended environmental and public health benefits.
    This concludes my prepared remarks, and I will be happy to respond 
to questions.
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 Responses by Nikki Tinsley to Additional Questions from Senator Inhofe
    Question 1. The Inspector General has compiled numerous reports and 
audits concerning EPA grants management over the past several years 
identifying many criticisms of grants management. In questioning before 
the House Subcommittee on Water Resources and Environment on June 11, 
2003, Inspector General Tinsley responded, ``I am afraid hope is our 
strategy here,'' in [response] to a question concerning whether 
accountability will result from the new EPA policies in grants 
management. The General Accounting Office reported in a report titled 
Grants Management--EPA Needs to Strengthen Efforts to Address 
Persistent Challenges (GAO-03-846) that EPA's new grants policies and 
Five Year Grants Management Plan continues to not address issues of 
gathering adequate information to evaluate proper grants management, 
the need to demonstrate environmental outcomes, and personnel 
accountability. What continuing deficiencies does the Inspector General 
believe continue to exist in EPA grants management policies?
    Answer. At this time, we are not aware of any other deficiencies in 
EPA grants management policies. As Ms. Heist stated in her testimony, 
the deficiencies in EPA's management of grants were not due to the lack 
of policies, but rather existing policies and guidance were not always 
followed.

    Question 2. Much of the testimony in the hearing focused on the 
March 1, 2004, OIG Audit Report concluding, ``The [Consumer Federation 
of America] Federation was a 501(c)(4) lobbying organization that was 
prohibited from receiving Federal funds under the Lobbying Disclosure 
Act, and the arrangement between the [Consumer Federation of America] 
Foundation and the Federation violated the Lobbying Disclosure Act 
prohibition.'' In part, the OIG recommended recovery of all grants 
under each cooperative agreement with the Consumer Federation of 
America Foundation. Is the OIG recommendation and particular treatment 
of the Consumer Federation of America Foundation a new policy based on 
a new reading of the Lobbying Disclosure Act?
    Answer. No. Our recommendation as to the recovery of grant funds is 
based on Comptroller General decisions holding that grant funds 
erroneously awarded to an ineligible grantee must be recovered by the 
Government. 51 Comp. Gen. 162 (1971); B-146285/B-164031, April 19, 
1972. Further, we do not believe we have adopted a ``new policy'' based 
on a ``new reading'' of the Lobbying Disclosure Act. The Lobbying 
Disclosure Act, and legislative history, recognize that a 501(c)(4) 
lobbying organization, which is ineligible from receiving Federal 
funds, can form or be affiliated with, an organization that does not 
engage in lobbying, and which, therefore, is eligible to receive 
Federal funds. As our report found, however, the arrangement and 
operations between the Consumer Federation of America Foundation and 
the Federation were, in fact, indistinguishable, and that the 
Foundation existed only on paper. Based on this, we believe our 
conclusion does not represent a new interpretation of the Lobbying 
Disclosure Act, but rather an interpretation that is consistent with 
the express language and intent of the Lobbying Disclosure Act.
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Statement of David J. O'Connor, Acting Assistant Administrator for the 
 Office of Administration and Resources Management, U.S. Environmental 
                           Protection Agency
    Mr. Chairman, thank you for the opportunity to appear before the 
committee to address the subject of today's hearing--Grants Management 
Practices within the Environmental Protection Agency (EPA).
    Each fiscal year (FY), EPA awards an average of $4 billion in 
grants, approximately half of the Agency's budget. This funding is a 
key mechanism by which EPA's national media program managers, in 
partnership with grant recipients, deliver environmental protection to 
the public. Most of the grant funds--about 89 percent--go to States, 
Tribes and local governments. The remaining dollars are divided between 
non-profit organizations (6.6 percent), educational institutions (4.2 
percent) and individuals, foreign recipients and profit-making 
organizations (.2 percent). Some of EPA's funding is the result of 
congressional earmarks. For example, in fiscal year 2003, funding for 
earmarks comprised approximately 13 percent of EPA's total grant 
dollars and 51 percent of the total grant dollars to non-profit 
organizations.
    EPA has an obligation to the taxpayer to manage its grant dollars 
effectively and ensure they further the Agency's mission. However, 
since 1995, EPA's grants management practices have been criticized by 
Congress, the General Accounting Office (GAO) and EPA's Office of the 
Inspector General (OIG). Before discussing in more detail the problems 
EPA faces in grants management, and the Agency's progress in solving 
those problems, it is important to recognize the contributions that 
EPA's grants to our governmental partners have made to environmental 
protection over the past three decades. For example, in the 1970's and 
1980's, working with this Committee, EPA administered the multi-billion 
dollar wastewater treatment works construction grant program under 
Title II of the Clean Water Act. This program, the second largest 
public works program in the nation's history, resulted in significant 
water quality improvements for thousands of municipalities.
    Further, the Agency continues to provide critically needed 
infrastructure funding through its two State Revolving Fund (SRF) 
programs, the Clean Water SRF (CWSRF) and Drinking Water SRF (DWSRF). 
These two programs comprise nearly half of the Agency's grant dollars. 
Through fiscal year 2003, the CWSRF program has supported over 14,000 
projects totaling $43.5 billion for secondary treatment, advanced 
treatment, combined sewer overflow correction, stormwater treatment and 
nonpoint source needs. Similarly, through fiscal year 2003, the newer 
DWSRF program has provided $6.4 billion which has resulted in more than 
3,000 loans for drinking infrastructure needs to protect public health 
and ensure compliance with the Safe Drinking Water Act.
    Moreover, EPA's grants for State and Tribal environmental programs 
have been a key factor in allowing States and Tribes to administer 
delegated or authorized regulatory programs across all environmental 
media. In fiscal year 2003, EPA awarded over $1 billion for these 
grants. This included $193.6 million under section 106 of the Clean 
Water Act to support water quality planning, water quality monitoring, 
the development of water quality standards and Total Maximum Daily 
Loads, the issuance of National Pollution Discharge Elimination System 
permits, compliance and enforcement activities, and groundwater 
protection.
    EPA is also a recognized innovator in the State funding area as 
evidenced by its highly successful Performance Partnership Grant (PPG) 
program. PPGs provide States with the flexibility to combine funds from 
various EPA categorical grant programs into one grant. This allows 
States to streamline grant paperwork, adopt multi-media approaches, and 
better address national and State environmental priorities. In fiscal 
year 2003, EPA awarded over $300 million in PPGs to States and Tribes.
    Additionally, as part of the fiscal year 2005 budget, the 
Administration is proposing a new $23 million State and Tribal 
Performance Fund that will award grants on a competitive basis for 
environmental programs. These funds will allow States and Tribes that 
can link their proposed activities to public health and environmental 
outcomes to receive additional assistance. EPA is pleased to be able to 
provide States and Tribes with another tool to protect and restore the 
environment.
    Despite these success stories, EPA's credibility in grants 
management has been jeopardized by its inability to resolve 
longstanding concerns expressed by Congress, GAO and the OIG. These 
concerns have largely centered on non-State grants, particularly grants 
to non-profit organizations, with an emphasis on grant competition, 
pre-award review, oversight, environmental results and accountability. 
Over the period 1995 to 2001, the Agency did take steps to respond to 
these concerns. EPA issued formal post-award monitoring policies, 
virtually eliminated a grant closeout backlog of some 20,000 grants, 
provided grants management training to over 4000 project officers, 
encouraged grant competition, and initiated development of an automated 
Integrated Grants Management System.
    As evidenced by an OIG audit report entitled ``Review of Assistance 
Agreements Awarded to Nonprofit Organizations'' (Report No. 2001-P-
00005, dated March 29, 2001), these actions produced improvements in 
some areas. In that audit, the OIG examined a sample of grants to 
nonprofit organizations awarded by EPA Headquarters and EPA's Atlanta 
Regional Office (Region 4). The report noted that EPA Headquarters and 
Region 4 had undertaken initiatives to improve the grants 
administration process. These included training of grants specialists 
and project officers, issuance of new or revised policy guidance, 
selective onsite reviews of recipient organizations to assess their 
performance, and implementation of an internal review process that 
analyzed specific aspects of grant programs on an ongoing basis. The 
report found that EPA maintained appropriate relationships with 
recipient organizations, avoided conflicts of interest, and that the 
specific grants reviewed complied with the Federal Grant and 
Cooperative Agreement Act, which prohibits the use of assistance 
agreements for acquisition activities. Based on these findings, the 
report concluded that a review of additional grant agreements based on 
the same objectives was not warranted.
    These findings, however, are not representative of the total 
universe of EPA grants. As noted in GAO's August 2003 report, the 
Agency continues to face key grants management challenges in the areas 
of grantee selection, oversight, resources and environmental results. 
To address these challenges, EPA issued its first-ever long-term Grants 
Management Plan, with associated performance measures, in April 2003. 
GAO has described the Plan in positive terms, characterizing it as 
coordinated, integrated approach to improving grants management. As 
discussed below, the Agency is moving aggressively to implement the 
Plan, refining our corrective actions as necessary to incorporate 
recommendations for improvement contained in the GAO and OIG reports.
    I am pleased to report that EPA has made significant progress in 
carrying out our long-term Plan. To date, we have met almost all of our 
performance measure targets and have completed more than 60 actions 
items in support of the Plan.
    The Plan commits EPA to accomplishing five goals, namely: (1) 
Enhance the Skills of EPA Personnel Involved in Grants Management; (2) 
Promote Competition in the Award of Grants; (3) Leverage Technology to 
Improve Program Performance; (4) Strengthen EPA Oversight of Grants; 
and (5) Support Identifying and Achieving Environmental Outcomes.
    Enhancing EPA Grants Management Skills--Goal 1: A key component of 
our strategy to enhance skills is to ensure that all project officers 
are certified to manage grants. Project officers must complete the 
basic grants management training program and take a refresher course 
every 3 years to maintain their certification. As of December 31, 2003, 
nearly 100 percent of our grants are being managed by certified project 
officers. We expect the mandatory certification program to equip 
project officers with the skills needed for proper grants oversight and 
will assess the effectiveness of the program in achieving that result.
    We are also taking a systematic approach to improving our training 
programs through the development of a long-term training plan that is 
linked to EPA's Strategy for Human Capital. As suggested by GAO, the 
long-term plan will establish an Agency-wide process for ensuring that 
grant specialists, project officers and managers are timely trained on 
new policies and regulations and contain measures for determining how 
our training activities contribute to improved grants management. 
Building upon ongoing efforts to emphasize core competencies, the plan 
will require expanded training in areas identified in OIG audit 
reports, such as application, budget, and procurement review, 
conducting competitions, environmental outcomes, and prohibitions on 
the use of grant funds for lobbying or suing the Government. EPA 
recently updated its Project Officers Training Manual to address these 
issues and anticipates issuing a final version of the training plan 
later this year.
    Promoting Competition--Goal 2: EPA is committed to increasing 
competition for grant awards under its new Competition Policy, which 
went into effect on October 1, 2002. In concurring in the Policy, the 
Office of Management and Budget (OMB) described it as ``. . . a strong 
step in the right direction that should increase competition.'' The 
Policy is designed to promote fairness in the grant award process and 
help ensure that EPA funds high priority projects at the least cost to 
the taxpayer.
    While the Policy contains a number of exemptions, such as State and 
Tribal program grants and congressional earmarks, it covers a wide 
range of EPA grant activities, including many grants to non-profit 
organizations. It also created a Grants Competition Advocate (GCA) 
position within the Office of Grants and Debarment. The GCA has broad 
authority to administer the Order, including issuing interpretive 
guidance, approving specified exemptions and resolving disagreements 
between program and grants management offices.
    In the first year of implementation, the Agency competed 75 percent 
of new awards to non-profit organizations covered by the Policy. This 
exceeded the Agency's performance target of 30 percent. The GCA is 
currently conducting an independent review of the Policy's 
effectiveness, and in June of this year will be making recommendations 
for strengthening the Policy to the Assistant Administrator for 
Administration and Resources Management (OARM).
    Given the Agency's limited experience with grant competition, we 
agree with GAO that the Policy represents a ``major cultural shift'' 
for EPA managers and staff and expect that the GCA's review will 
identify areas for improvement. Nevertheless, we are encouraged by the 
first year's statistics and are confident that as the Policy is revised 
to incorporate the GCA's recommendations, the Agency will achieve even 
higher levels of competition.
    Leveraging Technology--Goal 3: EPA believes that the deployment and 
enhancement of the Integrated Grants Management System (IGMS) is 
essential to strengthening grants management. IGMS is a paperless, 
programmatic and administrative system which fully automates the grant 
process from cradle to grave. It provides a structured format for 
reviewing the key factors that must be considered and documented in 
awarding a grant, including competition and environmental results. It 
also provides electronic tracking of grant milestones, products and 
post-award activities, thereby strengthening project officers' 
oversight capabilities, and will accept applications and reports from 
Grants.gov, the Federal electronic portal for grant application and 
reporting. IGMS is now deployed in all ten EPA Regions, which in fiscal 
year 2003 submitted 80 percent of grant funding packages 
electronically. This exceeded our performance target of 65 percent. 
Over the next 2 years, IGMS will be fully deployed at EPA Headquarters.
    In addition, EPA continues to participate in the interagency 
Grants.gov initiative under Public Law 106-107. This initiative is 
designed to streamline and simplify the award and administration of 
Federal grants by creating a simple, unified source to electronically 
find, apply and report on Federal grants. EPA is posting synopses on 
Fedgrants.gov (E-Find) and complying with the OMB mandate to begin 
providing electronic applications (E-Apply) through Grants.gov for 
selected grant programs. I am pleased to announce that the Office of 
Grants and Debarment and the Office of Research and Development 
recently posted an electronic application for the Science to Achieve 
Results (STAR) program. Other programs will be posted later this year. 
The STAR program pilot will provide valuable experience as we prepare 
to make all EPA-competitive grant programs available for electronic 
application on Grants.gov.
    Strengthening Oversight--Goal 4: On December 31, 2002, OARM issued 
a comprehensive post-award monitoring policy, EPA Order 5700.6, that 
significantly expands the Agency's post-award monitoring program. It 
requires baseline monitoring for all active awards on an ongoing basis. 
It also provides for advanced monitoring (i.e., onsite reviews and desk 
reviews) on a minimum of 10 percent of EPA's active grantees and 
mandatory reporting of these activities in a Grantee Compliance Data 
base.
    The new Order is a substantial improvement over previous post-award 
monitoring policies, which required baseline monitoring only once 
during the lifetime of an award, established a minimum 5 percent 
advanced monitoring goal, and did not mandate uniform compliance 
reporting. Program offices have responded positively to the new policy 
by submitting to OARM timely and comprehensive post-award monitoring 
plans that emphasize advanced monitoring of active grantees.
    Under the new policy, the Agency completed over 1000 advanced 
monitoring reviews in 2003 or 18 percent of its recipients. This 
exceeded our performance target of 10 percent of recipients. Moreover, 
we have implemented, or are in the process of implementing, major GAO 
recommendations for strengthening post-award monitoring. In this 
regard, effective for calendar year 2004, we have required EPA staff to 
use a standard reporting format when entering advanced monitoring 
reviews in the Grantee Compliance Data base and have included in the 
Data base information on OIG and GAO reports, Agency advanced 
monitoring reviews, significant compliance actions taken by the Agency 
and A-133 audits. This will make it easier for EPA to identify systemic 
issues early on and take appropriate corrective action. Moreover, after 
consulting with statisticians, the Agency will pilot test in 2005 a 
statistical approach to selecting grantees for advanced monitoring. 
Based on the results of the pilot, we will implement a statistical 
approach Agency-wide.
    In implementing its post-award monitoring program, EPA has 
increasingly focused on taking actions against non-profit recipients 
that are poorly performing from either an administrative or 
programmatic standpoint. While non-profit recipients have played a 
vital role in disseminating information to communities on EPA's 
voluntary programs, it is true that some of these recipients have not 
properly managed their grants. In calendar year 2003 alone, EPA 
conducted 408 advanced monitoring reviews of non-profit recipients, or 
37 percent of the total 1093 advanced monitoring reviews conducted. 
Where noncompliance by non-profit recipients is identified, EPA has 
successfully, in many cases, required recipients to correct their 
financial management systems, or placed controls on recipient 
expenditures pending resolution of audit issues.
    We have continued to take significant actions against specific non-
profit grant recipients to address grants management performance 
problems. In 2003, our advanced monitoring reviews revealed that about 
22 percent of our non-profit recipients had one or more grants 
management problems. In these cases, under EPA's new post-award 
monitoring policy, we require recipients to develop corrective action 
plans to address the deficiencies. If the grant management weaknesses 
are not addressed in the specified timeframes through corrective action 
plans, we take more significant action. This includes placing 
recipients on reimbursement payment, issuing stop work orders, imposing 
special terms and conditions, terminating awards, and making referrals 
to the OIG to initiate comprehensive audits. For example, the Agency 
recently placed two large non-profit recipients on reimbursement 
payment while we conduct further investigations into apparent financial 
irregularities involving commingling of Federal grant funds, statutory 
consultant cap violations, and violations of the Federal Cash 
Management Act. We are currently in the process of modifying our 
Grantee Compliance Data base to track the number of significant actions 
that we have taken, so that starting in 2004, we will be able to 
provide the Congress with a statistical summary of our actions.
    While post-award monitoring is an important objective under Goal 4, 
the Plan also commits the Agency to take a variety of ``early warning'' 
approaches to prevent problems from occurring. This includes revamping 
EPA's internal grants management reviews, increasing technical 
assistance and training to recipients and developing a pre-award review 
program.
    EPA is making substantial progress in all of these areas. For 
example,
     In 2003, the Agency instituted a new approach to internal 
reviews that provides EPA with an early warning system to detect 
emerging grant weaknesses. The approach consists of three types of 
reviews: Comprehensive Grants Management Reviews performed by the 
Office of Grants and Debarment (OGD); Grants Management Self-
Assessments performed by headquarters and regional offices based on OGD 
guidance; and Grants Performance Measure Reviews conducted by OGD, 
which use information in Agency data bases to assess progress against 
Grants Management Plan performance measures. OGD completed seven 
comprehensive reviews in 2003 and is requiring offices with identified 
problems to submit and carry out corrective action plans.
     To educate recipients about their grants management 
responsibilities, OGD: (1) conducted several classroom training 
sessions for non-profit and Tribal recipients in 2003, (2) in 
partnership with the OIG, distributed an instructional video to non-
profit grantees in January of this year, and (3) recently issued 
guidance to non-profit recipients on how to purchase supplies, 
equipment, and services under EPA grants.
     The Agency is developing a pre-award policy to help ensure 
that grants are not awarded to non-profit organizations that have 
weaknesses in their administrative capability to manage grant funds or 
the programmatic capability to carry out a project. The policy will 
focus on requiring non-profit applicants with identified weaknesses to 
correct them before receiving an award. Further, applicants that 
repeatedly refuse to take appropriate corrective action will be 
referred to EPA's Suspension and Debarment program for consideration. 
The Agency expects to have the new policy in place in 2005.
    A major objective under Goal 4 is to strengthen accountability for 
quality grants management. Historically, the Agency has not always 
managed its grants in accordance with sound business principles, which 
has contributed to accountability problems. However, as evidenced by 
our work in the following areas, EPA is beginning to create a culture 
of accountable grants management.
    First, in 2002, then Deputy Administrator Linda Fisher issued two 
directives requiring senior managers to hold employees accountable for 
effective grants management and to include compliance with grants 
management policies as part of mid-year performance discussions, which 
occurred in July 2003.
    Second, as a supplement to these directives, EPA reviewed the 
performance standards of employees involved in grants management. The 
review found that the performance standards of Senior Executive Service 
(SES) employees adequately addressed grants management while the 
standards of non-SES employees did not. Based on the results of the 
review, the Assistant Administrator for OARM directed EPA's Assistant 
Administrators (AAs) and Regional Administrators (RAs) to revise the 
performance standards of their non-SES employees to properly reflect 
grants management responsibilities. In accordance with this directive, 
the Agency is putting revised standards in place and will use them to 
evaluate employee performance during calendar year 2004.
    Third, in fiscal year 2003, the Agency required the AAs and RAs, 
for the first time, to outline in their assurance letters under the 
Federal Managers' Financial Integrity Act (FMFIA) the steps they are 
taking to address the grants management weakness. In these letters, the 
AAs and RAs commit to the Administrator of EPA that they will ensure 
effective grants management in their offices. This requirement will be 
carried forward into the fiscal year 2004 FMFIA process.
    Fourth, the Agency created in April 2003 an Excellence in Grants 
Management Program that will recognize and reward EPA offices that 
substantially exceed the performance targets in the Grants Management 
Plan. The AA for OARM and the Chief Financial Officer will announce the 
first winners of this competition in May 2004.
    Fifth, EPA's new Strategic Plan includes language emphasizing the 
importance of grants management and links the activities in the Grants 
Management Plan with the attainment of the Agency's strategic goals. 
The need for this linkage is reinforced by the Agency's fiscal year 
2003 Annual Report, which, as recommended by GAO, outlines performance 
targets and results achieved under the Grants Management Plan.
    Sixth, to ensure senior management attention to grants issues, EPA 
established in 2003 the Grants Management Council, composed of the 
Agency's Senior Resource Officials. The Council has held two meetings 
to date, and under its charter, will provide coordination and 
leadership as the Agency implements the Grants Management Plan.
    Seventh, we have developed a Tactical Action Plan, which outlines 
commitments and milestone dates under the Grants Management Plan and 
identifies who is responsible for completing these commitments. OGD 
reviews this Tactical Plan on a quarterly basis to ensure that actions 
are completed on a timely basis.
    Finally, the Agency is addressing resource issues for accountable 
grants management on two fronts. To determine the most efficient use of 
existing resources, EPA initiated in 2003 an analysis of grant 
specialist and project officer workloads. The Agency expects to 
complete the analysis in 2004 and based on the results, will make 
appropriate changes to the structure of its grants work force. 
Additionally, as part of the President's fiscal year 2005 budget, we 
plan to invest an additional $1 million to further strengthen grants 
management. These resources will assist Regional Grants Management 
Offices by providing funding for an additional 60 onsite reviews, an 
on-line training program for at-risk recipients, and critical indirect 
cost rate negotiations for non-profit recipients. This investment will 
also enhance accountability by supporting mandatory, Agency-wide 
training for managers on their grants management responsibilities.
    Achieving Environmental Results--Goal 5: Goal 5 is a recognition 
that EPA must improve its ability to plan, measure, and report the 
results of its grants and align them with the achievement of goals and 
objectives in the Agency's Strategic Plan. This is a subset of the 
larger issue faced by EPA under the Government Performance and Results 
Act (GPRA) in assessing how its programs contribute to realizing 
environmental outcomes. Goal 5 commits the Agency to incorporating 
outcome measures in grant work plans and strengthening performance 
reporting by grantees.
    In support of Goal 5, EPA recently issued an interim policy on 
environmental results. The interim policy applies to grant funding 
packages submitted by the Agency's program offices to the Grants 
Management Offices (GMOs) on or after February 9, 2004. Under the 
interim policy, GMOs may not act on proposed funding packages unless 
the packages include a description of how a project or program will 
further the goals of EPA's Strategic Plan. As a followup to the interim 
policy, an Agency-wide work group is developing an EPA Order that will 
require program offices to consider environmental results in funding 
packages, competitive solicitations, grant work plans, and grant 
performance reports. The Agency expects to issue this Order in 2004. As 
a part of these efforts, and in response to a recommendation from GAO, 
EPA will be working to revise its advanced monitoring protocols to 
include questions on measuring and achieving environmental outcomes.
    In conclusion, under the long-term Grants Management Plan, EPA has 
put in place a comprehensive system of management controls and 
initiatives to address the grants management weakness. We have been 
careful to make adjustments in the design and implementation of the 
system to incorporate GAO and OIG recommendations. Given EPA's past 
uneven performance in reforming grants management, it is fair to ask 
whether this system will be any more successful than previous efforts. 
The answer, I believe, lies in the cultural shift within EPA toward 
accountable grants management. While the Agency cannot solve all of the 
challenges identified by GAO overnight, this emerging culture of 
accountability will allow EPA, over time, to become a ``best 
practices'' agency for grants management. As we continue to implement 
our long-term Plan, we remain committed to working with Congress, GAO, 
the OIG, and our partners, including States, Tribes, local governments, 
non-profit organizations and educational institutions, to eliminate the 
grants management weakness.
    Thank you for providing me the opportunity to discuss these 
important issues with you today. I would be happy to respond to any 
questions you that may have.
                                 ______
                                 
          Responses by David O'Connor to Additional Questions 
                          from Senator Inhofe
    Question 1a. The General Accounting Office has reported and 
testified that most EPA discretionary grants have been awarded without 
competition. In response to Senator Jeffords' and my request for 
information concerning discretionary grants awarded in fiscal year 
2003, a number of discretionary grants awarded were designated as 
``exempt from competition'' or ``justified non-competitive.'' How can 
EPA make a comprehensive analysis of the new competition policy with 
continued exemptions?
    Answer. EPA's Policy for Competition in Assistance Agreements, 
which went into effect on October 1, 2002, created the position of 
Grants Competition Advocate (GCA). The GCA is responsible for 
overseeing implementation of the policy and is currently conducting a 
comprehensive evaluation of the Agency's competition performance during 
fiscal year 2003. The evaluation will include an analysis of whether 
the current exemptions and exceptions have been properly used. The 
GCA's review is also focusing on ways to enhance the policy and foster 
more effective competitions. As a result of this review, the GCA will 
likely recommend certain revisions to the competition policy, including 
a lower dollar value threshold for competition, more stringent 
requirements for certain non-competitive exceptions, and additional 
documentation requirements. In addition, the GCA intends to provide 
additional training to EPA programs on how to conduct effective grants 
competitions. The GCA's review will result in a revised policy to 
strengthen competition which the Agency expects to issue later this 
year.

    Question 1b. What criteria is used to determine if a grant will be: 
(i) exempt from competition; (ii) justified non-competitive; (iii) 
subject to managed competition?
    Answer. The grants competition policy includes program exemptions 
from competition, exceptions to competition for individual grants, and 
circumstances justifying managed competition.
    Section 6 of the policy contains a list of programs which EPA 
determined should not be subject to the policy, including, for example, 
State and Tribal continuing environmental program grants and 
Congressional earmarks. Section 8 of the policy contains exceptions 
from competition for individual grants. These exceptions (e.g., unusual 
and compelling urgency and one responsible source) are largely modeled 
on the exceptions from competition that apply to direct Federal 
procurement, which are contained in the Federal Acquisition Regulations 
and the Competition in Contracting Act. Section 10(d) of the policy 
authorizes managed competition (i.e., competition among a subset of 
potential applicants) in cases where, with the concurrence of the GCA, 
full and open competition is determined to be impracticable. It should 
be noted that as part of the GCA's review of the policy, EPA is 
considering whether it should retain specific managed competition 
procedures.

    Question 2. The EPA's competition policy has now been in place for 
a little over 1 year. Does the Agency plan to provide a written 
evaluation of the new competition policy?
    Answer. As stated in the response to question 1, the GCA is 
conducting a comprehensive review of the effectiveness of the 
competition policy. This review will result in the issuance of a 
revised competition policy later this year designed to improve the 
Agency's ability to conduct effective grants competitions.

    Question 3. How can the EPA ensure that the new competition policy 
will not be abused when it contains exceptions for such reasons as 
unique or innovative proposals or simply that competition is not in the 
public interest?
    Answer. EPA does not believe that having appropriate exceptions to 
competition will lead to abuse or circumvention of the competition 
policy. Such exceptions are necessary, for example, where unusual and 
compelling circumstances make a competitive award impracticable. As 
mentioned above, the section 8 exceptions to competition, including the 
unsolicited proposal and public interest exceptions, are largely based 
on exceptions to competition allowed for direct Federal procurement. 
Moreover, in fiscal year 2003, the non-competitive exceptions for 
unsolicited proposals and public interest were not frequently used to 
justify non-competitive grants. However, to address Congressional 
concern over the use of the unsolicited proposal exception, EPA is 
considering making changes to it, including requiring approval by the 
GCA in all cases.

    Question 4. Please provide the number of personnel in fiscal year 
2003 that had responsibility for awarding and monitoring grants in 
headquarters and regional offices.
    Answer. In fiscal year 2003, there were 109 grant specialists and 
1851 project officers (with active grants) that were responsible for 
awarding and monitoring grants in headquarters and regional offices.

    Question 5. Please provide a description of all training and/or 
certification for grant officers, awarding officers, and any other EPA 
personnel responsible for awarding and monitoring grants. Please 
identify what training requirements are newly imposed and how the 
agency plans to enforce these training requirements.
    Answer. As a pre-requisite to managing a grant, cooperative 
agreement or interagency agreement, project officers must complete the 
basic 3 day classroom training course entitled ``Managing Your 
Financial Assistance Agreement--Project Officer Responsibilities.'' 
This is a national course offered primarily at Headquarters but is also 
offered in some Regional offices. Within 3 years of completing the 
basic course, project officers are required to complete a 1-day 
refresher course to recertify. Project officers have the option of 
completing the 1-day refresher via the class room or an on-line self-
certification course. The Office of Grants and Debarment tracks Project 
Officer Certification status through the ``National Project Officer 
Data base''. This data base has safeguards built in to notify project 
officers within 60 days and again within 30 days to alert them that 
their certification is about to expire. Project officers that fail to 
recertify are prohibited from managing a grant, cooperative agreement 
or interagency agreement until they have retaken the basic 3-day 
course. If project officers fail to maintain their certification, the 
program must replace them on the assistance agreement with a certified 
individual.
    The Grants Specialist Training program represents a joint effort 
between the headquarters Grants Administration Division and the 
Regional Grants Management Offices for grant and interagency agreement 
specialists. Comprised of three phases, this program focuses on the 
``Core Competencies'' specialists need to perform their position. Phase 
One addresses key national issues, such as the Federal Grants and 
Cooperative Agreement Act, Office of Management and Budget (OMB) 
Circulars, EPA's Delegations of Authority, General Grant Regulations, 
cost reviews of budgets, and transaction testing for unallowable costs. 
Phase Two provides training on the individual implementation procedures 
governing each of the eleven national Grants Management Offices 
(including headquarters). Phase Three focuses on the specialist's 
individual career development plan, which includes taking external 
training courses on grants management. In many cases, specialists take 
courses from Management Concepts, Incorporated (MCI), which offers a 
Certified Grants Management Curriculum. The Curriculum contains the 
following recommended courses: (1) Introduction to Grants and 
Cooperative Agreements for Federal Personnel, (2) Cost Principles: OMB 
Circulars A-21, A-122 and A-87, (3) Grants and GPRA: A Performance-
Based Approach to Federal Assistance, (4) Essential Skills for Grants 
Professionals, and (5) Appropriations Law.
    EPA Regions also provide supplemental grant-related training to 
project officers and grant specialists. Supervisors, managers, and 
funds certifiers occasionally participate in this training, which 
covers areas such as (1) training on the Integrated Grants Management 
System (IGMS), EPA's electronic system for automating the grants 
process; (2) grant competition training; (3) post-award management 
training; (4) Tribal or State Performance Partnership Grant training; 
(5) mentor training for new grant specialists and grant assistants; (6) 
Interagency Agreement (IAG) training for project officers; (7) quality 
assurance principles and implementation; (8) National Environmental 
Policy Act compliance training; (9) Working Effectively with Tribal 
Governments; (10) Regulation Development Training; (11) Grantee 
Compliance Tracking Data base Training; (12) training to address 
Minority Business Enterprise/Women Business Enterprise requirements; 
and (13) training on pre-award cost review and procurement.
    In addition to these training efforts, the Office of Grants and 
Debarment currently offers grants management training to supervisors 
and managers on an as-requested basis. As part of the President's 
fiscal year 2005 budget, the Agency is seeking funding to institute a 
mandatory grants management online training program for managers and 
supervisors.

    Question 6a. The most recent edition of the EPA grants training 
manual (Project Officer Training Manual, 5th Edition) lists statutory 
references detailing the prohibitions of grantees using Federal grants 
for lobbying and litigation against the Federal Government. It also 
directs a project officer to notify their award official if they 
believe that a grant recipient has used or may have used grants for 
unallowable expenditures. How will this training assist personnel to 
know what to report?
    Answer. Using the 5th edition, project officer training instructors 
cover in detail all of the statutory and regulatory prohibitions 
against using grant funds to lobby or sue the Federal Government. 
Project officers then participate in exercises involving budgets that 
contain unallowable costs. These exercises require them to identify 
those costs and explain why they are unallowable.

    Question 6b. How does the EPA plan to train personnel to identify 
unallowable costs?
    Answer. EPA currently trains both grant specialists and project 
officers in how to identify unallowable costs in the Grant Specialist 
Core Competency Class and the Basic Project Officer training course. 
Additionally, the Office of Grants and Debarment offers individual 
instruction to any project officer who needs training on allowable 
costs when the project officer has a recipient that has been placed on 
reimbursement payments. EPA Grants Management Offices have also offered 
basic transaction testing classes to grant specialists and plan to 
offer an additional half-day class this spring.

    Question 6c. What does the EPA Five Year Grants Management Plan or 
other oversight policies do to incorporate transaction testing?
    Answer. The Agency issued EPA Order 5700.6, ``Policy on Compliance, 
Review and Monitoring,'' in December 2002, to consolidate existing 
post-award management policies. One component of the Order requires 
Grants Management Offices (GMO) to review the administrative and 
financial systems of a grant recipient. These reviews may be conducted 
either at the recipient's location (onsite) or through telephone 
conference calls (offsite). Both reviews require the use of the 
appropriate protocol.
    The Order requires that onsite evaluations conducted by the GMO 
include transaction testing. Further, the required protocol contains a 
series of questions concerning transaction testing and guidance 
attached to the Order discusses how to conduct transaction testing. In 
addition, the required reporting format for on- or offsite evaluations 
includes a specific item for transaction testing results.
    In November 2003, the Grants Administration Division (GAD) issued 
guidance on preparing Post-Award Management Plans for 2004. In this 
guidance, GAD restated the need for transaction testing in GMO on-site 
evaluations and noted that the requirement should be addressed in the 
2004 Post-Award Management Plans.

    Question 7. What indicators or standards are established in the EPA 
Five Year Grants Management Plan that will measure specific 
environmental outcomes? Please describe the milestones for each year 
toward the goal of demonstrating environmental outcomes from grant 
funding.
    Answer. In the EPA Five Year Grants Management Plan, EPA will track 
its progress in supporting grantee identification and realization of 
environmental outcomes with the following performance measures:
     Percentage of grant workplans, decision memoranda, and 
terms of condition that include a discussion of how grantees plan to 
measure and report on environmental progress.
          Target for 2004: 70 percent
          Target for 2005: 80 percent
          Target for 2006: 100 percent
    These performance measures are supplemented by the following 
milestones:
                                FOR 2004
     Issue an interim policy on environmental results under EPA 
grants programs. This policy requires funding packages submitted to 
Grants Management Offices by Headquarters or Regional Program Offices 
on or after February 9, 2004, to document how proposed EPA assistance 
agreements will further the Agency's strategic goals.
                                FOR 2005
     Issue EPA Order (anticipated effective date, January 2005) 
requiring that all grant workplans, decision memoranda, and/or terms of 
condition include outcome measures to the maximum extent practicable. 
The goals of the Order are to: (1) link proposed assistance agreements 
to the Agency's Strategic Plan/Government Performance And Results Act 
architecture; (2) ensure that not only outputs, but also outcomes, are 
appropriately addressed in assistance agreement workplans, competitive 
solicitations, advanced monitoring and performance reports; and (3) 
consider how the results from completed assistance agreement projects 
contribute to the Agency's programmatic goals and objectives.
     As part of the roll-out of the Order, provide training to 
project officers and recipients on outcome measures.
     Include a discussion of expected environmental outcomes 
and performance measures in grant solicitations.
     Require recipient performance reports to address progress 
in achieving agreed-upon outcomes.
                                FOR 2006
     Beginning January 2006, incorporate past performance in 
reporting on environmental outcomes as a significant ranking criteria 
in competitive grant solicitations.

    Question 8. Please provide a listing of grantees that have been 
disbarred over the last 10 years. Please provide the reasoning for that 
disbarment, the process used in the disbarment, and time required for 
that process. Please provide whether those grantees continued to 
receive grant funding during the debarment investigation.
    Answer. Over the past 10 years, EPA took twenty-nine actions 
involving grantee organizations or their principals. Principals include 
officers, directors, managers or key employees. EPA debarred one 
grantee organization and fifteen individuals who served as principals 
for grantees; suspended two grantee organizations and one principal; 
entered into eight settlement agreements; and currently has one grantee 
organization and principal proposed for debarment.
    The process: Suspension and debarment authority is delegated 
directly from the Administrator to the Suspending and Debarring 
Official (the Debarring Official). Debarment actions are initiated by 
the Suspension and Debarment Division (SDD), Office of Grants and 
Debarment (OGD). A suspension action is a temporary action that 
prohibits new awards pending the outcome of legal or debarment 
proceedings. A debarment action is a final Agency determination after 
an investigation is completed which prohibits an entity/individual from 
receiving Federal funding (e.g., Federal grants or contracts) for a 
specified period of time. SDD makes recommendations to the Debarring 
Official that specific grantees or principals be suspended or debarred. 
The Debarring Official makes all decisions based on the administrative 
record. The Debarring Official's final decisions may be appealed to the 
Director, OGD. Material questions of fact are referred to an 
independent fact finder. Underlying investigations are conducted by the 
Office of Inspector General, the Criminal Investigations Division of 
the Office of Enforcement and Compliance Assurance, and SDD.
    The procedural requirements for bringing discretionary debarment 
actions are set forth at 40 C.F.R. Part 32 (for grants) and Subpart 9.4 
of the Federal Acquisition Regulation (for contracts). The elements of 
a statutory debarment are described in 33 U.S.C. Section 1368 for the 
Clean Water Act and 42 U.S.C Section 7606 for the Clean Air Act. 
Debarment and suspension is a prospective remedy. It prohibits a new 
grant or contract award after the date of the suspension or debarment 
determination.
    Each year, EPA initiates over a hundred potential suspension and 
debarment cases. Most of these cases involve commercial entities that 
could perform work under Federal grants or contracts.
           ONE EPA GRANTEE DEBARRED DURING THE LAST 10 YEARS
    Liberty Family Learning Center.--Debarred for submitting false 
certification on an EPA grant; Processing time 2 months.
 two epa grantees and one principal suspended during the last 10 years
    Environmental Compliance Organization.--Suspended for submitting 
false credentials; Processing time 1 month.
    ECO Foundation.--Suspended for submitting false credentials; 
Processing time 1 month.
    Patricia Ewald, Director.--Suspended for submitting false 
credentials; Processing time 1 month.
   EPA DEBARRED FIFTEEN INDIVIDUALS WHO SERVED AS PRINCIPALS TO EPA 
                                GRANTEES
    Onyundo Amram, Director of Liberty Family Learning Center.--
Debarred for submitting false certification on an EPA Grant; Processing 
time 2 months.
    Carol Vitales, Payroll Technician.--Debarred for embezzlement of 
funds from the Oglala Sioux Tribe; Processing time 4 months.
    Estelle Goings, Director.--Debarred for embezzlement of funds from 
the Oglala Sioux Tribe; Processing time 4 months.
    Vonnie Goings, Payroll Technician.--Debarred for embezzlement of 
funds from the Oglala Sioux Tribe; Processing time 4 months.
    Wallace Jorgensen, Office Manager.--Debarred for embezzling grant 
funds from National Asian Pacific Center for the Aging; Processing time 
4 months.
    Debra O'Neil, Office Manager.--Debarred for embezzling grant funds 
from the Nevada Indian Environmental Coalition; Processing time 4 
months.
    Anita Collins, Executive Director.--Debarred for embezzling grants 
funds from the Nevada Indian Environmental Coalition; Processing time 4 
months.
    Dennis Arnold.--Facility specific statutory debarment under the 
Clean Water Act; Processing time 6 months.
    Syed Hug, Environmental Manager.--Proposed for debarment for 
embezzlement of funds from the Rosebud Indian Tribe; Resolved through a 
compliance agreement; Processing time 2 years and 3 months.
    Richard Moffet, President of Peoples Rights to a Clean 
Environment.--Debarred for convictions for hashish possession and tax 
evasions; Processing time 3 months.
    Joseph Frazier, Treasurer of Pfohl Area Homeowners Association.--
Debarred for a burglary conviction; Processing time 1 year and 4 
months.
    Day Niederhauser, Inspector of The Virginia Department of 
Environmental Quality.--Debarred for filing false reports while working 
on an EPA grant; Processing time 3 months.
    Raymond Sinnamon, Jr., Plant Manager of City of Dalton, Georgia.--
Debarred for civil and administrative violations, water permits and 
restrictions; Processing time 1 year and 2 months.
    DeForrest Parrott, General Manager & CEO of City of Dalton, 
Georgia.--Debarred for civil and administrative violations, water 
permits and restrictions; Processing time 1 year and 2 months.
    Carleen Murphy Moran, Executive Director of Hancock County Chamber 
of Commerce.--Debarred for embezzling EPA grant money; Processing time 
1 month.
   SETTLEMENTS WITH FIVE LOCAL GOVERNMENTS THAT PREVIOUSLY RECEIVED 
                               EPA GRANTS
    City of New Haven, Markings Unit.--Facility debarred by statute 
under the Clean Water Act; Resolved through a compliance agreement; 
Processing time 10 months.
    City of Waldport, Oregon.--Facility debarred by statute under the 
Clean Water Act; Resolved through a compliance agreement; Processing 
time 2 months.
    City of Post Fall, Idaho.--Facility debarred by statute under the 
Clean Water Act; Processing time 9 months.
    Northeast Public Sewer District.--Facility debarred by statute 
under the Clean Water Act; Resolved through a compliance agreement; 
Processing time 6 months.
    Southwest Florida Water Management District.--Drug-Free Workplace 
violation; Recipient of Federal assistance from EPA in support of the 
Sarasota Bay Estuary Program; Processing time 9 months.
          settlements with one epa grantee and two principals
    Global Rivers Environmental Education Network.--Use of grant funds 
for personal use; Processing time 8 months.
    Mark Patrick, Financial Manager, Global Rivers Environmental 
Education Network.--Use of grant funds for personal use; Processing 
time 8 months.
    David Schmidt, Financial Manager, Global Rivers Environmental 
Education Network.--Use of grant funds for personal use; Processing 
time 8 months.
     one grantee and one principal currently proposed for debarment
    Lower Mississippi River Conservation.--Proposed for debarment for 
embezzlement of grant funds; Processing time 3 months.
    Debra Strickland, Finance Director.--Proposed for debarment for 
embezzlement of grant funds; Processing time 3 months.

    Question 9. Please provide a listing of grantees that have been 
subject to disciplinary action by EPA over the last 10 years. Please 
provide the reasoning for that discipline, the process used in the 
discipline, and time required for that process. Please provide whether 
those grantees continued to receive grant funding during the 
disciplinary investigation.
    Answer. Based on discussions with your staff, we are providing a 
list of EPA grantees that were subject to disciplinary actions during 
2002 and 2003:
    1.Iowa Rural Water Association
    2. Haskell Indian Nations University
    3. St. Vincent Home School
    4. University of Missouri--Columbia
    5. St. Louis Medical Waste Incinerator Group
    6. Kickapoo Tribe in Kansas
    7. Santee Sioux Tribe of Nebraska
    8. Virgin Island Department of Planning and Natural Resources
    9. University of the Virgin Islands
    10. Puerto Rico Environmental Quality Board
    11. New Jersey Department of Environmental Protection
    12. New York State Department of Environmental Conservation
    13. Rutgers University
    14. Passaic Valley Sewerage Commissioners
    15. City of Johnstown
    16. Systema Universitario Ana G. Mendez
    17. City of Schenectady
    18. Burlington County
    19. Virgin Islands Department of Public Works
    20. Cornell University
    21. Rockland County
    22. City of Syracuse
    23. Township of Pennsauken
    24. Association of State Wetland Managers Inc
    25. City of Newark
    26. Universidad Metropolitiana
    27. Hudson River--Hudson River Foundation
    28. Borough of Carteret
    29. Musconetcong Sewerage Authority
    30. New Jersey Department of Health and Human Services
    31. County Essex--County of Essex
    32. Atlantic States Legal Foundation
    33. Scenic Hudson Inc.
    34. City of Rorchester New York
    35. City of Buffalo New York
    36. Perth Amboy
    37. City of Elmira
    38. Puerto Rico Industrial Development Co.
    39. City of Ogdensburg New York
    40. City of Atlantic City
    41. Middlesex County Improvement Authority
    42. California Department of Toxic Substances Control
    43. Big Sandy Rancheria
    44. Bridgeport
    45. CA Air Resources Board
    46. Cahto Tribe of Laytonville Rancheria
    47. Cahuilla
    48. Campo Band of Mission Ind
    49. City of Pomona
    50. Colorado River Indian Tribes
    51. Confederated Tribes of Goshute
    52. County of Sacto
    53. Cuyapaipe Band of Mission Indians
    54. C.Y.C.L.E.
    55. Del Amo Action Committee--Montrose
    56. Dry Creek Rancheria
    57. Enterprise Rancheria
    58. Ft. McDowell Yavapai Nation
    59. Ft. Mojave
    60. Grindstone Rancheria
    61. HI Dept of Health
    62. Hoopa Valley Tribal Council
    63. La Jolla Band of Mission Ind
    64. La Posta Band of Mission Ind
    65. Manchester Pt Arena Band of Pomo Indians
    66. Mesa Grande Band of Mission Ind
    67. Navajo Nation
    68. Pauma Band of Mission Indians
    69. Pinoleville Rancheria
    70. Pyramid Lake Paiute Tribe
    71. Quartz Valley Indian Reservation
    72. Ramona Band of Cahuilla Mission Indians
    73. Rincon Luiseno Indians
    74. Round Valley Indian Tribes
    75. Salt River Pima--Maricopa Indian Community
    76. San Manuel Band of Mission Indians
    77. San Mateo County RCD
    78. San Pasqual Band of Mission Indians
    79. Santa Rosa Band of Mission Indians
    80. South Fork Band Council
    81. Te-Moak Tribe of Western Shoshone
    82. Tohono O'Odham Nation
    83. Washoe Tribe of NV & CA
    84. Yomba Shoshone Tribe
    85. Shoshone and Arapaho Tribes
    86. Crow Tribe
    87. Rosebud Sioux Tribe
    88. District of Columbia Department of Health
    89. Lake Wallenpaupack Watershed Management District
    90. Future Harvest, Incorporated
    91. Chehalis
    92. Chickaloon Native Village
    93. Circle Village Council
    94. Emmonak Village
    95. Healy Lake Village
    96. Inupiat Community of the Arctic Slope
    97. Mentasta Trad Council
    98. Muckleshoot Tribe
    99. Native Village of Deering
    100. Native Village of Elim
    101. Native Village of Nelson Lagoon
    102. Nez Perce
    103. Nooksack
    104. Northway Village Council
    105. Quinault Indian Nation
    106. Stevens Village Council
    107. St. George Traditional Council
    108. Village of Iliamna
    109. Wrangell Coop Association
    110. ADEC
    111. Allakaket Traditional Council
    112. Asa'carsarmiut Tribal Council
    113. Association of Village Council Presidents
    114. Beaver Village Council
    115. Chilkoot Indian Assoc
    116. Chitina Traditional Indian Village
    117. Huslia Tribal Council
    118. Hughes Village Council
    119. Muckleshoot
    120. Native Village of Nuiqsut
    121. Native Village of Point Hope
    122. Native Village of Point Lay
    123. Puyallup Tribe
    124. AK Dept. of Health & Soc. Serv
    125. Concilio for the Spanish Speaking
    126. University of Idaho
    127. Washington State University
    128. Norton Sound Health Corp.
    129. City of Blackfoot
    130. City of Kake
    131. Hoonah
    132. Ivanhof
    133. Kuigpugmuit
    134. The All Indian Pueblo Council, Inc.
    135. Central States Air Resource Agencies Association
    136. Coordinating Committee for Automotive Repair
    137. Haskell Indian Nations University
    138. Association of State and Interstate Water Pollution Control 
Administrators
    139. Michigan Biotechnology Institute International
    140. National Council on Aging
    141. Climate Neutral Network
    142. Self Reliance Foundation
    143. Tribal Association for Solid Waste and Emergency Response
    144. Geothermal Heat Pump Consortium
    145. National Asian Pacific Center on Aging
    146. Consumer Federation of America
    147. City of Atlanta
    148. Hancock County Chamber of Commerce
    149. Lower Mississippi River Conservation Commission
    150. National Academy of Natural Sciences
    The recipients listed above were subject to disciplinary actions 
for the one or more of the following reasons:
     Audits performed by the Office of Inspector General (OIG) 
and advanced monitoring performed by EPA staff identified financial 
management problems, including embezzlement of grant funds, duplicative 
payments, unsupported direct costs, failure to account for program 
income, missing documentation, failure to provide an indirect cost rate 
proposal and/or agreement, commingling of funds, unallowable costs, 
payroll problems, no travel policy, undocumented cost share and 
inadequate labor distribution systems.
     Procurement problems, including failure to perform cost or 
price analysis, conflicts of interest violations, and lack of written 
procurement procedures.
     Delinquent, incomplete or incorrect reports and 
deliverables.
     A-133 single audit findings involving unaccounted funds, 
incorrect financial status reports, missing Minority Business 
Enterprise/Women Business Enterprise (MBE/WBE) reports, noncompliance 
with terms and conditions, and property management findings.
    The types of disciplinary actions for the above-listed recipients 
included: (1) stop work orders; (2) recipients placed on payment 
reimbursement; (3) termination of grant(s); (4) high risk designation 
which imposed special award terms and conditions; (5) warning/
enforcement action letters; and (6) referral to the OIG for an audit.
    The length of time for disciplinary actions varies depending on the 
nature of the problem and how quickly the recipient is able to address 
the deficiencies. In general, the disciplinary action continues until 
the recipient has completed all corrective actions. EPA monitors the 
status and if the grantee is not making significant progress without a 
justifiable reason, the Agency will initiate additional enforcement 
actions.
    In general, recipients whose payments are specifically suspended or 
limited by a term and condition are not paid until they have satisfied 
the condition. With respect to the high risk grantees, some recipients 
continue to receive payments in accordance with the high risk condition 
for only those costs that: (1) are adequately supported with 
appropriate documentation required by the high risk condition; (2) have 
been reviewed and certified by its CPA firm prior to submission to EPA, 
if necessary; and (3) have been reviewed and approved by the EPA Grant 
Specialist and Project Officer.

    Question 10a. The March 3, 2004, hearing raised two issues relating 
to disclosure: available grants and awarded grants. What steps is the 
EPA taking toward providing more public information on available EPA 
grants? Will the EPA post such information on the agency website?
    Answer. EPA currently provides information to the public on grants 
through different websites. We provide general information on EPA 
assistance programs and the types of grants we award through 
www.cfda.gov. We provide information on active grants through EPA's 
Envirofacts warehouse at http://www.epa.gov/enviro/html/gics/gics--
query.html. Some EPA program offices provide information on the 
projects they fund on their program web sites.
    EPA also posts synopses of competitive grant opportunities on the 
grants.gov website as directed by the Office of Federal Financial 
Management in the Office of Management and Budget. The purpose of doing 
so is to provide potential applicants with information about funding 
opportunities so they can decide whether they are interested in 
applying for them. In addition, the Agency's Office of Grants and 
Debarment website has a Grants Competition section which includes 
information on competitive grant opportunities, including a list of 
available competitive grants [http://www.epa.gov/ogd/competition/
index.htm].

    Question 10b. What steps is the EPA taking toward publicly 
disclosing all annual recipients of grants, the amounts of those 
grants, and the purpose for which the grant was awarded? Will the EPA 
post such information on the agency website?
    Answer. EPA currently provides information on active grants through 
EPA's Envirofacts warehouse at http://www.epa.gov/enviro/html/gics/
gics--query.html. Beginning April 30, 2004, EPA will be posting 
information on new grant awards, including the purpose and amount of 
each award, at the following web site: http://www.epa.gov/ogd/grants/
award.htm. The Agency will update this information on a quarterly 
basis.
                                 ______
                                 
       Responses by David O'Connor to Additional Questions from 
                            Senator Jeffords
    Question 1. Your written testimony indicates that a mandatory 
certification program for project officers is in place. You also report 
that the Agency will assess whether the program adequately equips 
project officers with the skills needed for proper grants oversight. 
When and how will this assessment be carried out? Is there an 
assessment protocol already in place?
    Answer. As addressed in the Agency's ``Long Term Grants Management 
Training Plan'' EPA will be issuing the 6th edition of ``Managing Your 
Financial Assistance Agreement--Project Officer Responsibilities.'' In 
offering training courses based on the 6th edition, we will begin pre- 
and post-testing of all trainees. This will allow us to demonstrate the 
basic knowledge of the project officers prior to taking the class and 
after completing the class. The pre-test will be administered online as 
part of the registration process for the class. Post-tests will be 
administered at the end of day three. We are in the process of 
developing the 6th edition training class and will pilot the pre- and 
post-testing concept this fall.

    Question 2. According to the grants management plan, EPA set the 
following goal for 2003: to award competitively 30 percent of new 
grants that are subject to the competition policy. The same 30 percent 
target was set for new grants to non-profit organizations. Were those 
30 percent targets met? What plans are in place to ensure that the 2004 
and 2005 goals, which call for significant increases, are met?
    Answer. EPA exceeded the 2003 goals to competitively award 30 
percent of new grants subject to the competition policy and 30 percent 
of new grants to non-profit organizations that were subject to the 
competition policy. In the first year of implementation, the Agency 
competed 75 percent of new awards to non-profit organizations covered 
by the policy and over 85 percent of all new awards covered by the 
policy. The Agency is encouraged by the first year statistics. However, 
it also recognizes, given EPA's limited experience with grants 
competition, that the competition policy needs to be strengthened to 
ensure that the Agency conducts effective grant competitions. To that 
end, EPA's Grants Competition Advocate (GCA) is in the process of 
performing a comprehensive review of the policy. The results of the 
GCA's review will be incorporated in a revised policy, which the Agency 
expects to issue later this year. Possible changes to the policy 
include a reduction in the competition threshold to open up more grant 
opportunities to competition.
    EPA believes that a revised, strengthened competition policy, 
coupled with continued vigorous oversight by the GCA, should enable the 
Agency to achieve the 2004 and 2005 goals. EPA will be reporting on its 
success in meeting these goals in its Annual Report to Congress.

    Question 3. I understand that in fiscal year 2003 EPA provided a 
$55,000 grant to a researcher at the University of Georgia. The purpose 
of the grant was to bio-engineer poplar trees to absorb mercury from 
contaminated soils and materials and transpire it into the air. This 
was done under contract or agreement number 68D02008. Why is EPA 
spending money developing or supporting technologies to move mercury 
from the soil into the air?
    Answer. EPA has been asked about funding research that used 
phytoremediation to uptake mercury into the roots of trees and then to 
volatilize the mercury into the atmosphere. EPA has opposed the 
volatilization of mercury into the atmosphere from the beginning and 
EPA National Center for Environmental Research (NCER) has not provided 
financial support for research supporting releases of mercury into the 
atmosphere.
    About 10 years ago, Dr. Richard Meager of the University of Georgia 
initiated a research program to investigate the potential for using 
biotechnology to detoxify mercury in the environment (research not 
funded by EPA). He found that one bacterial gene, MerB, has the 
capability to break the environmentally toxic methyl-mercury with the 
release of ionic mercury which is subsequently taken up by the 
bacteria. He also found that a second bacterial gene, MerA, has the 
capability to reduce ionic mercury (potentially toxic to cells) to 
elemental mercury, a significantly less toxic chemical form. Elemental 
mercury tends to vaporize at the normal atmospheric pressure. Dr. 
Meager proceeded to isolate these two bacterial genes and, using 
biotechnology, he expressed them in plants. He subsequently proposed to 
use these transgenic plants to phytoremediate methyl-mercury via 
compound breakdown, ionic mercury uptake into roots, reduction of ionic 
mercury to elemental mercury, and subsequent volatilization 
(transpiration) of elemental mercury in the atmosphere.
    From early beginnings EPA, has opposed this approach with the 
objection that elemental mercury transpired into the atmosphere will 
precipitate and will be washed down by rain in the very same 
geographical proximity. EPA has never endorsed this approach, and NCER 
has never provided financial support (in the form of a grant) for this 
research. Recently, NCER funded a phase 1 SBIR contract, which is 
proposing to use plants transformed with MerB gene but not MerAgene. In 
this project Dr. Laura Carreira, Applied PhytoGenetics, Inc., proposes 
to select mercury-tolerant cottonwood transformed with MerB. These 
trees will have the capability to break down methyl-mercury, absorb 
ionic mercury and sequester the ionic form in the above ground plant 
tissues without its release in the atmosphere as elemental mercury. 
Because of his expertise in biotechnology, Dr. Meager was chosen as a 
subcontractor in this research.
    In summary: NCER has never provided financial support to Dr. 
Meager's work to release elemental mercury in the atmosphere. NCER has 
only supported a SBIR phase1 contract to support the removal of toxic 
mercury stored in plant tissue.
                                 ______
                                 
       Responses by David O'Connor to Additional Questions from 
                             Senator Crapo
    Question 1. The closure of mines and mills and consolidation of 
agri-business have been as devastating to rural western economies as 
the abandonment of industrial plants has been in the nation's cities. 
Contamination, or the possibility of contamination, has hindered the 
re-development of these properties in rural towns--an objective of the 
Brownfields program. This past fall, EPA informed me that guidelines 
for the fiscal year 2004 grant competition were being revised. How have 
the guidelines changed to better address the needs of small rural 
communities?
    Answer. Based on feedback from the fiscal year 2003 competition, in 
the fiscal year 2004 guidelines, we took out the specific reference to 
``populations under 100,000'' in the applicant information section of 
the guidelines. We made the special considerations more prominent in 
the fiscal year 2004 guidelines by having a section entitled, ``What 
are the statutory and policy considerations that EPA may take into 
account?'' and referenced urban and nonurban and other geographic 
factors. This change allows us to consider balance between large 
populations and smaller rural areas.
    The distribution of Brownfields grants selected in fiscal year 2003 
closely followed the national distribution of grant requests received. 
Out of the 214 grants announced for fiscal year 2003, 116 represented 
non-urban areas with populations of 100,000 or less. In fiscal year 
2003 we received 465 requests from the Western Regions (6-10) which 
represent 35 percent of the total number of requests received. Of those 
71 (33 percent of the national total of 214) were selected. This 
represents a success award rate of 15 percent of total applications 
submitted for Western Regions which is commensurate with the national 
success rate of 16 percent. For fiscal year 2004, proposals received 
from the Western Regions represent totaled 250 (33 percent of the total 
number of proposals received). Seven proposals have been received from 
the state of Idaho.
    In addition to assessment, revolving loan fund and cleanup grants, 
EPA supports small rural communities brownfields efforts through a 
cooperative agreement with the National Association of Development 
Organizations (NADO). Over the past several years, NADO has issued a 
number of reports on improving support for small rural communities 
including their Brownfields Resource Guide for Rural and Small 
Communities which has gone through several reprintings due to popular 
demand. NADO also holds brownfields workshops for small rural 
communities, with upcoming workshops scheduled in Idaho on June 17 and 
Montana on July 14.

    Question 2. The fiscal year 2005 budget proposal would transfer the 
Brownfields Economic Development Initiative, currently managed by the 
Department of Housing and Urban Development, to EPA. Will EPA provide a 
similar program, with a bulk of those funds earmarked for state grants?
    Will the program be a revised program to equitably distribute funds 
between the eastern and western United Sates and among urban and rural 
communities?
    What are EPA's plans in this regard?
    Answer. No, the fiscal year 2005 budget proposal does not transfer 
the HUD Brownfields Economic Development Initiative to EPA and EPA has 
no plans to manage the program.
    The Department of Housing and Urban Development in fiscal year 2005 
will continue to support the redevelopment of brownfields through its 
Community Development Block Grant (CDBG) program. EPA will continue to 
work collaboratively with HUD on brownfield sites. HUD's program has 
funded brownfield redevelopment activities (e.g., acquisition, 
demolition, and infrastructure redevelopment) which are not authorized 
uses of EPA's brownfield funds.
                               __________
 Statement of Steve Ellis, Vice President for Programs, Taxpayers for 
                              Common Sense
    Good morning. Thank you for inviting me to testify and thank you 
for holding this hearing on EPA grants management. I am Steve Ellis, 
Vice President of Programs at Taxpayers for Common Sense (TCS), a 
national, non-partisan budget watchdog organization. Our country is 
facing enormous budget deficits, and we must be sure that every dollar 
spent is spent wisely and advances the nation's goals.
    I would also like to make it clear that TCS does not solicit or 
accept Federal grants. Obviously, however, a lot of other organizations 
do. According to the Heritage Foundation, in fiscal year 2001, the 
Federal Government distributed more than $325 billion in grants.\1\ As 
you know, roughly half--$4.2 billion in fiscal year 02--of the 
Environmental Protection Agency's (EPA) more than $8 billion budget is 
awarded in the form of assistance agreements or grants. The agency 
awards grants to more than 3,300 recipients including tribes, non-
profits, State and local governments and universities to implement 
programs and projects intended to further EPA's goals. Given the size 
of the program, EPA's success depends significantly on how well it 
manages these grants. Unfortunately, for the last decade EPA's grants 
program has perhaps been best known for mismanagement or simply failure 
to manage.
    The EPA Inspector General (IG), the General Accounting Office 
(GAO), the Office of Management and Budget (OMB), this committee and 
it's parallel in the House of Representatives have all pointed out for 
years that the grants program was failing the agency and Federal 
taxpayers. After several false starts under consecutive 
administrations, EPA appears to have instituted reforms that could lead 
the agency toward responsible management of its grant portfolio. But, 
time will tell whether the agency has truly turned the corner. TCS 
recommends that additional measures to help buttress EPA's reform 
efforts, including development of grants management evaluation criteria 
for program officers, annual progress reporting to Congress, and rapid 
deployment and centralizing of proposed grant data base systems.
                              THE PROGRAM
    Of the $4.2 billion in grants the EPA awarded in fiscal year 2002, 
$3.5 billion, or 85 percent, was allocated to non-discretionary 
programs such as the drinking and wastewater State revolving funds and 
a few other programs that are typically formula grants and earmarks. 
The remaining amount, $719 million, was awarded in discretionary grants 
to State and local governments, tribes, non-profits, and universities.
    The Catalog of Federal Domestic Assistance (CFDA), administered by 
the General Services Administration, lists more than 70 different EPA 
assistance programs both discretionary and non-discretionary. However, 
the bulk of these are program grants or discretionary.\2\ Discretionary 
grant programs have received a great deal of scrutiny and well-earned 
criticism over the past few years. We applaud the committee for its 
role in reviewing these programs, and urge the committee to look more 
closely at the non-discretionary programs to ensure that they are 
meeting the nation's goals at an appropriate cost.
                            PROGRAM PROBLEMS
    In his June 2003 testimony, Mr. John Stephenson of the GAO clearly 
articulated four major areas EPA's grants program needs to address.\3\ 
TCS strongly agrees with these comments. The four key areas EPA has to 
improve are:
     Award discretionary grants competitively and solicit from 
a large pool of applicants.--Sole source or directed grants fail to 
ensure that the taxpayer is receiving the best available product at the 
best price. If EPA deviates from competition, it should be the 
exception, not the rule, and the rationale must be fully documented. 
According to the GAO, although required, these decision memorandums are 
not always completed.\4\ Additionally, if grant opportunities are more 
broadly published, we are more likely to receive competitive terms.
     Effectively oversee grantees' progress and compliance with 
terms.--The EPA does not require enough financial and progress 
information from grantees and does not consistently ensure that 
grantees comply with regulations; the EPA either does not conduct 
enough monitoring of contracts, or, if it does, the monitoring is not 
documented.
     Manage grants so they are effective in achieving desired 
results.--In some cases, the agency does not have a clear vision of 
either the goals of particular programs or how to measure results 
against its goals; either case significantly reduces the possibility of 
a grant helping the agency meet overall goals.
     Hold staff accountable for performing duties, ensure staff 
are properly trained and have the right information.--It is simple. 
EPA's grants program is only going to be as successful as its grant 
administrators and program officers. Adequate resources, training and 
accountability need to be directed at frontline grant personnel if EPA 
grants programs are to be successful.
    The EPA IGs' March 2003 analysis of pre-award reviews, summed up 
the last point very clearly:

          Project officers are responsible for ensuring Federal funds 
        are protected and prudently awarded. However, Agency leadership 
        had not always emphasized the importance of project officer 
        duties, nor held project officers accountable for conducting 
        complete pre-award reviews. It is crucial that management 
        create an environment that considers the management of 
        assistance agreements and the project officer function vital to 
        the Agency's mission.\5\

    A key message from this EPA IG report is that the agency must 
clearly define missions and goals expected from its grant program so 
that the taxpayer can be sure that every dollar spent is helping EPA 
realize its goals and mission.
    In the IG's random sample of 116 EPA assistance agreements, it 
found that in 19 percent program officers had not determined the link 
between the grant work plan and agency objectives. In 31 percent, 
program officers had not determined the technical feasibility of the 
grant applicant completing the work. In 79 percent of the applicable 
agreements, required cost reviews of whether costs are eligible and 
reasonable were not completed. In 42 percent, there were no 
environmental outcomes negotiated. In 24 percent, milestones or 
deliverables were not included.\6\
    Rather than simply laying these failures at the feet of program 
officers, higher leadership at the EPA must address these training, 
incentive, and accountability needs. Staff will only be able to perform 
what they are trained to do, is demanded of them and they are evaluated 
on. It is incumbent on senior EPA officials to retrain agency norms if 
their reform approaches are to succeed.
                      EPA'S RECENT REFORM EFFORTS
    After constant criticism from the EPA IG, GAO, and OMB, EPA issued 
the first policy to govern the competitive award of grants in September 
2002.\7\ This established several criteria governing competition: a 
$75,000 threshold; detailed justification for noncompetitive awards; 
standard procedures for steps in the application process; and a new 
Grants Competition Advocate to oversee the program.\8\ However, there 
are exceptions for unsolicited grants and ``managed competition''. 
Clearly, a shift to a competitive grant process represents a 
significant change in agency culture. To be effective, active 
measurement and oversight of these new objectives will be essential.
    In December 2002, EPA issued a new grant oversight policy,\9\ 
intended to increase in-depth monitoring of grantees, in part by 
requiring all compliance activities be entered into a data base; and 
requiring all transactions be tested for unallowable expenditures 
during onsite reviews.\10\
    Finally, the agency issued its Grants Management Plan for 2003-2008 
in April 2003. This plan outlined five goals in response to much of the 
criticism EPA had received. These goals are:
    1. Enhance the Skills of EPA Personnel Involved in Grants 
Management
    2. Promote Competition in the Award of Grants
    3. Leverage Technology to Improve Program Performance
    4. Strengthen EPA Oversight of Grants
    5. Support Identifying and Achieving Environmental Outcomes.
    These reforms appear to be on the mark. However, any EPA plan must 
be evaluated based on both the fine print and the follow through. The 
Grants Management Plan outlines several objectives for training grants 
personnel, and requires that 100 percent of grants be managed by 
certified project officers. However, the 2003 baseline is 85 percent. 
Considering the problems documented by the EPA IG shortly before this 
plan was released, the certification process itself may be flawed. 
Promoting competition for grant awards clearly comes down to agency 
commitment. If EPA cracks down on allowing sole source and similar 
grants, competition will flourish, plain and simple. If the Integrated 
Grants Management System (IGMS) is fully deployed it could 
significantly help in grant tracking. Strengthening oversight on 
achieving outcomes requires a commitment by EPA at both the national 
and regional level to look over grantees shoulders and demand the basic 
information grantees are supposed to supply.
               ADDITIONAL REFORMS AND CONSTANT VIGILANCE
    We support the reforms the EPA has proposed, but there are some 
additional improvements that can be made. To truly inculcate 
responsible grant management throughout the agency, EPA must develop 
performance standards for EPA grant management staff. Reform will only 
be effective if program officers and grant management personnel embrace 
these efforts. If personnel are not evaluated on grant management 
performance, it will be perceived as a lower priority and we will be 
back discussing grant management failures at EPA every few years.
    Similarly, senior EPA officials have to commit to making reforms 
stick. To concentrate their attention, we believe it is vital that the 
EPA report to Congress annually on its progress and that this 
committee, the GAO, and the EPA IG exercise the vigorous oversight that 
has gotten us this far in the reform process.
    Finally, we strongly believe that centrally and publicly available 
grant and tracking data will make reform efforts more enforceable and 
efficient. We urge the EPA to deploy the IGMS system as quickly as 
possible, but again, any system will only be as effective as the people 
inputting the data. To that end, we urge the EPA to investigate 
centralizing and streamlining grant management to fewer, more highly 
trained individuals.
    Although it is apparent that there has been much done to increase 
accountability in the EPA grants system, there is much more to do. 
However, we do believe that with vigilant oversight, EPA has turned the 
corner on reforms. We are in difficult budget times. With a $521 
billion deficit, we have to be sure that every dollar we spend is being 
spent cost-effectively to further our nation's goals.
    Thank you for the opportunity to testify and I would be happy to 
answer any questions you might have.
                               REFERENCES
    1. Yablonski, Christopher, Heritage Foundation Backgrounder No. 
1615: Expanding Competition for Federal Grants. November 25, 2002.
    2. Catalog of Federal Domestic Assistance, available at http://
www.cfda.gov/public/browse--agy.asp?agy--id=66&st=1. Last visited 
February 28, 2004.
    3. Testimony of John B. Stephenson, Director, Natural Resources and 
Environment, General Accounting Office before the Subcommitte on Water 
Resources and Environment Committee on Transportation and 
Infrastructure. June 11, 2003.
    4. Ibid. p. 4.
    5. U.S. Environmental Protection Agency Inspector General Audit 
Report: EPA Must Emphasize Importance of Pre-Award Reviews for 
Assistance Agreements (Report No. 2003-P-00007). March 31, 2003. p. i.
    6. Ibid. pp. 4-9.
    7. EPA Order on Grants Competition (EPA Order 5700.5).
    8. U.S. Environmental Protection Agency Grants Management Plan 
2003-2008 (EPA-216-R-03-001). April 2003.
    9. EPA Order on Compliance, Review and Monitoring (EPA Order 
5700.6).
    10. Testimony of John B. Stephenson, Director, Natural Resources 
and Environment, General Acounting Office before the Subcommittee on 
Water Resources and Environment Committee on Transportation and 
Infrastructure, June 11, 2003.
    11. U.S. Environmental Protection Agency Grants Management Plan 
2003-2008 (EPA-216-R-03-001). April 2003.

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