Environmental Protection Agency: Problems Persist in Effectively 
Managing Grants (11-JUN-03, GAO-03-628T).			 
                                                                 
Over the years, EPA has had persistent problems in managing its  
grants. Grants constituted one-half of the agency's annual	 
budget, or about $4.2 billion in fiscal year 2002. EPA uses	 
grants to implement its programs to protect human health and the 
environment and awards them to over 3,300 recipients, including  
state and local governments, tribes, universities, and nonprofit 
organizations. EPA's ability to efficiently and effectively	 
accomplish its mission largely depends on how well it manages its
grant resources and builds in accountability. Since 1996, GAO and
EPA's Office of Inspector General have repeatedly reported on	 
EPA's problems in managing its grants. Because these problems	 
have persisted, in January 2003, GAO cited grants management as a
major management challenge for EPA. GAO is currently reviewing	 
EPA's efforts to improve grants management at the request of the 
Chairman of the House Committee on Transportation and		 
Infrastructure and Representative Anne Northup. For this	 
testimony GAO is reporting on results of its previously issued	 
reports and on the grants problems EPA faces, past actions to	 
address these problems, and recently issued EPA policies and a	 
5-year grants management plan to address its long-standing grants
management problems.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-628T					        
    ACCNO:   A07134						        
  TITLE:     Environmental Protection Agency: Problems Persist in     
Effectively Managing Grants					 
     DATE:   06/11/2003 
  SUBJECT:   Federal grants					 
	     Grant monitoring					 
	     Grant administration				 
	     Internal controls					 
	     Strategic planning 				 

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GAO-03-628T

Testimony Before the Subcommittee on Water Resources and Environment,
Committee on Transportation and Infrastructure, House of Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 10: 00 a. m. EDT Wednesday, June
11, 2003 ENVIRONMENTAL

PROTECTION AGENCY Problems Persist in Effectively Managing Grants

Statement of John B. Stephenson, Director, Natural Resources and the
Environment

GAO- 03- 628T

EPA faces four key problems in managing its grants: (1) selecting the most
qualified grant recipients from a large applicant pool, (2) effectively
overseeing grantees throughout the life of the grant, (3) measuring the
results of the grantees* work, and (4) effectively managing its grants
staff and resources. EPA must resolve these problems in order to improve
its management of grants.

In recent years, EPA has taken a series of actions to address two of its
key problem areas: grantee oversight and resource management. EPA actions
include issuing several oversight policies, conducting training, and
developing a new data system for grants management. However, these past
actions were not consistently successful in resolving grants management
problems because of weaknesses in implementation and insufficient
management emphasis. For example, between 1998 and 2002, EPA issued three
policies designed to improve oversight of grantees, but EPA staff did

not consistently carry them out. Late in 2002, EPA launched new efforts to
address some of its grants management problems. In September 2002, EPA,
for the first time, issued a policy to promote competition in awarding
grants. In December 2002, it issued a new policy designed to better ensure
effective grant oversight. Finally, in April 2003, EPA issued a 5- year
grants management plan to

address its long- standing grants management problems. GAO is still
reviewing these new efforts.

Although EPA*s recent actions seem promising, the agency has a long
history of undertaking initiatives to improve grants management that have
not solved its problems. If the future is to be different from the past,
EPA must work to aggressively implement its new policies and its ambitious
5- year plan through a sustained, coordinated effort. It will be
particularly important for all agency officials involved in managing
grants to be committed to and held accountable for achieving the plan*s
goals and objectives. Over the years, EPA has had persistent problems in
managing its

grants. Grants constituted one- half of the agency*s annual budget, or
about $4. 2 billion in fiscal year 2002. EPA uses grants to implement its
programs to protect human health and the environment and awards them to
over 3,300 recipients, including state and local governments, tribes,
universities, and nonprofit organizations. EPA*s ability to efficiently
and effectively accomplish its mission largely depends on how well it
manages its grant resources and builds in accountability. Since 1996, GAO
and EPA*s Office of Inspector General have

repeatedly reported on EPA*s problems in managing its grants. Because
these problems have persisted, in January 2003, GAO

cited grants management as a major management challenge for EPA. GAO is
currently reviewing EPA*s efforts to improve grants management at the
request of the Chairman of the House Committee on Transportation and
Infrastructure and Representative Anne Northup. For this testimony

GAO is reporting on results of its previously issued reports and on the
grants problems EPA faces, past actions to address these problems, and
recently issued EPA policies and a 5- year grants management plan to
address its long- standing grants management problems.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 628T To view the full testimony,
click on the link above. For more information, contact John B. Stephenson
at (202) 512- 3841 or stephensonj@ gao. gov. Highlights of GAO- 03- 628T,
testimony to

the Subcommittee on Water Resources and Environment, Committee on
Transportation and Infrastructure, House of Representatives

June 2003

ENVIRONMENTAL PROTECTION AGENCY

Problems Persist in Effectively Managing Grants

Page 1 GAO- 03- 628T EPA's Grants Management Mr. Chairman and Members of
the Subcommittee: We are pleased to be here today to discuss the
Environmental Protection

Agency*s (EPA) management of its grants. My testimony is based on issued
GAO reports and ongoing work we are conducting at the request of the
Chairman of the House Committee on Transportation and Infrastructure and
Representative Anne Northup. We plan to issue our report this summer.

As you know, over the years, EPA has had persistent problems in managing
its grants. Grants constituted one- half of the agency*s annual budget or
about $4.2 billion, in fiscal year 2002. EPA uses grants to

implement its ongoing programs to protect human health and the environment
and awards grants to over 3,300 recipients, including state and local
governments, tribes, universities, and nonprofit organizations. With about
half of its budget devoted to grants, EPA*s ability to efficiently and
effectively accomplish its mission largely depends on how well it manages
its grant resources and builds accountability into its efforts. Because of
its grants management problems, which we and the EPA Inspector General
have repeatedly reported on, we designated EPA*s grants management as a
major management challenge in January 2003. 1 Our testimony today
describes the (1) major problems EPA faces in

managing its grants, (2) actions EPA has taken in the past to address
these problems, and (3) recently issued EPA policies and a 5- year plan to
resolve these problems. In addition to our own reports, we examined EPA*s
Office of Inspector General reports, EPA*s internal management reviews, 2
and other documents to identify EPA*s key grants management problems.

In summary:  EPA faces four key problems in managing its grants: (1)
selecting the most

qualified grant recipients from a large applicant pool, (2) effectively
overseeing grantees throughout the life of the grant, (3) measuring the
results of its grantees* work, and (4) effectively managing its grants
staff

1 See U. S. General Accounting Office, Major Management Challenges and
Program Risks: Environmental Protection Agency, GAO- 03- 112 (Washington,
D. C.: Jan. 2003). 2 EPA conducts three types of internal management
reviews designed to assess the effectiveness of grants management:
Management Oversight Reviews, Management Effectiveness Reviews, and Post-
Award Validation Reviews.

Page 2 GAO- 03- 628T EPA's Grants Management and resources. EPA must
resolve these problems in order to improve its grants management.

 EPA has taken a series of actions in the past to correct these problems,
but several of these actions were not consistently successful because of
weaknesses in implementation and insufficient management emphasis. For
example, EPA issued three policies designed to improve grantee oversight,
but EPA staff did not consistently carry them out.  Late in 2002, EPA
launched new efforts to address some of its grants

management problems. In September 2002, EPA, for the first time, issued a
policy to promote competition in awarding grants. In December 2002, it
issued a new policy designed to better ensure effective grant oversight.
Finally, in April 2003, EPA issued a 5- year grant management plan to
address its long- standing grants management problems. While these actions
show promise, we are still early in our review of EPA*s new efforts.

EPA offers two types of grants* nondiscretionary and discretionary: 
Nondiscretionary grants support water infrastructure projects, such as

renovating municipal drinking water facilities, and continuing
environmental programs, such as the Clean Air Program for monitoring and
enforcing Clean Air Act regulations. For these grants, Congress directs
awards to one or more classes of prospective recipients who meet specific
criteria for eligibility. These continuing environmental grants are often
awarded on the basis of formulas prescribed by law or agency regulation.
In fiscal year 2002, EPA awarded about $3.5 billion in nondiscretionary
grants. EPA has primarily awarded these grants to states or other
governmental entities.

 Discretionary grants fund a variety of activities, such as environmental
research and training. EPA has the discretion to independently determine
the recipients and funding levels for these grants. In fiscal year 2002,
EPA awarded about $719 million in discretionary grants. EPA has awarded
these grants to nonprofit organizations and universities in addition to
governmental entities.

EPA administers and oversees grants through the Grants Administration
Division within the Office of Grants and Debarment, 12 program offices in
headquarters, and EPA*s 10 regional offices. The Grants Administration
Division develops overall grants policy. About 102 grant specialists in
headquarters and the regions are responsible for overseeing the
administration of grants. EPA also has approximately 3,000 project
Background

Page 3 GAO- 03- 628T EPA's Grants Management officers within headquarter
program offices and the regions. These officers are responsible for
overseeing the technical or programmatic aspects of

the grants. While grant specialists are dedicated to grants management,
EPA staff members who serve as project officers have other primary
responsibilities.

The grant process has four phases:  Pre- award. EPA reviews the
application paperwork and makes an award

decision.  Award. EPA prepares the grant documents and instructs the
grantee on technical requirements, and the grantee signs an agreement to
comply

with all requirements.  Post- award. EPA provides technical assistance
and oversight; the grantee completes the work, and the project ends.

 Closeout of the award. The project officer ensures that the project is
completed; the grants management office prepares closeout documents and
notifies the grantee that the grant is completed.

EPA has had persistent problems in managing its grants. In 1996, EPA*s
Inspector General testified before Congress that EPA did not fulfill its
obligation to properly monitor grants. 3 Acknowledging these problems, EPA
identified oversight, including grant closeouts, as a material weakness* a
management control weakness that the EPA Administrator determines is
significant enough to report to the President and Congress. EPA*s fiscal
year 1999 Integrity Act report indicated that this oversight material
weakness had been corrected, but the Inspector General testified that the
weakness continued. In 2002, the Inspector General and the Office of
Management and Budget recommended that EPA, once again, designate grants
management as a material weakness. EPA ultimately decided to maintain this
issue as an agency- level weakness, which is a lower level of

risk than a material weakness. EPA made this decision because it believes
its ongoing corrective action efforts will help to resolve outstanding
grants management problems. However, in adding EPA*s grants management to

GAO*s list of EPA*s major performance and accountability challenges in 3
Testimony of John Martin, Inspector General, U. S. Environmental
Protection Agency, before the House Subcommittee on National Economic
Growth, Natural Resources and Regulatory Affairs of the Committee on
Government Reform and Oversight, July 30, 1996.

Page 4 GAO- 03- 628T EPA's Grants Management January 2003, we signaled our
concern that EPA has not yet taken action to ensure that it can manage its
grants effectively. EPA faces four major, persistent problems in managing
its grants. It must resolve these problems in order to improve its grants
management.

Specifically, EPA has not always  awarded its discretionary grants
competitively or ensured that it solicits

these grants proposals from a large pool of applicants;  effectively
overseen its grantees* progress and compliance with the terms

of the grant;  managed its grants so that they are effectively used to
achieve environmental results; and  effectively managed its grants
management resources by holding its staff

accountable for performing their duties, ensuring that the staff are
adequately trained and appropriately allocated, and providing them with
adequate management information.

Until September 2002, EPA did not have a policy for competing the
discretionary grants that might be eligible for competition* about $719
million of its total $4.2 billion in grant funding in fiscal year 2002.
Consequently, EPA was not promoting competition. According to EPA*s own
internal management reviews and an Inspector General report, EPA did not
always compete its discretionary grants when competition might have been
warranted. By competitively soliciting grants, EPA would be able to choose
the best project at the least cost to the government and is encouraged by
the Federal Grant and Cooperative Agreement Act of 1977. EPA can award its
discretionary grants noncompetitively; however, it is

required by agency guidance to document the reasons for these decisions in
a *decision memorandum.* It has not consistently done so, according to
EPA*s internal management reviews. Lack of documentation raises

questions about the award process and ultimately about whether EPA is
providing its grant funds to the best- qualified applicants.

Furthermore, EPA has not always engaged in widespread solicitation when it
could be beneficial to do so. This type of solicitation would provide
greater assurance that EPA receives proposals from a variety of EPA
Continues to

Face Problems in Managing Its Grants in Four Key Areas

EPA Has Not Always Awarded Grants Competitively and Ensured Widespread
Solicitations

Page 5 GAO- 03- 628T EPA's Grants Management eligible and highly qualified
applicants who otherwise may not have known about grant opportunities.
According to a 2001 EPA Inspector

General report, 4 program officials indicated that widespread solicitation
was not necessary because *word gets out* to eligible applicants.
Applicants often sent their proposals directly to these program officials
who funded them using *uniquely qualified* as the justification for a
noncompetitive award. This procedure creates the appearance of
preferential treatment by not offering the same opportunities to all
potential applicants. In addition, the agency provided incomplete or
inconsistent public information on its grant programs in the Catalog of
Federal Domestic Assistance and therefore the public and potential
applicants may not have been adequately informed of funding opportunities.

EPA has faced five persistent problems in overseeing its grants. First,
EPA*s internal reviews found that grantees* progress reports, one of the
best sources of information for monitoring recipients, did not include
required financial information, and grantees had not always submitted
progress reports in a timely fashion. EPA generally requires recipients to
submit progress reports to the project officer within a specified time
frame. These reports are to include progress to date, any difficulties
encountered, a discussion of expenditures compared to work completed, and
an explanation of significant discrepancies. Although the recipient is
responsible for submitting timely progress reports that discuss the
project*s financial status, the project officer is responsible for
ensuring that the recipient has done so.

Second, project officers and grant specialists did not always document
their monitoring activities, which raises questions about the extent of
the monitoring they did conduct. According to an EPA internal review, for
example, one grants management office developed a form to ensure
monitoring activities were completed, but the form was missing from 50
percent of the grant files reviewed, and when the monitoring form was
used, it was not always completed. Furthermore, project officers did not

4 EPA Office of Inspector General, EPA*s Competitive Practices for
Assistance Awards,

Report No. 2001- P- 00008 (May 21, 2001). EPA Has Not Always

Effectively Overseen Grant Recipients

Page 6 GAO- 03- 628T EPA's Grants Management always document that they had
monitored required key areas, such as ensuring compliance with the terms
and conditions of the grant award. 5 Third, EPA has not always ensured
that different types of grantees have

adequate financial and internal controls to ensure that they use federal
funds properly. For example, in 2001, 6 we reported that EPA*s oversight
of nonprofit grantees* costs did not ensure that grant funds were used for
costs allowed under guidance published by the Office of Management and
Budget. 7 In particular, EPA*s on- site reviews were flawed. The reviews
did not include transaction testing to identify expenditures that are not
allowed, such as lobbying. We also found that EPA had conducted on- site
reviews at only 4 percent of nonprofit grantees who might have had
inexperienced staff and inadequate financial and internal controls. In
2000 and 2002, the EPA Inspector General reported that one state*s
department of environmental management and two tribes, respectively,
lacked adequate financial and internal controls. 8 These problems could
have been identified through EPA oversight of grantees.

Fourth, EPA has sometimes not ensured that grantees are complying with
certain grant regulations, such as those pertaining to grantee procurement
and conflict- of- interest. In 2002, the EPA Inspector General reported
that EPA did not monitor grantees* procurements to determine if the
grantees

were using a competitive process to obtain the best products, at the best
price, from the most qualified firms. 9 In 1999 and 2002, the EPA
Inspector General reported conflict- of- interest problems because grant
recipients had awarded contracts to parties who had assisted them in
preparing their

5 The monitoring of key areas is required under EPA Order 5700.4, Interim
Grantee Compliance Assistance Initiative Policy, (Feb. 2002). 6 U. S.
General Accounting Office, Environmental Protection: EPA*s Oversight of
Nonprofit

Grantees* Costs Is Limited, GAO- 01- 366 (Washington, D. C.: Apr. 6,
2001). 7 The Office of Management and Budget has issued three circulars
defining what are allowable costs for different types of grantees: A- 21,
A- 87, and A- 122.

8 EPA Office of Inspector General, Grant Management Practices of Rhode
Island Department of Environmental Management, Audit No. 2000- 1- 00416
(Sep. 21, 2000); EPA Office of Inspector General, EPA Grants Awarded to
the Lower Brule Sioux Tribe, Report No. 100370- 2002- 1- 000099 (Mar. 29,
2002); EPA Office of Inspector General, EPA Grants

Awarded to the Crow Tribe, Report No. 100370- 2002- 1- 000098 (Mar. 27,
2002). 9 EPA Office of Inspector General, Procurements Made by Assistance
Agreement Recipients Should Be Competitive, Report No. 2002- P- 00009
(Mar. 28, 2002).

Page 7 GAO- 03- 628T EPA's Grants Management grants and therefore had
advance knowledge about grantees* plans to award contracts. 10 Finally,
EPA has not fully ensured that recipients are submitting final

reports in a timely manner and meeting grant objectives. For example, in
2000, we reported that EPA had not adequately tracked its Science To
Achieve Results research grants to ensure their on- time completion. 11 We
found that 144 of the nearly 200 grants we reviewed had missed their
deadline for submitting final reports, even after some extensions had been
given. Also, in 1998, EPA*s Inspector General reported that EPA had not

monitored training assistance grants to nonprofit grantees to determine
how many students were being trained or how much the training cost. 12 EPA
awarded some grants before considering how the results of the

grantees* work would contribute to achieving environmental results. In
2001, we reported that EPA program officials treated EPA*s strategic goals
and objectives not as a tool to guide the selection of grants, but rather
as a

clerical tool for categorizing grants after the funds were already
awarded. 13 By assessing the relevance of these grants to EPA*s strategic
plan after selecting the grantees, EPA cannot ensure that it is selecting
the projects that will best help it accomplish its mission.

EPA has also not developed environmental measures and outcomes for all of
its grant programs. In 2000, we reported that EPA did not have program
criteria to measure the effectiveness of its Science To Achieve Results

program. 14 Instead, EPA*s management of the program focused on the
procedures and processes of awarding grants. As a result, EPA was

10 EPA Office of Inspector General, Assistance Agreement X993795- 01
Awarded by EPA to the Lake Wallenpaupack Watershed Management District,
Report No. 2002- M- 00007 (Jan. 18, 2002); and EPA Office of Inspector
General, Report of Audit on the Center for Chesapeake Communities, Report
No. E6DEP8- 03- 0014- 9100117 (Mar. 31, 1999).

11 U. S. General Accounting Office, Environmental Research: STAR Grants
Focus on Agency Priorities, but Management Enhancements Are Possible, GAO/
RCED- 00- 170 (Washington, D. C.: Sep. 11, 2000). 12 EPA Office of
Inspector General, EPA*s Training Assistance Agreements, Report No.
E1XMF6- 03- 0224- 8100070 (Mar. 4, 1998). 13 U. S. General Accounting
Office, Environmental Protection: Information on EPA Project Grants and
Use of Waiver Authority, GAO- 01- 359 (Washington, D. C.: Mar. 9, 2001).
14 GAO/ RCED- 00- 170. EPA Has Not Always

Managed Its Grants to Achieve Environmental Results

Page 8 GAO- 03- 628T EPA's Grants Management uncertain what the program
was achieving. Similarly, the Office of Management and Budget recently
evaluated four EPA grant programs to

assess the programs* effectiveness at achieving and measuring results. 15
The office found that these four EPA grant programs lacked outcomebased
measures* measures that demonstrated the impact of the programs on
improving human health and the environment. The office concluded that one
of EPA*s major challenges was demonstrating program effectiveness in
achieving public health and environmental results.

EPA often does not require grantees to submit work plans that explain how
a project would achieve measurable environmental results. The grantee work
plan describes the project, its objectives, and the method the grantee
will use to accomplish the objectives. An effective work plan should,
among other things, list the grant*s expected outcomes. The project
officer uses the work plan to evaluate performance under the agreement. In
2002, EPA*s Inspector General reported that EPA approved some grantees*
work plans without determining the projects* long- term

human health and environmental outcomes. 16 In fact, for almost half of
the 42 grants reviewed, EPA did not even attempt to measure the projects*
outcomes. Instead, EPA funded grants on the basis of work plans that
focused on short- term procedural results, such as meetings or
conferences. In some cases, it was unclear what the grant funding had
accomplished.

Both EPA*s internal management reviews and its Inspector General reports
have noted several problems in how effectively and efficiently EPA manages
its grants staff and other resources. In terms of staff, the agency has
not always held accountable its staff responsible for grants management,
such as project officers and grant specialists. EPA*s internal

management reviews have found that, in some cases, job descriptions or
performance standards were inadequate. The Inspector General recently 15
The four EPA programs assessed were the Drinking Water State Revolving
Fund, Leaking Underground Storage Tanks, Nonpoint Source Grants, and
Tribal General Assistance

programs. The Office of Management and Budget evaluated these programs
using its Program Assessment Rating Tool, a questionnaire that evaluated
four critical areas of performance: purpose and design, strategic
planning, management, results and accountability. These assessments were
included in the President*s 2004 budget submission.

16 EPA Office of Inspector General, Surveys, Studies, Investigations, and
Special Purpose Grants, Report No. 2002- P- 00005 (Mar. 21, 2002). EPA Has
Not Effectively

Managed Its Grant Resources

Page 9 GAO- 03- 628T EPA's Grants Management reported similar findings. 17
According to the Inspector General, agency leadership had not always
emphasized the importance of project officer duties, nor held project
officers accountable for performing certain duties.

More specifically, project officer responsibilities were not clearly
defined in their performance agreements and position descriptions, and
there were no consequences when required duties were not performed.

EPA has also not provided all grant staff with the training necessary to
properly manage all aspects of grants. EPA*s internal management reviews
have noted that some staff who were managing grants had not completed the
basic project officer training. Other staff may have completed the basic
training but needed additional training to refresh their skills or to
become

familiar with all of their grants management responsibilities and
requirements. For example, in some instances, project officers were not
familiar with the five key areas they were to review when monitoring
grantees, such as the financial aspects of a grantee*s performance.

Internal management reviews also identified other staff- related problems.
For example, some internal reviews stated that EPA did not have enough
staff to adequately manage the number of grants it awards. Furthermore,
other reviews noted that uneven distribution of workload among staff
resulted in poor grants management. EPA has also not adequately managed
its resources for supporting grant

staff. Some EPA internal management reviews noted a lack of resource
commitment* time and money* to conduct grant management activities and
develop staff. This lack of resources has hampered staff in performing
their duties, according to these reviews. For example, some of these

reviews noted that grantee oversight, particularly the on- site reviews,
was limited by the scarcity of such resources as travel funds.

Finally, staff did not always have the information they needed to
effectively manage grants. According to several EPA internal management
reviews, staff lacked accessible or useable reference material* such as
policy and guidance documents, and other information resources, such as
reports of grantee expenditures. Additionally, we and others have reported
that EPA does not use information from performance evaluations or
information systems to better manage its grants. For example, one EPA

17 EPA Office of Inspector General, EPA Must Emphasize Importance of Pre-
Award Reviews for Assistance Agreements, Report No. 2003- P- 00007 (Mar.
31, 2003).

Page 10 GAO- 03- 628T EPA's Grants Management region did not analyze the
results of its own internal surveys, which were designed to assess the
effectiveness of its internal grants management

operations. In recent years, EPA has taken a series of actions to address
two of its key problem areas: grantee oversight and resource management.
It has issued several oversight policies, conducted training, and
developed a new data system for grants management. However, EPA*s
corrective actions have not been consistently successful because of
weaknesses in their implementation and insufficient management emphasis.

Between 1998 and 2002, EPA issued three policies to improve its oversight
of its grant recipients. These policies have tried to improve oversight by
establishing, expanding, and refining the activities of EPA staff involved
in managing grants. EPA took additional actions to reduce the backlog of
grants needing closeout.  EPA*s first policy, issued in May 1998,
required grants management office

staff to monitor the financial progress and administrative compliance of
grant recipients* activities. The policy also required the staff to
conduct site visits or desk reviews to review the adequacy of some
grantees* administrative and financial systems for managing their grants.
Furthermore, the grants management offices had to submit biennial
monitoring plans, which included their proposed monitoring activities.
Finally, the policy included suggested criteria for selecting grantees to
be reviewed and guidelines for how to conduct the oversight activities.

 EPA*s second policy, issued in April 1999, added oversight
responsibilities for program staff in headquarters and the regions. The
policy required headquarters and regional program offices to submit annual
plans outlining their proposed monitoring activities. The policy also
suggested activities to be included in these plans, such as monitoring
grantees* progress of work, documenting their efforts, and closing out
grants in a timely manner.

 EPA*s third policy, issued in February 2002, further refined its
oversight requirements by having grant management and program offices
conduct EPA*s Past Actions

Have Targeted Some of the Key Problems but Have Not Been Consistently
Successful

EPA Has Taken Actions to Improve Oversight of Grantees and Resource
Management

Page 11 GAO- 03- 628T EPA's Grants Management in- depth monitoring on at
least 5 to 10 percent of their grant recipients. 18 The grant management
offices had to assess grantees* financial and administrative capacity,
while the program offices had to assess the

grantees* activities in five key areas, such as progress of work and
financial expenditures. Furthermore, the grant management offices, as well
as regional and headquarters program offices, had to report quarterly on
their in- depth monitoring activities. Additionally, the policy committed
the Office of Grants and Debarment to the development of a database,
which, according to an EPA official, the grants management offices would
use to store the results of their in- depth monitoring activities.
Finally, the policy included suggested guidance for how to conduct program
office reviews.

One of the final steps in monitoring is *closing out* grants to ensure
that the project was completed and that any remaining funds are recovered.
In 1996, EPA had a backlog of over 19, 000 grants needing closeout. To
reduce

such backlogs and prevent future backlogs, EPA, among other things,
developed specific procedures for closing out nonconstruction grants and
identified a strategy for closing construction grants that included
assessing

impediments to closing out grants. In terms of resource management, EPA
provided grants management training for its staff and some grant
recipients. It developed and periodically updated a training manual for
project officers. EPA also required project officers to attend a 3- day
training course based on this manual and periodically take a refresher
course. EPA developed a database to certify that project officers had
completed this training. According to an EPA official, grants specialists
have also received some training. Finally, EPA conducted a 1- day grants
management training

course for nonprofit grantees and pilot- tested a standard training course
for grants specialists.

Finally, EPA has taken steps to improve another critical resource* its
primary data system for managing grants. In 1997, it began developing the
Integrated Grants Management System (IGMS), which, according to an EPA
official, will allow electronic management throughout the life of the
grant. EPA believes IGMS could help resolve some of the long- standing
problems in grants management by implementing controls to prevent certain
documents from being submitted without required elements and 18 EPA calls
this in- depth monitoring, *advanced monitoring.*

Page 12 GAO- 03- 628T EPA's Grants Management providing electronic
reminders of when certain activities or documents are due. Additionally,
EPA designed the system to reduce the potential for

data entry errors. According to an EPA official, IGMS is being developed
through modules. In 2001, EPA began implementing the system to control the
application and award phases of a grant. Using IGMS, EPA will be able to
review the grantee*s application, prepare and review EPA*s documents, and
approve the award electronically. In April 2003, EPA will begin using the
postaward module of IGMS. This module will allow project officers to enter
project milestones into the system, communicate with other staff involved
in overseeing grants, receive electronic reports from grantees, and
initiate closeout activities electronically. EPA expects that all staff
will be using

IGMS to electronically manage grants by September 2004. EPA continues to
face grant management problems, despite the corrective actions it has
taken to date. In 2002, EPA*s Inspector General reported that EPA*s
corrective actions were not effectively implemented and specifically, for
monitoring, found, among other things, 19  inconsistent performance of
monitoring responsibilities,

 inadequate preparation of monitoring plans,  incomplete submission of
quarterly compliance reports, and  considerable differences among the
programs and the regions in the

number of on- site evaluations they conducted. As part of our ongoing
review, we are assessing EPA*s corrective actions for monitoring and have
found mixed results. On the one hand, we have seen some problems. For
example, we identified two weaknesses in the database EPA created to store
the results of its in- depth reviews. First, only grant management
offices* not program offices* had to enter the results of their reviews
into this database, and according to an EPA official familiar with the
database, not all of them did so. Second, according to the same official,
EPA did not design the database so that it could analyze the results of
the in- depth reviews to make management improvements.

19 EPA Office of Inspector General, Additional Efforts Needed to Improve
EPA*s Oversight of Assistance Agreements, Report No. 2002- P- 00018 (Sept.
30, 2002). EPA*s Past Actions Have

Had Mixed Results and Have Not Been Consistently Successful in Resolving
Grants Management Problems

Page 13 GAO- 03- 628T EPA's Grants Management On the other hand, however,
we found that EPA*s corrective actions increased the oversight of its
grant recipients. In 2002, EPA reported that it

had conducted 578 on- site reviews, and 629 desk reviews, which is an
increase in both the number of on- site reviews and the number of reviews
some offices conducted. 20 In addition, EPA*s 2002 internal reviews
indicated some improvements in oversight compared with the prior year*s
performance.

On another positive note, EPA has made improvements in closing out grants.
In 1998, we reported that in some instances EPA*s corrective actions to
close out grants were not initially successful. 21 For example, we had
found that strategies to reduce the closeout backlog were not always

consistently implemented or failed to close out a considerable number of
grants, despite making some progress. However, EPA had successfully
resolved its backlog problem by 2002. As a result, EPA has been able to
eliminate this backlog as a material weakness and receive better assurance
that grant commitments have been met.

With respect to resource management, EPA implemented corrective actions to
improve training, but these actions have not been fully successful. For
training, the EPA Inspector General reported that the agency did not have
adequate internal controls in place to ensure that project officers were
in compliance with the training requirements. Specifically, one region did
not track the names and dates of project officers who received training,
the agencywide database on training for project officers was inaccurate
and had limited functionality, and the online refresher course did not
have the controls necessary to prevent staff from obtaining false
certifications.

In addition to the weaknesses in the corrective actions for specific
problem areas, the EPA Inspector General found two other problems. First,
the agency*s internal grant management reviews did not consistently
examine issues to identify and address systemic weaknesses, did not
adequately identify the causes of specific weaknesses or how the proposed
corrective actions would remedy the identified weakness, and were not

sufficiently comprehensive. Furthermore, the Grants Administration
Division did not assess the results of these reviews to make management

20 EPA*s Inspector General reported that EPA conducted 466 on- site
evaluations in 2001. 21 U. S. General Accounting Office, Environmental
Protection: EPA*s Progress in Closing Completed Grants and Contracts, GAO/
RCED- 99- 27 (Washington, D. C.: Nov. 20, 1998).

Page 14 GAO- 03- 628T EPA's Grants Management improvements. Second, EPA*s
senior resource officials did not ensure compliance with EPA policies or
sufficiently emphasize grantee

oversight. 22 The Inspector General concluded that the lack of emphasis
contributed to the identified implementation weaknesses. In response to
this assertion, senior resource officials stated that monitoring is
affected by the limited availability of resources, and that they lack
control over how regional program offices set priorities. The Inspector
General pointed out that these officials are responsible for providing
adequate resources; however, none of the officials interviewed had
conducted assessments to determine whether they had adequate resources.

EPA has recently issued new policies to address two of the key problems we
have identified* competition and oversight* and developed a 5- year plan
to address its long- standing grants management problems. In

September 2002, EPA issued a policy to promote competition in awarding
grants by requiring that certain grants be competed. These grants may be
awarded noncompetitively only if certain criteria are met, in which case,
a detailed justification must be provided. The new policy also created a
senior- level advocate for grants competition to oversee the
implementation of the policy. In December 2002, EPA also issued a new
oversight policy that increases the amount of in- depth monitoring* desk
reviews and on- site reviews* that EPA conducts of grantees; mandating
that all EPA units enter compliance activities into a database; and
requiring transaction testing for unallowable expenditures, such as
lobbying, during on- site evaluations reviews.

In April 2003, EPA issued a 5- year Grants Management Plan. EPA*s
Assistant Administrator for Administration and Resources Management has
called implementation of this plan the most critical part of EPA*s grants
management oversight efforts. The grants management plan has five goals
and accompanying objectives:

 Promote competition in the award of grants by identifying funding
priorities, encouraging a large and diverse group of applicants, promoting
the importance of competition within the agency, and providing adequate

22 Senior resource officials are typically deputy assistant administrators
in headquarters offices and assistant regional administrators, and are in
charge of strengthening agencywide fiscal resource management while also
ensuring compliance with laws and regulations. EPA Has Recently

Issued New Policies and Developed a Plan to Address Its Grants Management
Problems

Page 15 GAO- 03- 628T EPA's Grants Management support for the grant
competition advocate.  Strengthen EPA*s oversight of grants by improving
internal reviews of EPA

offices, improving and expanding reviews of EPA grant recipients,
developing approaches to prevent or limit grants management weaknesses,
establishing clear lines of accountability for grants oversight, and
providing high- level coordination, planning, and priority setting.

 Support identifying and achieving environmental outcomes by including
expected environmental outcomes and performance measures in grant
workplans, and improving the reporting on progress made in achieving
environmental outcomes.

 Enhance the skills of EPA personnel involved in grants management by
updating training materials and courses and improving delivery of training
to project officers and grants specialists.

 Leverage technology to improve program performance by, for example,
enhancing and expanding information systems that support grants management
and oversight.

Although we have not fully assessed EPA*s new policies and grants
management plan, I would like to make a few preliminary observations on
these recent actions based on our ongoing work. Specifically, EPA*s plan:

 Recognizes the need for greater involvement of senior officials in
ensuring effective grants management throughout the agency. The plan calls
for a senior- level grants management council to provide high- level
coordination, planning, and priority- setting for grants management.

 Appears to be comprehensive in that it addresses the four major
management problems* competitive grantee selection, oversight,
environmental results, and resources* that we identified in our ongoing
work. Previous EPA efforts did not address all these problems, nor did
they coordinate corrective actions, as this plan proposes. EPA*s plan ties
together recent efforts, such as the new policies and ongoing efforts in
staff and resource management, and proposes additional efforts to resolve
its major grants management problems.

 Identifies the objectives, milestones, and resources needed to help
ensure that the plan*s goals are achieved. Furthermore, EPA is developing
an annual companion plan that will outline specific tasks for each goal
and objective, identify the person responsible for completing the task,
and set

Page 16 GAO- 03- 628T EPA's Grants Management an expected completion date.
 Begins to build accountability into grants management by establishing

performance measures for each of the plan*s five goals. Each performance
measure establishes a baseline from which to measure progress and target
dates for achieving results. For example, as of September 2002, 24 percent
of new grants to nonprofit recipients that are subject to the competition
policy were competed* EPA*s target is to increase the percentage of these
competed grants to 30 percent in 2003, 55 percent in 2004, and 75 percent
in 2005. The plan further builds accountability by identifying the need
for

performance standards for project officers and grants specialists that
address grant management responsibilities.

Although these actions appear promising, EPA has a long history of
undertaking initiatives to improve grants management that have not solved
its problems. If the future is to be different from the past, EPA must
work aggressively to implement its new policies and its ambitious plan
through a sustained, coordinated effort. It will be particularly important
for all agency officials involved in managing grants to be committed to
and held accountable for achieving the plan*s goals and objectives.

Mr. Chairman, this concludes my testimony. I would be happy to answer any
questions that you or Members of the Subcommittee may have.

For further information, please contact John B. Stephenson at (202) 512-
3841. Individuals making key contributions to this testimony were Andrea
Wamstad Brown, Christopher Murray, Paul Schearf, Rebecca Shea, Carol
Herrnstadt Shulman, Bruce Skud, and Amy Webbink. Contacts and

Acknowledgments

(360326)

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