Residential Energy: Oversight of Low-Income Home Energy 	 
Assistance Program Payments (27-SEP-05, GAO-05-1039T).		 
                                                                 
The Department of Health and Human Services' (HHS) Low-Income	 
Home Energy Assistance Program (LIHEAP) is a block grant program 
with recent annual funding of about $2 billion that provides fuel
payment assistance and payments for home energy efficiency	 
improvements for low-income households. As energy prices continue
to rise, this assistance is growing more important to mitigate	 
the impact of higher prices on low-income households. HHS awards 
LIHEAP funds by formula to all 50 states and the District of	 
Columbia, federally or state-recognized Indian tribes and tribal 
organizations, and territories. These grantees then provide	 
energy assistance payments to low-income households. Within	 
LIHEAP, the Residential Energy Assistance Challenge Option	 
(REACH) program funds demonstration projects to help low-income  
families reduce their energy usage. GAO was asked to provide	 
information on (1) HHS's oversight of LIHEAP payments made by	 
grantees and (2) GAO's 2001 review of LIHEAP's REACH program.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-1039T					        
    ACCNO:   A38297						        
  TITLE:     Residential Energy: Oversight of Low-Income Home Energy  
Assistance Program Payments					 
     DATE:   09/27/2005 
  SUBJECT:   Block grants					 
	     Disadvantaged persons				 
	     Energy						 
	     Federal aid programs				 
	     Fund audits					 
	     Funds management					 
	     Monitoring 					 
	     Performance measures				 
	     Program evaluation 				 
	     HHS Low Income Home Energy Assistance		 
	     Program						 
                                                                 
	     OCS Residential Energy Assistance			 
	     Challenge Option					 
                                                                 

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GAO-05-1039T

United States Government Accountability Office

Testimony

GAO	Before the Subcommittee on Federal Financial Management, Government
Information, and International Security, Committee on Homeland Security
and Governmental Affairs, U.S. Senate

For Release on Delivery

Expected at 2:30 p.m. EDT RESIDENTIAL ENERGY

Tuesday, September 27, 2005

        Oversight of Low-Income Home Energy Assistance Program Payments

Statement of Jim Wells, Director Natural Resources and Environment

GAO-05-1039T

[IMG]

September 27, 2005

RESIDENTIAL ENERGY

Oversight of Low-Income Home Energy Assistance Program Payments

  What GAO Found

HHS relies on individual grantees-the states, tribal organizations, and
territories-to oversee the LIHEAP program. Because the Single Audit Act
made state and local governments primarily responsible for obtaining
independent audits of funds they receive from federal programs, HHS's
principal oversight function is to monitor, not audit, LIHEAP payments
made by grantees. Monitoring includes assessing the quality of single
audits conducted under the act, reviewing audit results, and ensuring that
corrective actions are taken to resolve audit findings. GAO's brief review
of relevant 2004 Single Audit Act reports showed that the only LIHEAP
costs that were specifically questioned involved relatively small sums-for
example, one report cited incorrect or duplicate payments totaling $8,864.
Another audit report questioned $1,285 in LIHEAP payments because of
inadequate procedures to prevent overpayments.

GAO's 2001 review of the REACH program found several projects that
included social services that were not directly related to meeting home
energy needs. For example, six projects included job skill or employment
development services, and one project provided funds to help clients pay
past-due rent or mortgage payments. In addition, the report stated that
REACH did not have performance goals that were objective and quantifiable.
As a result, GAO did not believe HHS could effectively evaluate the
program's overall performance. The report also noted that such goals would
provide a clearer basis for selecting individual projects to fund. GAO
recommended that HHS develop performance goals for REACH that were
objective, measurable, and quantifiable. While HHS agreed with this
recommendation, GAO has been unable to identify any actions taken to
implement this recommendation. According to HHS, the agency continues to
work on the development of long-term performance measures for LIHEAP.

                 United States Government Accountability Office

Mr. Chairman and Members of the Subcommittee:

I appreciate the opportunity to be here today to discuss the Department of
Health and Human Services' (HHS) Low-Income Home Energy Assistance Program
(LIHEAP) and our observations on oversight methods for determining the
sources and magnitude of possible improper payments. As you know, LIHEAP
is a block grant program established in 1981 that funds fuel payment
assistance and home energy efficiency improvements for low-income
households. With recent annual funding of about $2 billion, LIHEAP seeks
to increase the health and prosperity of communities and tribes by helping
low-income households-particularly those with the lowest income, which pay
a high proportion of household income for home energy-meet their immediate
home energy needs. As energy prices continue to rise, this assistance is
growing more important to mitigate the impact of higher prices on
low-income households. HHS awards LIHEAP grant funds by formula to all 50
states and the District of Columbia, federally or state-recognized Indian
tribes and tribal organizations, and insular areas (American Samoa, the
Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, and the
U.S. Virgin Islands). These grantees provide payments to households to
help them meet their energy needs. According to HHS, in fiscal year 2004,
approximately 4.6 million households received heating assistance; 308,000
households received cooling aid; 1.1 million received winter/year-round
crisis aid; 92,000 received summer crisis aid; and 112,000 received
weatherization assistance. Households may receive more than one kind of
LIHEAP assistance.

Within LIHEAP, the Congress established the Residential Energy Assistance
Challenge Option (REACH) program, which provides grants that fund
demonstration projects to test various approaches to help lowincome
families reduce their energy usage and become more self-sufficient in
meeting their home energy needs. In a sense, the REACH program serves as a
"laboratory" for identifying better ways to ensure that lowincome families
can afford home heating and cooling. With annual average funding of about
$6 million-less than 1 percent, on average, of the total annual funding
for LIHEAP-REACH had provided 112 grants totaling $55 million by the end
of fiscal year 2004. Individual grants ranged in amount from $50,000 to
$1.6 million.

My statement today discusses (1) HHS's oversight of LIHEAP payments made
by grantees and (2) our 2001 review of LIHEAP's REACH program. To address
LIHEAP payment oversight, we gathered information on the payment oversight
process and conducted a brief review of 2004 Single

                              Page 1 GAO-05-1039T

  LIHEAP Payment Oversight

Audit Act reports that addressed LIHEAP. Specifically, we queried the
Single Audit Database from the Federal Audit Clearinghouse to identify
2004 Single Audit Act reports that addressed LIHEAP. We then examined
those reports that had findings to determine the nature of the findings as
they related to LIHEAP. Our discussion of the REACH program is based on
our 2001 report, which we conducted in accordance with generally accepted
government auditing standards.1 We did not update our 2001 report on the
REACH program.

As a block grant program, LIHEAP offers much flexibility to states and
other grantees to manage and oversee their energy assistance programs in
the way that they feel best serves their low-income populations. While the
federal government establishes overall guidelines, each grantee operates
its own program, taking applications, establishing eligibility, and making
decisions on the kinds of assistance payments it will offer. HHS accepts
the grantee's interpretation of the LIHEAP statute unless HHS finds it to
be "clearly erroneous."

LIHEAP payments are subject to review under the Single Audit Act. The
Single Audit Act made state and local governments primarily responsible
for obtaining independent audits of federal programs, including payments
made under LIHEAP. As a result, HHS's principal oversight function is to
monitor, not audit, LIHEAP payments made by grantees. Monitoring includes
assessing the quality of single audits conducted under the act, reviewing
audit results, and ensuring that corrective actions are taken to resolve
audit findings. Through the audit or other federal review processes,
grantees must return funds when spent in ways contrary to the LIHEAP
statute. Our brief review of 2004 Single Audit Act reports addressing
LIHEAP showed relatively few specific LIHEAP-related audit findings. In
some cases, grantees were found to have not met accounting criteria for
managing federal funds they were awarded-both from LIHEAP and other
programs-so it was difficult to distinguish any specific improper LIHEAP
payments. For example, one grantee lacked adequate documentation to
support costs it charged to manage its federal funds. We were able to
identify only certain relatively small LIHEAP payments questioned in the
audit reports, such as $8,864 in what appear to have been incorrect or
duplicate payments made by one grantee. Another audit

1GAO, Residential Energy Assistance: Effectiveness of Demonstration
Program as Yet Undetermined, GAO-01-723 (Washington, D.C.: August 17,
2001).

                              Page 2 GAO-05-1039T

  REACH Program

report questioned $1,285 in LIHEAP payments because of inadequate
procedures to prevent overpayments.

In addition to the Single Audit Act, the Improper Payments Information Act
of 2002 requires federal agencies to review their programs and identify
those that may be susceptible to significant improper payments. Agencies
are required to estimate the annual amount of improper payments and submit
those estimates to the Congress; when improper payments are estimated to
exceed $10 million, those estimates must be accompanied by a report of
actions being taken to reduce such payments. As part of this process, HHS
has conducted risk assessments identifying specific program risks and
assessing related controls. Although HHS identified seven of its programs
as high-risk, LIHEAP was not among them. We are not aware of any more
comprehensive information on the appropriateness of payments made by
LIHEAP grantees other than the few examples discussed above.

While we have not reviewed overall LIHEAP compliance, at the request of
the Senate Committee on Health, Education, Labor and Pensions and the
House Committee on Education and Workforce, in 2001 we did review and
report on REACH-a small part of the overall program. We found that many
REACH projects involved energy-related repairs to homes and budget
counseling, and three state REACH projects were developing consumer
cooperatives to purchase electricity or bulk fuels, such as heating oil.
However, some REACH projects made payments for social services not
directly related to meeting home energy needs. For example, six projects
made payments for job skill or employment development services, and one
project provided funds to help clients pay past-due rent or mortgage
payments.

The legislation authorizing REACH identified three performance goals for
individual REACH projects: reduce energy costs of participating
households, increase the regularity of home energy bill payments, and
increase energy suppliers' contributions to reduce eligible households'
energy burden. Despite these broad purposes for the program, in 2001 HHS
had not developed performance goals that were objective and quantifiable.
Consequently, we did not believe HHS could effectively evaluate the
program's overall performance and report to the Congress on what was
accomplished for the resources expended. We also noted that developing
such goals would provide a clearer basis for selecting individual projects
to fund. Our report recommended that HHS develop program performance goals
for REACH that were objective, measurable, and quantifiable. HHS agreed
with the recommendation and planned to

                              Page 3 GAO-05-1039T

develop performance goals for REACH as part of the agency's Government
Performance and Results Act (GPRA) plan. However, the most recent FY 2005
Performance Plan did not include goals for the REACH program under LIHEAP.
We have been unable to identify any actions taken to implement this
recommendation. According to HHS officials, they have continued to examine
this issue and work on the continuing improvement and development of
long-term performance measures for the overall LIHEAP program.

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

Contacts 	Contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of this statement. For
further information about this testimony, please contact Jim Wells at
(202) 5123841 or [email protected].

                          (360628) Page 4 GAO-05-1039T

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