Head Start: Comprehensive Approach to Identifying and Addressing
Risks Could Help Prevent Grantee Financial Management Weakenesses
(28-FEB-05, GAO-05-176).
In fiscal year 2004, Congress appropriated $6.8 billion to serve
919,000 poor children through 1,680 Head Start grantees
nationwide. Recent reports of financial improprieties at a number
of Head Start programs raised questions about the effectiveness
of the oversight by the Department of Health and Human Services'
(HHS) Administration for Children and Families (ACF) in
identifying and resolving financial management weaknesses in Head
Start grantees. In this report, GAO provides information on
whether (1) ACF can consistently identify financial management
weaknesses, if any, in Head Start grantees and (2) ACF ensures
that grantees effectively resolve any problems, in a timely
manner, when detected.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-176
ACCNO: A18296
TITLE: Head Start: Comprehensive Approach to Identifying and
Addressing Risks Could Help Prevent Grantee Financial Management
Weakenesses
DATE: 02/28/2005
SUBJECT: Children
Families
Federal aid programs
Federal funds
Federal grants
Financial management
Internal controls
Performance measures
Preschool education
Program management
Risk management
Federal Audit Clearinghouse Database
Head Start Program
Head Start Program Review Instrument for
Systems Monitoring
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GAO-05-176
United States Government Accountability Office
GAO
Report to Congressional Requesters
February 2005
HEAD START
Comprehensive Approach to Identifying and Addressing Risks Could Help Prevent
Grantee Financial Management Weaknesses
GAO-05-176
[IMG]
February 2005
HEAD START
Comprehensive Approach to Identifying and Addressing Risks Could Help Prevent
Grantee Financial Management Weaknesses
What GAO Found
While ACF uses many processes to collect and analyze information on Head
Start grantees, it has not designed its processes and integrated this
information to consistently identify Head Start grantees' financial
management weaknesses. For example, ACF has not developed a comprehensive
risk assessment to identify weaknesses that could limit the program's
ability to achieve its objectives. Furthermore, ACF has no process in
place to ensure that its on-site reviews are conducted in accordance with
the framework it has designed to assess grantee compliance with program
and financial management requirements. Moreover, financial reports and
audits are not effectively used in day-to-day monitoring activities to
identify high-risk grantees and resolve their problems.
Head Start grantees who were judged out of compliance in a review by ACF
in 2000 with one or more of the program's financial management standards
were about as likely to remain out of compliance as attain full compliance
over the succeeding 3 years. ACF's failure to ensure that more grantees
promptly resolve such problems creates opportunities for financial losses
or instability that affect services to children and families. After
working with one grantee to correct severe financial management problems
for 3 years- including failure to account for over $400,000 in grant funds
that were not spent on Head Start services to children and their
families-ACF notified the organization that it no longer would receive
funding. While ACF may terminate grantees with serious financial
weaknesses such as recurring failure to comply with federal management
standards, this process is rarely used: ACF most often encourages grantees
to voluntarily relinquish their grants. In a small number of cases, ACF
must proceed with formal termination, which can be difficult and lengthy
owing, in part, to grantees' right to continued funding during its appeal,
regardless of merit, and their ability to finance appeals with grant
funds.
High Incidence of Continued Noncompliance with Head Start Standards among
Grantees Reviewed by ACF in 2000
Source: GAO analysis of PRISM data. Graphics in part by Art Explosion.
United States Government Accountability Office
Contents
Letter
Results in Brief
Background
ACF Lacks a Comprehensive Strategy to Assess Head Start Risks
ACF Does Not Ensure That Grantees Effectively Resolve Financial Management
Problems
Conclusions
Matter for Congressional Consideration
Recommendations for Executive Action
Comments from the Administration for Children and Families and Our
Evaluation
1
2 5 14
23 31 32 32
33
Appendix I Scope and Methodology
Appendix II Comments from the Department of Health and Human Services
Appendix III GAO Contacts and Staff Acknowledgments 47
GAO Contacts 47
Acknowledgments 47
Related GAO Products 48
Head Start and Other Early Childhood Programs 48
Internal Controls 49
Grants Management 49
Tables
Table 1: ACF's Oversight Processes for Monitoring Grantees' Financial
Management 13 Table 2: Summary of Results for PIR Data Reliability Tests,
20022003 Program Year 39 Table 3: Grantees and Head Start Funds Allocated
to the Largest Regional Offices 41 Table 4: Reasons for Selecting and
Reviewing Grantees, by Region 41
Figures
Figure 1: Federal Head Start Funding (Fiscal Years 1990-2005) 6 Figure 2:
ACF Organizational Chart 11 Figure 3: Average Timeline for Audit Review
Process for Files
Reviewed 24 Figure 4: Grantees with Recurring Financial Management
Problems (2000-2003) 26 Figure 5: A Case Study: Northwest Arkansas Head
Start Human Services, Inc. 30
Abbreviations
ACF Administration for Children and Families
ACYF Administration on Children, Youth, and Families
FBI Federal Bureau of Investigation
FMFIA Federal Managers' Financial Integrity Act
HHS Department of Health and Human Services
IG Inspector General
NEAR National External Audit Review Center
OMB Office of Management and Budget
PIR Program Information Reports
PMS Payment Management System
PRISM Program Review Instrument for Systems Monitoring
TANF Temporary Assistance for Needy Families
This is a work of the U.S. government and is not subject to copyright
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separately.
United States Government Accountability Office Washington, DC 20548
February 28, 2005
Congressional Requesters
Recent reports of financial improprieties at a number of Head Start
programs around the country raised questions about the effectiveness of
the Department of Health and Human Services' (HHS) oversight of Head Start
grantees. Head Start is one of the largest federal early childhood
programs, providing grants to local organizations to give preschool
education and other supplemental services to poor children and their
families. In fiscal year 2004, the Congress appropriated $6.8 billion to
serve 919,000 poor children through 1,680 Head Start grantees nationwide.
HHS's Administration for Children and Families (ACF) administers the Head
Start program through its network of regional offices. Head Start was last
reauthorized in 1998 for fiscal years 1999 through 2003; it received
appropriations in 2004 and 2005 to fund the program and it is currently
scheduled for reauthorization.
Unresolved financial management weaknesses among Head Start grantees can
reduce the quality or amount of services that are provided to children or
result in a grantee's services being discontinued. Recently, some concerns
have been expressed that the lack of reliable information on the financial
integrity of Head Start grantees leaves little assurance that all the
children the program is funded to serve are receiving the "head start"
they deserve. In this report, we are providing information on (1) whether
ACF can consistently identify financial management weaknesses, if any, in
Head Start grantees and (2) whether ACF ensures that grantees effectively
resolve any problems in a timely manner when they are detected.
To assess whether ACF can consistently identify financial management
weaknesses, we reviewed and analyzed relevant agency documentation of the
processes used to oversee Head Start grantees' financial management
practices. To guide our work we used the Office of Management and Budget's
(OMB) Circular A-123: Management Accountability and Control and our own
Standards for Internal Control in the Federal Government as a basis to
collect and analyze information on ACF's oversight structure for the Head
Start Program. We interviewed senior Head Start and ACF officials in
Washington, D.C., and four of ACF's 10 regional offices- Philadelphia, Pa.
(Region III); Atlanta, Ga. (Region IV); Chicago, Ill. (Region V); and
Dallas, Tex. (Region VI), which collectively administer
more than 50 percent of all Head Start funds and oversee more than 50
percent of the nation's Head Start grantees. These 4 ACF regional offices
are among the nation's 5 largest in terms of total Head Start funding and
funded enrollment. During each of our regional office visits we met with
senior Head Start officials and regional office management to obtain their
views on the strengths and weaknesses of the different processes used to
oversee Head Start grantees. We also conducted interviews by telephone
with Head Start officials and senior management from the six other ACF
regional offices. To learn how ACF ensures that grantees effectively
resolve their financial management problems, we reviewed ACF data on the
reviews that it conducts of its Head Start grantees at least every three
years and the Federal Audit Clearinghouse-a federal database that contains
summary information on each of the grantee's annual audits. Based on this
review we selected 55 grantees with known financial management weaknesses
in the four regional offices and reviewed the regional offices' files on
these grantees for the period 2001 through 2004 to follow the use of audit
findings and actions related to the grantees' weaknesses. We also met with
program and financial specialists who work with Head Start grantees in
each of the four regional offices we visited. Finally, for all grantees
ACF reviewed from 2000 through 2003, we examined patterns of results from
those reviews in areas related to financial management. Furthermore, we
tested the reliability of two data sets-Head Start's Program Review
Instrument for Systems Monitoring (PRISM) and Head Start's Program
Information Reports (PIR)-and found the PRISM data set to be sufficiently
reliable for our purposes. Our tests identified some concerns about the
reliability of the PIR database that we discuss more fully in this report.
For additional details about our scope and methodology, see appendix I.
Our work was conducted from January through December 2004 in accordance
with generally accepted government auditing standards.
Although ACF uses many processes to collect and analyze information on
grantee financial management-such as on-site reviews, annual surveys of
grantees, and reviews of financial reports and audits-ACF has not designed
its processes or consistently used the findings from the existing
processes to assess overall program risks. Such an assessment is an
important step in identifying and addressing weaknesses that limit the
program's ability to achieve its objectives. Moreover, the processes ACF
uses to collect data on grantee financial management performance have
significant flaws. For example, we found that ACF has no process in place
to ensure that its reviewers consistently follow the standards for on-site
reviews, lacks procedures to independently verify information from
Results in Brief
grantee surveys, and makes limited use of financial reports and financial
audits to identify high-risk grantees. ACF recently began to train its
reviewers and certify that they have the skills they need to assess
grantee compliance with the program's rules; however, the limited scope of
the training and failure to conduct verification of the reviewers'
credentials may limit the benefits of these new initiatives. With respect
to financial reports, actual cash withdrawals are not routinely reconciled
with the grantees' reported expenditures in a timely manner. As a result,
unchecked problems may worsen. Although infrequent, there have been cases
in which grantees have furloughed employees or temporarily closed
centers-thereby disrupting services to children and their families-
because they spent their grants too quickly and did not adequately manage
their grants to ensure that funds were available throughout the school
year. Many program specialists in ACF regional offices that we visited
told us they most frequently learn that a grantee is having trouble
through a call from a parent or teacher reporting a problem. Although
program specialists said that such calls were a routine part of their
day-to-day monitoring activities, over-reliance on this approach to
identifying problems can result in missed opportunities to help grantees
address management challenges before they become problems.
When ACF identifies grantees with financial management weaknesses, the
agency does not consistently ensure that grantees effectively resolve
problems. Lack of more aggressive action to ensure that grantees address
their problems can allow weaknesses to persist that affect program
services. Our analysis of the results of all of ACF's on-site reviews
conducted in 2000 shows that 53 percent of the grantees identified by ACF
with financial management problems were again cited in the grantee's next
review. In our detailed review of the actions ACF takes to ensure that
grantees address financial management problems focused on problems that
were identified between 2000 and 2003, we found that in most of the 55
cases we reviewed ACF only required the grantee to self-certify that it
corrected its problems and pursued no further action. One of the more
aggressive approaches ACF can take to address long-standing problems is to
require the grantee to develop and implement a quality improvement plan,
but first ACF must declare the grantee "deficient" -a term it uses to
identify grantees with severe problems. Yet, we noted inconsistencies in
the process used by the regional offices to determine the severity of the
problems. Some of the regional office managers we spoke with told us that
they treated each case differently and largely based their decisions on
their previous experiences working with the grantees, so one grantee might
be deemed deficient while another, with similar problems, would not. Once
a grantee is found deficient, ACF may allow it up to 1 year to
correct its problems and then must revisit the grantee. We found that ACF
makes little use of its authority to replace an existing grantee that is
not meeting performance or financial management requirements. When
awarding new funds each year, ACF gives priority to the current grantee
even if the grantee has financial management weaknesses. While ACF has the
authority to terminate a grantee, this process is rarely used; ACF most
often works to encourage grantees to voluntarily relinquish their grants.
When ACF does turn to termination proceedings, it must continue to fund
the grantee and to cover the legal costs of the grantee's appeal. Senior
Head Start officials in two of ACF's regional offices we visited told us
that they are reluctant to pursue terminations because the processes used
to collect information to support such an action are inadequate, and the
termination procedures are a drain on scarce staff resources. As a result,
the process to remove a grantee that consistently fails to perform up to
standards is protracted and that grantee can continue to receive funds
long after financial management weaknesses have been identified. The
community will frequently have no other options for Head Start services
until the termination process is complete.
To address these issues and to improve oversight of the Head Start
program, we are recommending that the Assistant Secretary for Children and
Families develop a comprehensive risk assessment of the Head Start program
and improve the processes it uses to collect information on program risks.
Once these improvements have taken hold, ACF should make greater use of
its authority to recompete grants that are currently awarded to poorly
performing grantees. ACF agreed with many of our recommendations to
improve the oversight processes it uses to collect information on the
financial management of Head Start grantees. ACF also agreed that it would
explore ways to increase the accuracy of its annual survey of Head Start
grantees. These improvements should go a long ways towards ensuring that
those responsible for overseeing the Head Start program and its 1,680
grantees have the information they need to target oversight resources
effectively and reduce the program's risks. ACF did not, however, directly
address two of our recommendations that would increase the effectiveness
of its oversight processes. Namely, ACF did not address our recommendation
to more comprehensively estimate the extent of improper payments nor did
it address our recommendation to hold ACF regional management, staff, and
contract reviewers accountable for following its own guidance when
conducting on-site reviews. Finally, ACF expressed concerns about our
legal interpretation of its authority to recompete Head Start grants.
Congress may wish to consider clarifying ACF's authority to recompete
grants if ACF finds that
Background
the Head Start grantee currently serving in a community fails to meet
program or financial management requirements.
Started in 1965 as part of the Johnson Administration's War on Poverty,
Head Start was designed to deliver comprehensive educational, social,
health, nutritional, and psychological services to poor children. Head
Start offers poor children below the age of school entry and their
families a range of services, including preschool education, family
support, health screenings, dental care, and efforts to access medical
insurance. The program may either provide the services directly or
facilitate access to existing services. Head Start is authorized to serve
children at any age prior to compulsory school attendance. The program was
originally aimed at 3-to 5-year-olds. Early Head Start, a companion
program begun in 1994, focuses on making these services available to
children from birth to 3 years of age and to pregnant women.
Head Start Grantees, Funding, and Eligibility
The federal government makes Head Start grants directly to nearly 1,700
local organizations, including community action agencies, school systems,
for-profit and nonprofit organizations, other government agencies, and
tribal governments or associations. Many Head Start grantees provide
services by subcontracting with other organizations, known as delegate
agencies.
To accomplish Head Start's goals, the Congress provided $6.9 billion in
federal funds for fiscal year 2005. In addition, Head Start grantees must
match the federal grant with 20 percent of their own funds which can
include in-kind contributions, local or state funds, and donations.
Federal appropriations for Head Start increased threefold, in real terms,
during the 1990s. While federal funds have not grown as quickly from 2000
to 2005 as they did in the 1990s, funding has kept pace with inflation.
(See fig. 1.)
Figure 1: Federal Head Start Funding (Fiscal Years 1990-2005)
Head Start funds are allotted among the states based on their 1998
allocation and, for funds exceeding that amount, by a formula based on the
number of children in each state under the age of 5 from families whose
income is below the federal poverty level.1 Head Start regulations require
that at least 90 percent of the children enrolled in Head Start come from
families with incomes at or below the federal poverty level, from families
receiving public assistance, or from families caring for a foster child.
Grantees may fill up to 10 percent of their slots with children from
families that exceed the federal poverty level.
Grants Management
The Head Start program is one of more than 1,000 federally funded grant
programs. Each of these programs has specific objectives and all rely on
third parties-states, local governments, and not-for-profit organizations-
to provide direct services to eligible beneficiaries. Federal grants have
1For 2003, the federal poverty line for a family of four was $18,400
within the 48 contiguous states and the District of Columbia. In Alaska
and Hawaii, the guidelines were $23,000 and $21,160, respectively. The
poverty guidelines are updated periodically in the Federal Register, by
the U.S. Department of Health and Human Services under the authority of 42
U.S.C. 9902(2).
historically served as vehicles through which the federal government
attempted to achieve a variety of national goals by providing funding to
other levels of government to carry out specific federal policies. In
particular, economists have cited the role federal grants play in
encouraging state and local governments to provide more of the public
goods and services deemed beneficial from a national, rather than a purely
local, perspective.2
While funding third parties through grants provides many benefits to
federal policymakers, the limited federal role in providing services
creates challenges as well. Decades of research on federal grants and our
own work have identified management and oversight challenges that federal
agencies must work to overcome to ensure that their grant programs are
operating effectively and are succeeding in meeting their goals. For
example, we have reported in our series of reports on Major Management
Challenges and Program Risks that HHS's ability to ensure financial
accountability was hampered by weaknesses in key financial processes,
including financial analysis, reporting, and grant accounting.3 Since the
federal government relies on third parties to work directly with program
beneficiaries, these management challenges stem, in part, from the limited
federal role in grant programs: setting national goals and objectives,
identifying qualified grantees, providing funds to grantees that agree to
use the funds in accordance with federal laws and regulations, and
monitoring the grantees' compliance with those conditions.
All recipients of federal grant funds must periodically report on their
expenditures of federal funds, and every federal grantee that spends more
than $500,000 in federal funds each year must obtain an audit of its
financial statement that includes verification of compliance with federal
2See GAO, Federal Grants: Design Improvements Could Help Federal Resources
Go Further, GAO/AIMD-97-7 (Washington, D.C.: Dec. 18, 1996), 36.
3GAO, Major Challenges and Program Risks: Department of Health and Human
Services, GAO-03-101 (Washington, D.C.: Jan. 2003).
rules.4 In addition, each grant program has specific rules. For example,
Head Start has eligibility rules based on family income to target federal
Head Start funds to those children in greatest need. The auditor need not
check that every rule is followed in every instance; instead, the auditor
checks if the grantee has a system of plans, methods, or procedures in
place that would allow employees to prevent or detect problems in the
normal course of their assigned duties. Federal agencies are required to
have a similar system of internal controls in place to improve the
accountability and effectiveness of federal programs and operations. Among
other things, these systems should include the establishment of processes
to collect information on grantee performance.
GAO's Internal Control Framework
Internal controls help government program managers achieve desired results
through effective stewardship of public resources. Internal controls
comprise the plans, methods, and procedures used to meet missions, goals,
and objectives and, in doing so, support performance-based management.
Internal controls also help managers safeguard assets and prevent and
detect errors and fraud. Internal controls provide reasonable assurance
that an organization achieves its objectives of (1) effective and
efficient operations, (2) reliable financial reporting, and (3) compliance
with laws and regulations.
Our publication, Standards for Internal Control in the Federal Government,
provides a road map for entities to establish control for all aspects of
their operations and a basis against which entities can evaluate their
control structures. Also, our publication, Executive Guide: Strategies to
Manage Improper Payments: Learning from Public and Private Sector
Organizations, focuses on the internal control standards as they relate to
4These audits are conducted under OMB Circular A-133 and the Single Audit
Act (31 U.S.C. S:S: 7501-7507). Under the act and implementing guidance,
independent auditors audit federal awards to state and local governments
and nonprofit organizations to assess compliance with federal financial
requirements, including those for Head Start. Organizations are required
to have single audits if they spent at least $300,000 in federal funds for
fiscal years before December 31, 2003, and $500,000 for years after. The
single audit focuses audit resources on the grantees' internal controls
which cover an entity's operations and financial reporting for all its
federal awards. In addressing compliance issues, the single audit may only
review provisions of laws and regulations that have a direct and material
effect governing selected grant awards.
reducing improper payments-a focus of ongoing concern in Head Start and
other programs for which ACF has oversight responsibility.5
The five components of internal controls are:
o Control environment-creating a culture of accountability within the
entire organization-program offices, financial services, and regional
offices-by establishing a positive and supportive attitude toward the
achievement of established program outcomes.
o Risk assessment-identifying and analyzing relevant problems that might
prevent the program from achieving its objectives. Developing processes
that can be used to form a basis for measuring actual or potential effects
of these problems and manage their risks.
o Control activities-establishing and implementing oversight processes
to address risk areas and help ensure that management's decisions-
especially about how to measure and manage risks-are carried out and
program objectives are met.
o Information and communication-using and sharing relevant, reliable,
and timely information on program-specific and general financial risks.
Such information surfaces as a result of the processes-or control
activities-used to measure and address risks.
o Monitoring-tracking improvement initiatives over time and identifying
additional actions needed to further improve program efficiency and
effectiveness.
Through the implementation of these five internal control components,
agencies can help ensure compliance with financial management requirements
and strengthen program accountability.
ACF's Organizational ACF is responsible for federal programs that promote
the economic and Structure and Oversight social well-being of families,
children, individuals, and communities-such Processes as the Temporary
Assistance for Needy Families (TANF) program, the
Child Care and Development Block Grant, and Adoption Assistance programs.
ACF administers the Head Start program by awarding grants to nearly 1,700
grantees nationwide each year. The Head Start Bureau, a
5For more information on internal controls, see GAO-02-69G and
GAO/AIMD-00-21.3.1.
program office within ACF's Administration on Children, Youth, and
Families (ACYF), develops program policy and designs the programspecific
oversight processes. Other offices within ACF also play key roles in
overseeing Head Start grantees. For example, ACF's Office of Financial
Services develops and provides guidance on general grants management
issues such as financial reporting processes for all ACF programs. ACF's
10 regional offices, operating through ACF's Office of Regional
Operations, implement most of the oversight processes prescribed by the
various program offices-such as the Head Start Bureau-and the Office of
Financial Services. (See fig. 2.)
Figure 2: ACF Organizational Chart
Principal components in the establishment of grants policy and oversight
of Head Start grantees
Component parts included in GAO's work
Source: GAO analysis of ACF information.
ACF has a number of processes it uses to collect information on grantee
performance and financial management. The Head Start Act mandates that
each grantee and delegate be assessed at least once every 3 years to
ensure compliance with Head Start's performance standards. The Head Start
Bureau develops the protocols for these assessments-the Program Review
Instrument for Systems Monitoring (PRISM) Guide. The Head Start
Bureau estimates that about 700 reviews are conducted each year- covering
about one-third of all grantees and selected delegate agencies. During
these on-site reviews, a team of reviewers assesses whether the Head Start
program is in compliance with statutory, regulatory, and policy
requirements. The Head Start Act specifies that, whenever possible, these
teams should be led by an employee of HHS who is knowledgeable about the
Head Start program. In most cases, these teams are lead by staff from
ACF's regional offices. The act also specifies that the rest of the team
be knowledgeable about Head Start programs and, whenever possible, be
knowledgeable about the diverse needs of eligible children and their
families. Head Start has more than 2,600 reviewers on contract that it
sends out on week-long trips to visit grantees and conduct reviews. Many
of the reviewers that ACF contracts to take part in PRISM reviews are
employees of Head Start programs throughout the country. The size of each
review team and the expertise of the various members of the team depends
on the complexity of the issues anticipated at each grantee.
Another key process ACF uses to monitor grantees is the annual survey of
grantees, or the Program Information Reports (PIR). PIR is the only source
of national data on Head Start programs. PIR data describe important
program characteristics that may provide information for assessing risks
to program finances or specific program objectives, such as:
o the different program designs and staffing patterns;
o the funded and actual enrollment of children (and pregnant women in
Early Head Start programs with children ages 0 to 3);
o the number and types of health, education, disability, and family
services delivered to enrolled children and families; and
o the demographic, social, and other characteristics of the Head Start
and Early Head Start children and families served.
ACF also uses its reviews of financial reports and audits to monitor
grantees. ACF requires Head Start grantees to report on their expenditures
of federal funds once every 6 months. These financial reports are standard
reporting forms for all federal grantees and, as such, do not include
great detail on how a grantee spent its Head Start funds. The reports
identify how much the grantee has spent and how much is left unspent. In
addition, Head Start grantees' withdrawals are recorded in the Payment
Management System (PMS)6 and made available for review by ACF staff
monitoring grants. Grantees' Single Audits must be completed within 9
months of the end of the grantees' fiscal year. Table 1 summarizes ACF's
key oversight processes.
Table 1: ACF's Oversight Processes for Monitoring Grantees' Financial Management
Required
Monitoring process frequency Purpose and description
Triennial To determine whether a grantee meets
On-site review (PRISM) standards established in the Head Start
Act, including those related to financial
management, teams of federal staff and
contracted consultants' conduct a
weeklong, on-site review using a
structured
guide known as the Program Review
Instrument for Systems Monitoring
(PRISM).
Survey of grantees (PIR) Annual To provide management information to the
Bureau and policymakers, all programs (grantees and delegates) are
mandated by federal regulations to submit performance data, including key
financial measures such as enrollment and teacher salary ranges. Grantees
report these data through a survey known as the Program Information Report
(PIR).
Review of financial reports Semiannual To account for use of grant funds,
all grantees must submit semiannual reports on the status and use of their
federal funds.
Review of audits Annual To ensure that federal grantees' financial
statements are accurate, that they have adequate controls in place to
protect federal funds, and that they are in compliance with key
regulations, under the Single Audit Act all grantees must obtain an annual
audit of their financial statements and compliance with selected federal
laws and regulations.
Day-to-day contacts with grantees Variable To assist Head Start programs,
program specialists in ACF regional offices respond to grantee queries and
other calls from grantee staff, parents, and others with an interest in
their local Head Start programs.
Renewal application Annual To provide information to support
determination of the grantee's future funding level, grantees are required
to submit renewal applications each year to the ACF regional office.
Source: GAO analysis.
6The Payment Management System is a fully automated cash management system
that is designed to receive payment requests from grantees, edit them for
accuracy, transmit the payment to the grantee's bank account, and record
the payment transactions and corresponding disbursements in the
appropriate account. PMS is operated out of HHS's Division of Payment
Management and is used by HHS agencies (including ACF) and other federal
departments and agencies.
ACF Lacks a Comprehensive Strategy to Assess Head Start Risks
ACF uses many processes to collect information on grantee
performance-including financial management performance-but does not bring
together this information to comprehensively assess the program's risks
and identify areas where it might need new or improved processes to
collect key information. A comprehensive risk assessment is an important
step in identifying and addressing weaknesses that might limit the
program's ability to achieve its objectives. In a sign of their
willingness to improve their own processes, during the course of our
review, staff from ACF's Head Start Bureau expressed an interest in
incorporating a risk assessment strategy into the financial segment of the
PRISM review process, and such actions were taken during our review. ACF
has acted less effectively to elevate the risk assessment strategy to its
own operations, such as grants management in its regional offices.
Although ACF collects information that would be useful in assessing Head
Start's risks, we found that many of its monitoring processes have flaws
that limit the reliability and usefulness of the information collected.
Improving the reliability of the information it collects may help ACF
identify financial management weaknesses in its grantees sooner.
ACF Has Engaged in Limited Analysis of Financial Risks to Head Start
Program-Specific Risk Assessments
Many of the efforts that ACF makes, through its component organizations,
to collect information and assess program risks are poorly integrated.
While we identified a number of risk assessment activities throughout ACF,
we could not identify any effort to bring the various monitoring processes
together and make a comprehensive assessment of Head Start's
risks-including financial management risks. All federal grant programs,
including Head Start, face some risks from grantees that might fail to
comply with program-specific requirements, such as Head Start's income
eligibility and enrollment restrictions. Other risks stem from failing to
comply with general grants management requirements such as failure to
develop cost allocation strategies to ensure that grantees spend federal
funds on program beneficiaries and not on excessive overhead costs or
other purposes.
In May 2004, the Head Start Bureau announced a new initiative focusing on
increasing accountability in Head Start. But, this effort-ACF's Head Start
Management Initiative-targets risks that were identified externally-in our
recent reports, news articles, and congressional inquiries-and does not
represent a comprehensive, proactive effort. The Initiative focuses on
four risks: underenrollment, improper payments, failure to comply with
program regulations, and excessive executive and administrative personnel
compensation. To address these risks, ACF plans to strengthen on-site
monitoring and develop an online management
information system to track enrollment, fiscal, and programmatic data.
Though these efforts are key first steps, ACF officials say they will be
implemented in 2005, and it is too early to assess their effectiveness.
However, the Initiative does not address other risks such as failures of
board governance, which a senior Head Start official cited as a problem
for most grantees with serious or persistent problems. The Head Start
Bureau has offered governance training for Head Start program board
members in (1) their fiduciary responsibilities, (2) their liability as
board members if problems arise, and (3) effective board operations. ACF
said that it is the responsibility of each grantee to train the members of
its boards. ACF provided training on governance issues via satellite
broadcast in September 2004 and ACF also said it made one-time training
funds available to support such training needs.
Until recently, ACF had not collected information that it could use to
estimate the extent of improper payments and recent efforts have been
limited in scope. ACF has recently collected data on the extent to which
grantees may be enrolling children from families that exceed the program's
income eligibility guidelines-a program risk because many eligible
children may not have access to the services they deserve. However, ACF's
implementation of a governmentwide effort to reduce the risk of improper
payments has focused solely on measuring the risks that payments were made
to grantees that enrolled too many children from families that did not
meet the income eligibility requirements. ACF's approach has excluded
improper payments that might be made for other purposes such as payments
for unallowable program activities, improper payments to contractors,
payments to grantees whose programs are significantly under-enrolled, and
other unauthorized payments. To estimate the extent of improper Head Start
payments owing to enrollment of income-ineligible families, ACF sampled 50
grantees and-projecting this sample to the program as a whole-found that
about 4 percent of the families served by the program should not have been
allowed to participate in the program. While ACF plans to continue to
monitor this risk of improper payments by sampling grantees each year, it
does not have plans to identify and estimate risks brought about by other
types of improper payments.
Grants Management Risk ACF relies on each of its regional offices to
assess grant management risks
Assessments in their own operations; but ACF has not recently conducted
an independent compliance review, which is important to ensure that grants
policies are followed and ACF's financial interests are protected. The
Federal Managers' Financial Integrity Act (FMFIA) requires federal
agencies to conduct self-assessments to ensure that their internal
controls
are adequately maintained and evaluated. As part of its self-assessment,
each regional office reports on weaknesses it identified each year,
efforts to correct previously identified weaknesses, and potential
material weaknesses that represent broader threats to ACF's operations as
a whole.7 For example, one region reported its Head Start property grant
files did not contain complete, permanent records on all real property
acquired or renovated with Head Start funds-a problem also identified in a
HHS Inspector General (IG) report as early as 1996.8 Both the IG and the
regional office reports said that as a consequence ACF was unable to
protect federal interests in facilities acquired or renovated with Head
Start funds. Although in its next FMFIA self-assessment the region
reported that it was making progress addressing those risks and expected
to complete rebuilding the files by March 2005, ACF told us in its
comments on a draft of this report that it currently expected that this
project would not be complete until September 2005.
While the FMFIA self-assessments enable the regional offices to focus on
some grants-management risks, periodic independent compliance reviews are
also key to ensuring that the regional offices follow ACF's own oversight
processes. As part of HHS's Balanced Scorecard Initiative,9 ACF reported
in 2000 that some grants management offices received late reports from
grantees, did not have systems in place to monitor grantee funds to
identify excessive drawdowns, and might not be accounting for grant funds
in a timely manner. The scorecard report recommended that ACF consider
conducting formal compliance reviews of ACF regional offices to identify
risks and correct any grants management problems. Officials with ACF's
Office of Administration said that constraints on staffing and travel
funds have prevented them from conducting any
7A material weakness is a condition in which the design or operation of
one or more internal control components-or monitoring processes-does not
reduce to a relatively low level the risk that any noncompliance would be
material and not be detected within a timely period by employees in the
normal course of performing their assigned duties.
8Department of Health and Human Services, Office of Inspector General,
Review of Facility Purchases by the Head Start Program during Fiscal Years
1993 and 1994 (A-09-94-00085) (Washington, D.C.: 1996).
9HHS's Balanced Scorecard initiative seeks to improve its management
activities by measuring its performance, making improvements, and
assessing how well the organization is positioned to perform in the
future. The balanced scorecard is a privatesector concept introduced by
Robert Kaplan and David Norton in 1992 to assess organizational
performance and is used by several federal agencies.
compliance reviews to ensure that regional offices staff follow ACF's
oversight processes.
ACF Has Multiple Processes to Oversee Grantees' Financial Management, but
Each Has Weaknesses
Lack of Effective Evaluation of On-Site Reviews
ACF's main processes for collecting information on the financial
management of Head Start grantees-on-site reviews, annual grantee surveys,
and analyses of financial reports and audits-could form the foundation for
systematically collecting and analyzing grantee information, but we found
flaws in each method that limit the value of the information collected.
Although ACF has made some progress in improving its on-site reviews, we
found that it has no process to ensure that the review teams follow the
Head Start Bureau's guidance or that managers and staff in ACF regional
offices are held accountable for the quality of the reviews. PRISM reviews
are ACF's primary tool to assess whether grantees are in compliance with
statutory and regulatory requirements. Since the last time we reported on
the on-site review process in 1998,10 ACF has made substantial revisions
to its PRISM guide, which now focuses on three elements of a successful
Head Start program: Child Development and Health Services, Family and
Community Partnerships, and Program Design. Financial management issues
are addressed under the Program Design component. The effectiveness of the
PRISM review in systematically identifying grantees with financial
management weaknesses depends on some assurance that PRISM is implemented
as designed and the team members who are conducting the reviews have the
skills they need to assess grantee compliance with the Head Start
performance standards.
There is evidence that some reviewers may not follow PRISM guidelines and,
as a result, some grantees are not reviewed as rigorously as others. In
2003 and 2004, the Head Start Bureau re-reviewed 5 grantees after the
initial PRISM reviews, which was conducted by regional office staff and
contract reviewers, found few problems. In each case, the subsequent
review, which was led by reviewers selected by the Head Start Bureau,
found that each grantee was out of compliance with many Head Start
performance standards. Head Start regional managers said the reviewers
selected by the Head Start Bureau were more skilled and that they
10GAO, Head Start: Challenges in Monitoring Program Quality and
Demonstrating Results, GAO/HEHS-98-186 (Washington, D.C.: June 30, 1998).
followed the PRISM guidelines more closely than the teams of reviewers
lead by the regional office staff.
In addition, different review teams reported different findings for the
same grantees. For example, to limit disruption to Head Start grantees,
ACF's team reviewing improper payments accompanied PRISM reviewers in 2004
and conducted their review of the grantees' eligibility and recruitment
systems simultaneously. In its sample of 50 grantees, ACF's improper
payments reviewers found that 42 percent (21 grantees) failed to meet the
program's income eligibility requirement. However, the PRISM teams that
were supposed to have reviewed the children's files at the same grantees
and at the same time, found only 3 grantees-of the same 50 reviewed in the
sample-out of compliance with the income eligibility requirements. Both
sets of reviewers should have come to the same conclusions as both
assessed compliance with the same standard.
It is unclear whether the failure to reach similar conclusions in these
specific cases was the result of poor training, lack of skills, or other
causes. The Head Start Bureau has raised concerns about the lack of
independence of PRISM review team leaders, who are employees of ACF's
regional office with responsibility for the Head Start programs in their
region. Until 2001, the PRISM reviews were led by the same employee
responsible for the day-to-day communications with that grantee. In 2001,
the Head Start Bureau asked that ACF regional office staff not lead the
reviews on grantees that they work with on a regular basis.
ACF's new team leader policy is intended to help ensure that the results
of the review are independent and credible but, as the examples noted
above illustrate, there are still concerns about whether the PRISM teams
are rigorously applying the PRISM framework to achieve a thorough and
reliable result. Although regional office staff no longer lead reviews for
grantees for which they have day-to-day oversight responsibilities, the
way many regional offices implement the PRISM process may still affect the
independence-and, therefore, the credibility-of the PRISM reviews. Once
the review team has returned from its on-site visit, the regional office
management team responsible for working with those grantees on a dayto-day
basis reviews the findings of the PRISM team and prepares the PRISM
report. This management team makes the determination regarding the status
of the grantee and any corrective actions the grantee needs to take to
address problems identified in the review.
Regional office staff we spoke with told us that the contractors on their
teams were ill-prepared and lacked the knowledge necessary to conduct a
PRISM review. The Head Start Bureau has the responsibility for identifying
and training qualified reviewers to conduct the reviews.11 In 2004, Head
Start embarked on an effort to begin training the members of its reviewer
pool. They began the effort by training fiscal reviewers because they said
this was the area of PRISM that had the greatest and most immediate need.
In October 2004, Head Start trained about 400 fiscal reviewers in a 2-day
session on a new fiscal management checklist to prepare them for the 2005
reviews. While there was no assessment at the end of the training, Head
Start plans to require that more experienced fiscal reviewers accompany
new reviewers during their first few PRISM reviews. In August 2004, the
Head Start Bureau also provided a 2-day training course for nearly all its
reviewers that focus on program design and management issues-a critical
area that senior Head Start officials said needs more attention.
It is unclear whether this training on the PRISM process alone will
adequately equip those responsible for assessing the management of the
Head Start grantees. ACF may need to seek greater assurances that its
reviewers have the skills and knowledge they need to apply the PRISM
process to the circumstances at every grantee they review. In 2004, the
Head Start Bureau began to develop qualifications for PRISM reviewers and
began asking the reviewers to provide a list of their qualifications. Head
Start officials said that the first set of qualifications they developed
were for fiscal reviewers. The new qualifications include a bachelor's
degree or higher in accounting-or other business-related degree-and
experience with the Head Start program and federal grants management.
According to officials responsible for overseeing contractor recruitment,
they do not check reviewers' credentials or references. The lack of
verification of the reviewers' qualifications and the limited scope of any
training provided to these reviewers may present challenges, especially as
the Bureau tries to implement PRISM's new fiscal management checklists.
The Head Start Bureau also implemented two new procedures to support
improvements on PRISM reviews. First, contracted team members are
encouraged to evaluate each others' performance during the PRISM review.
Head Start Bureau officials said they plan to use the assessments
11The Head Start Act requires that whenever possible the review teams are
lead by HHS staff familiar with the Head Start program-PRISM team leaders
are usually ACF regional office staff that work on the Head Start program.
In October 2004, the Head Start Bureau provided regional office staff that
will lead PRISM reviews in 2005 with a half-day training course via video
conference on recent changes to the PRISM guide for 2005.
Lack of Procedures to Independently Verify the Accuracy of Grantee
Performance Data
of the contracted PRISM reviewers to determine future training needs and
to evaluate whether poorly rated reviewers should continue to participate
in PRISM reviews. However, there is no process to evaluate the federal
team leader's performance. Second, in 2002 the Head Start Bureau began to
critique final PRISM reports to ensure that the reports were issued within
45 days of the PRISM review and to improve the quality of the evidence
that supported the findings. For example, a finding of noncompliance with
a regulation should be supported by two forms of corroborating evidence.
These two procedures may help Head Start improve the quality of the PRISM
reviews and the written reports, but neither provides the independent
verification needed to ensure that all reviewers consistently follow the
PRISM guidelines. There is no procedure to independently- and
systematically-verify the quality of the review nor whether the team of
reviewers rigorously followed the framework. The Director of ACF's
Regional Operations expressed reluctance to solicit feedback on the team
leaders' performance from nonfederal contract workers. However, one of
ACF's regional office administrators said that she would welcome such
information. According to this administrator, the Head Start Bureau does
not provide the regional offices with information on the PRISM reviews
that they can use to compare their staff's performance with staff in other
regional offices.
ACF surveys all grantees annually to measure key aspects of the program's
performance nationally, but does not independently verify the data
submitted by the grantees. The PIR survey-the only source of national data
on Head Start grantees-provides the Congress, the administration, federal
agencies, Head Start grantees, legislatures, state and local agencies, and
the public a description of Head Start program performance in order to
oversee grantee progress, manage federal resources, and develop Head Start
policies. Despite its widespread use in providing the public with
information on the national Head Start program and in overseeing grantees,
our analysis raises significant concerns about the reliability of the data
from this survey.
We found discrepancies in the database that raise questions about the
accuracy of the data that grantees provided. Our December 2003 report on
Head Start enrollment found that ACF does not know if grantees are
fullyenrolled because the data it collects on enrollment through the PIR
survey contained inaccuracies that we determined made the data unreliable
for our purposes. Moreover, when ACF attempted to verify the data
submitted by 75 grantees that had reported particularly higher or low
enrollment, it
found that approximately half had erroneously reported their actual
12
numbers.
During the current review, we found, despite more than 700 checks for
internal inconsistency, instances where the data were not internally
consistent. For example, data from the 2003 survey showed that the number
of Family and Community Partnership staff without degrees but in career
path training vastly exceeded the total number of Family and Community
Partnership staff reported in the survey. We conducted 29 tests to check
for data consistency. Our tests were designed to ensure the reliability of
(1) some of the more 700 tests already included in the PIR database and
(2) grantee data that were not covered by PIR checks for data consistency.
These tests included all three sections of the PIR database: enrollment
and program operations, program staff and qualifications, and child and
family services. In 18 of our 29 tests, PIR data summed to different
totals than they should have, given the internal consistency checks, or
contained inconsistent data that did not sum to the expected total. (See
app. I for more information about our testing and analysis of the PIR
database.)
ACF relies on PIR's internal consistency checks and the regional offices
to ensure the accuracy of the PIR data. However, as long as the grantee
reports data consistently throughout its PIR report, internal checks will
not detect inaccurate data. The only way to determine whether the grantee
has accurately completed its survey is to verify the data against the
grantee's own records, but regional office staff have only about 6 weeks
from the time they receive preliminary data until the database is
finalized each year. During this time, regional office staff will work
with grantees that have not finished their surveys and with grantees that
have filed a survey that did not pass the internal consistency checks.
Regional office staff said there is little time to verify even key
data-such as enrollment and teacher qualifications-before the database is
finalized and closed for further data entry.
Limited Use of Financial ACF officials do not routinely reconcile a
grantee's withdrawals with its
Reports and Audits reported expenditures until after all the funds have
been spent. Regional ACF staff said that such a reconciliation is
difficult because the reporting format for the expenditure information is
different from the format used to
12GAO, Head Start: Better Data and Processes Needed to Monitor
Underenrollment, GAO-04-17 (Washington, D.C.: Dec. 4, 2004).
report withdrawals. For example, Head Start grantees report aggregate
expenditures every 6 months whereas information on the grantees'
withdrawals is not aggregated and cannot be easily reconciled to the same
time period. However, not reconciling withdrawals and expenditures more
frequently impedes ACF's ability to identify grantees that might be
drawing down excess funds at the beginning of the grant period and
creating shortfalls at the end of the year.
Regarding audits, ACF officials cited limitations in the scope and timing
of the audits as an explanation for failing to use them more
systematically in their day-to-day monitoring activities.13 However, this
explanation reflects a misunderstanding of the nature and meaning of the
audit findings. For example, many Head Start grantees spend funds from a
number of federal programs. While it is true that, under a single audit, a
large entity that runs multiple federal grant programs might not have its
Head Start grant audited every year, the auditor would focus its attention
on the grantee's internal controls-the management systems it has in place
to ensure that it can comply with all federal regulations-regardless of
the specific programs to which they apply.
ACF regional office staff also cited lengthy delays in receipt of the
audit reports as a limitation in the usefulness of the audits for
oversight purposes. ACF officials told us that it can take up to 6 months
from the date the audit is completed to receive the official copy of the
audit report.14 As a result of these delays, regional staff told us that
they wait for the next audit to verify that findings from previous audits
have been corrected. To address the problems created by these delays, some
regional offices ask for copies of the audits from the grantees so they
can identify problems earlier, but it was not clear they had authority to
do so.
In focusing on the limitations of the audits, these ACF officials may
overlook some valuable information on the grantee's financial management
practices. Even if an audit does not cite the Head Start program in
particular, any material weaknesses in internal controls should raise
concerns about the grantee's ability to manage its federal funds and
13We have previously reported that ACF made limited use of audit reports.
See GAO, Welfare Reform: Federal Oversight of State and Local Contracting
Can Be Strengthened,
GAO-02-661 (Washington, D.C.: June 11, 2002) for more information.
14Grantees are required to have their financial statements audited within
9 months after the end of their fiscal year.
ACF Does Not Ensure That Grantees Effectively Resolve Financial Management
Problems
should be factored into the overall assessment of the risks associated
with that grantee and the impact those risks might have on the entire
program.
We found that longstanding financial management problems continued in many
grantees even after ACF had identified their problems and cited the
grantees for failing to comply with program requirements. In our review of
the files of 55 grantees with financial management weaknesses and
interviews with agency staff, we assessed the range of actions taken by
ACF staff responsible for overseeing these grants. While our review of
selected files was limited to 4 of ACF's regional offices and may not
represent the entire range of actions employed nationwide by ACF officials
to resolve such weaknesses,15 we found a limited use of ACF's authority to
require grantees to take corrective action. We also noted inconsistencies
in the process used by the regional offices to determine the severity of
the grantees' problems. As a result, grantees with similar problems may be
treated differently. When problems are severe, ACF may try to convince
grantees to relinquish their grants in order to expedite transition to a
different provider. ACF makes limited use of its authority to deny funding
to problematic grantees.
ACF's Approach to Addressing Grantee Problems Does Not Resolve Many
Grantees' Long-standing Management Challenges
Among the tools available to ACF to resolve grantees' problems- including
self-certification, special award conditions, and site visits-ACF most
commonly relied on grantees to self-certify that they had corrected any
problems identified during audits or PRISM reviews. We tracked 30 audits
from the date the auditor completed the audit and identified financial
management weaknesses until the regional office staff considered the
auditors' findings resolved. In all 30 cases, the ACF regional office
asked the grantee to send a letter explaining how those findings had been
resolved and did not conduct a site visit or other follow up with the
grantee. Regional staff said that they do not typically visit grantees to
resolve audit findings but instead rely on subsequent audits to ensure
that all findings have been addressed. We found that it frequently takes
up to 2 years from the point the first audit identifies a problem until
the regional office receives the second audit, during which time the
grantee continues to receive federal grant funds. (See fig. 3.)
15We interviewed managers in other offices who generally described similar
procedures. For more information on selection criteria and our
methodology, see appendix I.
Figure 3: Average Timeline for Audit Review Process for Files Reviewed
ACF rarely uses other tools, such as special award conditions, to ensure
that grantees are working to correct problems. When ACF designates a
grantee high-risk, it imposes more restrictive conditions (a special award
condition) than normally required of grantees, such as more frequent
financial reporting, or it can require the grantee to seek prior approval
from the ACF program specialist before it can spend any federal funds.
However, we found that the regional offices take such steps infrequently.
The third tool, site visits, is used infrequently to help grantees'
resolve their financial problems. Program specialists in the regional
offices cited a heavy workload as the key reason they are not able to make
more frequent visits to grantees with financial management problems. As a
result, many grantees are only visited by ACF officials once every three
years during their regularly scheduled PRISM review. Many program
specialists in ACF regional offices that we visited told us they most
frequently learn that a grantee is having trouble through a call from a
parent or teacher reporting a problem. Although program specialists said
that such calls were a routine part of their day-to-day monitoring
activities, over-reliance on this approach to identifying problems can
result in missed opportunities to help grantees address management
challenges before they become problems. ACF regional office managers said
that program specialists with responsibility for overseeing Head Start
grantees typically are responsible for about 12 grantees. Regional office
managers working on Head Start programs noted concerns that future
caseloads may increase as staff retire and limits on future hiring
constrain their ability to replace these workers.
Our review of files showed that ACF relied most often on
self-certification rather than its other tools. We reviewed the files of
34 grantees with financial management weaknesses that were identified
during PRISM reviews. In 18 cases, ACF determined that the grantees'
problems were not severe enough for the grantee to be deemed deficient. Of
those 18 grantees, the regional office required 16 to submit letters
indicating resolution had been achieved, and no further action was
pursued. In the 2 cases that ACF decided to return to visit, it found that
the grantees had not corrected the problems identified in the PRISM
review. Because they had not corrected their problems as required by law,
ACF deemed the grantees deficient and required them to develop and
implement a quality improvement plan. When ACF then revisited these
grantees, it verified that the problems had been corrected. It was not
clear from our file review how ACF prioritized these 2 grantees for
follow-up, but in revisiting these grantees ACF took an aggressive step to
ensure compliance. Similar assurances that the other 16 grantees addressed
their problems cannot be ascertained until they are visited again during
their next PRISM review.
Despite the application of tools such as self-certification, special award
conditions, and follow up visits to the grantee, our review of Head
Start's PRISM databases for fiscal years 2000-2003 showed that many of the
same grantees that were noncompliant with financial management standards
in 2000, were noncompliant in those same areas in their subsequent
reviews. The 2000 PRISM reviews identified 838 grantees (about 76 percent
of all those reviewed) out of compliance with one or more financial
management standards-either in fiscal management, program governance, or
record keeping and reporting. Many of those grantees were cited in more
than one of those three areas. The next time those same grantees were
reviewed, 440-or 53 percent-were cited again for problems in those same
areas. As figure 4 shows, for those 440 grantees, there was little change
from one review to the next. The repeat problems could be a result of
failure to correct the problems in the first place- something that might
have been identified with a follow up review-or an initial correction that
did not take hold. One senior official in a regional office said that many
Head Start grantees will fix a problem identified in the PRISM report in
the short term but fail to make lasting changes to their financial
management systems. For example, a grantee might try to meet financial
reporting deadlines for a few months after being cited by a PRISM review
team for missing deadlines, but if the grantee did not implement a system
to ensure that these reports are on time consistently, the improved
performance may not be sustained.
Figure 4: Grantees with Recurring Financial Management Problems
(2000-2003)
While grantees usually self-certify the resolution of problems identified
through their financial audits, when the PRISM review identifies a severe
problem-deemed a deficiency-there are specific actions required by law
that grantees must take to resolve the deficiency. However, we noted
inconsistencies in the process used by the regional offices to determine
the severity of the problems. For example, reports based on the on-site
reviews for 20 of the grantees we reviewed showed similar problems in the
quantity of violations and the severity of the weaknesses, but only 10
were deemed deficient by the ACF regional office. In comparing the
problems cited in two grantees' PRISM reports, we noted that both had
serious violations in program governance and fiscal management issues, but
the ACF regional office only deemed one deficient and not the other.
According to each grantee's PRISM report, the governing boards of both
grantees failed to exercise their responsibilities fully, did not
participate in the development of the funding applications, did not
participate in developing the strategies associated with planning the
grantees' program, and did not help develop the grantees' eligibility and
recruitment procedures. Similarly, both grantees were cited for failing to
meet a number of financial management requirements, such as comparing
actual
expenditures to their budgets or ensuring that they had adequate insurance
coverage. The first grantee was not found deficient and was required to
correct the problems cited in its report and self-certify that all
problems had been resolved. The other grantee, deemed deficient, was
required to develop and implement a quality improvement plan that was
monitored closely by the regional office staff throughout the next year
and in a follow-up review a year later. While regional office staff and
their managers in all the regional offices we visited said they meet to
discuss any problems identified during the review process to determine the
severity of the problems, they said they treat each case differently and
largely base their decisions on their previous experiences working with
the grantees. However, based on our discussion with regional office staff,
we could not discern an objective pattern justifying such disparate
treatment.
ACF Has Made Little Use of Authority to Fund New Grantees to Replace Poorly
Performing Grantees
ACF has not made full use of its authority to identify new organizations
to take over from poorly performing grantees. The Head Start Act requires
that, when awarding funds for Head Start service, ACF give preference to
current Head Start grantees. But, under the Head Start Act, ACF is not
required to give a priority to the grantee if it determines that the
grantee fails to meet program, financial management, and other
requirements established by the agency.16 However, we found that ACF
continues to fund a grantee-even a deficient grantee-until the grantee
either relinquishes the grant or the grantee is terminated. Of the 55
files we reviewed of grantees with known financial management weaknesses,
we found that in less than half (26 cases) the program specialist noted
problems identified in a PRISM review or audit in deciding whether to
recommend refunding the grant. In each of these 26 cases, the ACF
approving officer recommended continued funding despite the problems cited
in the reports. In the other 29 cases, ACF's approving officer also
recommended refunding without noting in the files that there were concerns
relating to financial management weaknesses.
While ACF may remove grantees that have demonstrated poor
performance-including poor financial management-through termination, ACF
rarely uses its authority to do so. Between 1993 and
1642 U.S.C. 9836(c)(1). See also, Action For Boston Community Development,
Inc., v. Shalala, 136 F.3d 29 (1st Cir. 1998). In that case, the court
found that a Head Start grantee with deficiencies at one of the Head Start
centers it operated was not entitled to priority in a competition for a
grant to replace another grantee at a different location.
2001, 27 grantees were terminated. Senior Head Start officials in 2 of the
ACF regional offices we visited told us that, although mechanisms are in
place to ensure continuity of Head Start services following a
termination,17 they are reluctant to pursue terminations because the
processes used to collect information to support such an action are
inadequate and the procedures required to terminate a grantee can be a
drain on scarce staff resources.
More often, when dealing with poorly performing grantees, ACF tries to
convince them to relinquish the grant in lieu of initiating termination
proceedings and then seeks another grantee to serve the community. Between
1993 and 2001, 117 grantees voluntarily relinquished their grants or did
so at HHS's request; about 54 percent of those grantees experienced
problems with fiscal management issues. If a grantee refuses to relinquish
its grant, ACF can proceed by notifying the grantee that its grant will be
terminated.
Both termination and negotiations toward relinquishment can be protracted,
in part because a Head Start grantee's right to receive funding throughout
its appeal may prolong the termination process. A senior Head Start
official noted that there is an incentive for grantees to appeal ACF
decisions to terminate programs, because their legal costs are covered and
they can continue to operate their programs while their appeal is pending.
According to an administrative judge with HHS's Departmental Appeals
Board, continued receipt of funding through the appeals process makes Head
Start unique among other HHS grant programs. While grantees of other
programs can appeal an adverse funding decision, they cannot continue to
receive federal funds unless the decision is reversed.
When grants are allowed to remain with poorly performing grantees,
children being served may not be getting the "head start" they deserve
because the grantees continuously fail to meet program and financial
management standards. For example, in 2003, ACF tried to convince a New
Mexico grantee to relinquish its grant; at the time the grantee had been
accused of failure to provide pertinent information to federal officials
investigating allegations of fraud and abuse and meet other program
standards. Although the ACF regional office had demanded repayment of
$526,000 after records obtained by the Federal Bureau of
17Whenever ACF terminates or suspends a grant, it brings in a contractor
to continue serving children and families until a new grantee is found to
serve that community.
Investigation (FBI) and HHS's Inspector General indicated that many of the
enrolled families were ineligible, the grantee appealed that decision,
maintaining that it required records taken by the FBI and without them it
could not properly prepare for its appeal. The appeal was still pending as
of our file review, but on July 1, 2004, ACF awarded $2 million to this
grantee to serve a reduced number of children and their families in its
community.
Similarly, a West Virginia grantee announced that it would appeal ACF's
July 2004 decision to terminate its grant. This grantee had been cited for
failing to meet federal financial requirements in every audit since 1997.
Moreover, a 2002 PRISM review could not determine how the grantee had
spent over $400,000 in grant funds but noted that it was clearly not spent
providing Head Start services to children and their families. Before
initiating the termination process with this grantee, ACF worked for more
than a year to get the grantee to develop and implement a quality
improvement plan. During this time, the grantee continued to receive
federal funding and was the only Head Start program available to families
in that community. (See fig. 5 for a detailed description of some of the
challenges ACF faced addressing one grantee's financial management
problems.)
Figure 5: A Case Study: Northwest Arkansas Head Start Human Services, Inc.
Source: GAO analysis.
Unless ACF exercises its authority to remove problematic grantees from the
program, poor links may persist between a grantee's funding and its
performance. Poorly performing grantees-such as those noted above-
continue to receive federal grant funds for years without making the
improvements to program design and management that are called for.
Children and their families in communities served by these grantees
continue to have access to a federally funded Head Start program, but,
because their Head Start grantee continually fails to meet the program's
Conclusions
requirements, it is unclear whether these children are receiving the level
of services they should.
The federal government relies on nearly 1,700 grantees to provide Head
Start services to nearly one million children and their families each
year. As the federal investment in Head Start grew in the 1990s, the
challenges of overseeing nearly $7 billion in federal grant funds also
grew. While federal policymakers and program managers are continually
seeking ways to improve accountability for Head Start, ACF has not
implemented a wellintegrated monitoring system to oversee the Head Start
program, including its financial management.
Until ACF builds a foundation for overseeing its Head Start program that
incorporates a comprehensive assessment of the program's risks- including
financial management risks-whenever poor grantee performance attracts
attention ACF will be unable to ascertain how widespread the problems are.
A risk assessment can help to identify what type of information an
organization needs to gather on grantee performance-especially financial
management. Some of the processes ACF currently uses to collect data have
flaws that prevent the agency from being able to rely on the data to
ensure that Head Start is indeed achieving the expected outcome of helping
poor children and their families. Until ACF's data collection processes
are improved and reasonable assurances are put in place to ensure the
reliability of the data collected, ACF is not in a strong position to base
future funding decisions on grantee performance. Similarly, while it has
begun to train staff and to implement key monitoring processes, it is
unclear whether these efforts are sufficient to ensure the reliability of
the data ACF collects on grantee financial management.
If ACF improves the processes it uses to collect and analyze data on
grantee financial management, ACF will be in a stronger position to link
funding opportunities to performance. For example, ACF may be able to make
greater use its authority to recompete grants that are currently awarded
to poorly performing grantees. Currently, in order to ensure the
continuity of Head Start services in a given community, ACF relies on
current grantees-even those with weak financial management systems- to
provide those services until it completes the termination process and the
current grantee has exhausted all appeals or has voluntarily agreed to
relinquish its grant. Competition for grants might create a stronger
incentive for those grantees that are not performing up to standards to
correct their problems and develop sound systems of financial
management; if these grantees are unable to correct their problems, ACF
may be able to more quickly identify a grantee that can better meet the
program's performance standards.
Matter for Because of ACF's uncertainty about the scope of its authority
to
implement our recommendation to make greater use of its authority
toCongressional recompete Head Start grants, Congress may wish to clarify
ACF's Consideration authority to recompete grants if ACF determines that
the current grantee
fails to meet Head Start's program or financial management requirements.
Recommendations for To improve oversight of the Head Start program and
the financial management of Head Start grantees, we are making the
following
Executive Action 8 recommendations to the Assistant Secretary for Children
and Families to:
o Produce a comprehensive risk assessment of the Head Start program that
incorporates information from the various components of ACF with oversight
responsibilities for Head Start grantees and assesses actual or potential
risks of mismanagement. This assessment should be updated periodically to
provide reasonable assurances to Head Start management that the program's
grantees are financially sound and that program objectives are being met.
o To better establish and assess program risks, ACF should develop plans
to collect data on and estimate the extent of improper payments made for
unallowable activities, payments to grantees whose programs are
significantly underenrolled or other unauthorized payments. ACF currently
collects data on the extent to which over-income families are enrolled in
Head Start programs and has estimated the number of such families
nationwide. Additional efforts should be made to collect data on other
types of improper payments and to use the data to more comprehensively
assess the program's risks.
o To improve the processes it currently uses to collect and analyze
information on program risks, ACF should:
o ensure that training and certification for all PRISM reviewers,
including federal team leaders, is provided to enable the reviewers to
perform their responsibilities in accordance with the review framework
developed by the Head Start Bureau;
o
o
develop an approach that can be applied uniformly across all of ACF's
regional offices to assess the results of the PRISM reviews and ensure
consistent treatment of grantees with similar problems when determining
whether grantees should be deemed deficient; and
implement a quality assurance process to ensure that the framework for
conducting on-site reviews is implemented as designed, including holding
ACF's regional management accountable for following this framework and for
the quality of the reviews.
o To enhance the usefulness of the data ACF collects through its annual
PIR survey in assessing the program's risks, ACF should ensure that
information it uses for program management-and reports to the Congress and
the public-is accurate. This may require independently verifying key data
submitted through the annual survey or ensuring that the grantee has a
system in place to collect and report accurate, verifiable data.
o To more quickly identify financial risks associated with mismanagement
of federal funds, ACF should make greater use of the information it
currently collects on the status and use of federal funds. For example,
ACF should reconcile all grantees' reported expenditures with their actual
withdrawals more frequently to ensure that grantees are not drawing down
excess funds at the beginning of their grant period and have enough funds
to provide services to eligible children and their families for the entire
year.
o Prior to refunding a grant, ACF should take steps to obtain
competition for the grant if it has determined that the current recipient
of those grant funds fails to meet program, financial management, or other
requirements. In these instances, ACF should use its existing authority to
conduct such competitions without giving priority to the current grantee,
while ensuring that the grantee is afforded all applicable statutory
protections, including reasonable notice and an opportunity for a full and
fair hearing.
Comments from the ACF provided written comments on a draft of this report;
these comments
appear in appendix II. ACF also provided technical comments that we
Administration for incorporated as appropriate. ACF agrees that Head Start
grantees must be Children and Families efficient, effective, and held
accountable. ACF agreed to implement a
number of our recommendations to improve the processes it uses to and Our
Evaluation collect and analyze information on grantee
performance-including financial management.
ACF did not directly address our recommendation that it seek ways to hold
regional management accountable for following the PRISM framework and for
the quality of the reviews. ACF regulations require that regional
management assess grantee compliance with program requirements. In order
to ensure that grantees are held accountable, it is also important to
create a culture of accountability throughout ACF, including the regional
offices. To aid in accomplishing this objective, we continue to recommend
that ACF develop a method to hold regional management accountable for
following the PRISM framework and for the quality of the PRISM reviews.
ACF did not directly address our recommendation that ACF develop plans to
collect data on and estimate improper payments made for unallowable
activities. ACF's technical comments noted that audit reports and other
reviews will identify other possible improper payments. However, reliance
on these oversight tools will not provide ACF with a systematic way to
assess risks associated with other types of improper payments. We continue
to recommend that in order to better estimate program risks, ACF should
develop plans to collect data on and estimate the extent of improper
payments made for other unallowable activities.
ACF expressed concerns about its authority to implement our recommendation
to recompete Head Start grants under certain circumstances. ACF did not
elaborate on its concerns other than to state that in order to replace a
grantee it must terminate the grant. Because of ACF's uncertainty about
the scope of its authority, Congress may wish to consider clarifying ACF's
authority to obtain competition for any grant if it determines that the
current recipient of those grant funds fails to meet program or financial
management requirements.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies of this report to
the Assistant Secretary for HHS's Administration for Children and
Families, relevant congressional committees, and other interested parties.
We will also make copies available to others upon request. In addition,
the report will be made available at no charge on GAO's Web site at
http://www.gao.gov.
Please contact me at (202) 512-7215 if you or your staffs have any
questions about this report. Other contacts and major contributors are
listed in appendix III.
Marnie S. Shaul Director, Education, Workforce, and Income Security Issues
List of Congressional Requesters
The Honorable Michael B. Enzi
Chairman
Committee on Health, Education, Labor, and Pensions
United States Senate
The Honorable Lamar Alexander
Chairman
Subcommittee on Education and Early Childhood Development
Committee on Health, Education, Labor, and Pensions
United States Senate
The Honorable Judd Gregg
United States Senate
The Honorable John A. Boehner
Chairman
Committee on Education and the Workforce
House of Representatives
The Honorable Michael N. Castle
Chairman
Subcommittee on Education Reform
Committee on Education and the Workforce
House of Representatives
Appendix I: Scope and Methodology
To assess whether the Department of Health and Human Services' (HHS)
Administration for Children and Families (ACF) can consistently identify
Head Start grantees' financial management weaknesses, we reviewed and
analyzed agency policies, manuals, publications, and other documents to
identify the oversight framework and processes it uses to manage grants
and oversee Head Start grantees. We confirmed our understanding of the key
oversight processes in interviews with ACF and Head Start Bureau
headquarters officials. To learn how these oversight processes are
implemented, we interviewed Head Start officials and reviewed selected
case files during site visits to 4 ACF regional offices. We also conducted
telephone interviews with Head Start officials at the 6 other ACF regional
offices.
We viewed financial management1 weaknesses as occurring when ACF, the
grantee's auditor, or HHS' Office of Inspector General (IG) determined
that a grantee did not adhere to financial management requirements
contained in applicable laws, federal regulations, Office of Management
and Budget (OMB) circulars, and related HHS guidance. ACF identifies
financial management weaknesses through its monitoring activities, such as
its triennial reviews or its audit resolution activities.2 The grantee's
independent auditor identifies financial management weaknesses as it
performs the required annual audit, and the IG's National External Audit
Review Center (NEAR) identifies financial management weaknesses through
its review of the annual audit and related documents.3 For example, a
grantee is required to have source documents and accounting records to
support the periodic statements it provides to its governing board, the
semiannual financial reports it sends to ACF, and the annual financial
statement that is subject to the Single Audit process. Other examples of
financial management weaknesses include failure to establish and adhere to
accounting policies or to maintain the source documents and/or accounting
records necessary to prepare periodic or annual
1Financial management encompasses the systems and processes (policies) a
grantee uses to authorize, document, record, and report transactions and
related events.
2We identified financial management weaknesses as occurring when ACF cited
a PRISM noncompliance in either fiscal management or recordkeeping and
reporting. We included record-keeping and reporting as indicators of
financial management weaknesses because of the close relationship,
recognized in the PRISM guidance, between authorizing and recording
financial transactions and reporting them to the appropriate parties.
3We identified financial management weaknesses as occurring when the
auditor or the IG NEAR office reports included reportable conditions,
questioned costs, or weaknesses in the grantee's internal controls.
Appendix I: Scope and Methodology
statement, concerns that a grantee has inadequate operating funds to
remain a going concern, and failure to obtain and properly account for the
required nonfederal 20 percent share of program costs.
We analyzed the Head Start oversight framework using the internal control
framework contained in our Standards for Internal Control in the Federal
Government and required by federal program management in accordance with
OMB's Circular A-123: Management Accountability and Control. Our analysis
of the Head Start oversight framework addressed Head Start's control
environment, ACF's analysis and assessment of the risks the program faces,
the control activities that ACF established to address these risks and
help ensure that program objectives are met, ACF's methods of
communicating the results of its oversight activities, and ACF's efforts
to monitor and track the results of its efforts to improve program
efficiency and effectiveness.
We assessed the reliability of information from two computer-based systems
that ACF uses to manage the program, report to Congress and the public on
program results, and record the results of on-site PRISM monitoring
reviews. The systems are the Program Information Reporting (PIR) system
used to collect enrollment, staffing, and program information from each
Head Start grantee and delegate; and the Program Review Instrument for
Systems Monitoring (PRISM) used to record the results of on-site PRISM
monitoring reviews. We conducted the data reliability assessments to
ascertain the internal consistency, completeness, and timeliness of these
automated data.
We assessed the reliability of PIR data for the 2002-2003 program year,
the most recent reporting year for which complete data were available at
the time of our review. Using software provided by the contractor,
grantees submit PIR survey data to the contractor for inclusion in the PIR
database. Grantee data undergoes internal consistency checks developed by
the contractor in consultation with the Head Start Bureau. We conducted 29
tests to check for data consistency. Our tests were designed to ensure the
reliability of (1) some of the more than 700 tests already included in the
PIR database and (2) grantee data that were not covered by PIR checks for
data consistency. These tests included all three sections of the PIR
database: enrollment and program operations, program staff and
qualifications, and child and family services. In 18 of the 29 tests, PIR
data contained different totals than they should have, given the internal
consistency checks, or contained inconsistent data that did not sum to the
expected totals.
Appendix I: Scope and Methodology
Table 2: Summary of Results for PIR Data Reliability Tests, 2002-2003 Program
Year
Number of PIR
Section of PIR data elements Number of tests Number of tests
database tested that passed failed
Enrollment and 6 5
Program Operations
Program Staff and 10 1
Qualifications
Child and Family 13 5
Services
Total 29 11
Source: GAO analysis.
These data inconsistencies occurred in 9 cases for which the PIR
contractor had already developed checks for data consistency and among
data for which such checks had not been developed. ACF, Head Start, and
contractor officials concurred with the technical approach we followed as
an appropriate strategy to assess the reliability of PIR data and with the
results of our assessment. As noted in our report, we found some
discrepancies in the database that raise questions about the accuracy of
the underlying data that grantees provided. As a result, we did not use
this database in our analysis.
We also assessed the reliability of automated data maintained in PRISM
data sets from the 2000 through 20034 reporting periods. PRISM review
teams submit electronic information to the database contractor, and the
contractor enters the information in the PRISM data sets. The database
contractor reviews the information, submitted by review teams to help
prevent inaccuracies in the reported information and the database contains
other quality assurance procedures to help ensure the consistency of the
information it contains. To assess the reliability of the PRISM data sets,
we tested whether information for each of the years 2000 through 2003
related only to PRISM reports compiled for that year, whether
chronological information had been compiled in the correct order, and
whether each year's database contained all required information, including
the information required to determine if a grantee complied with standards
for each area reviewed. Our reliability
4Because ACF was in the midst of its 2004 PRISM cycle at the time of our
review, we did not include that information in our reliability assessment.
Appendix I: Scope and Methodology
assessment found the information contained in the databases to be reliable
for our purposes.
To assess the number of grantees with recurring financial management
problems, we analyzed the results of PRISM reviews conducted from 2000
through 2003. We identified grantees with financial management problems as
those cited for not complying with program requirements in financial
management, record-keeping and reporting, or program governance. Financial
management requirements include the development and certification of
grantee accounting systems for checking the accuracy and reliability of
financial information and promoting operating efficiency. Record-keeping
and reporting requirements include communicating timely and accurate
financial information to control program quality, maintain program
accountability, and advise grantee management of program progress. Program
governance requirements include establishing and implementing appropriate
internal controls to safeguard federal funds.
To learn how ACF ensures that grantees effectively resolve their financial
management problems, we visited 4 regional offices and selected a
nonprobability sample5 of 55 grantees with known financial management
weaknesses and reviewed the regional offices' files for these grantees for
the period 2001 through 2004. The 4 regional offices we visited accounted
for more than 50 percent of grantees and more than 50 percent of Head
Start funds allocated for fiscal year 2003.
5A nonprobability sample is selected on the basis of a population's
characteristics. The results from a nonprobability sample cannot be
generalized to the population from which the selections were made.
Appendix I: Scope and Methodology
Table 3: Grantees and Head Start Funds Allocated to the Largest Regional Offices
Grantees (FY 2003) Allocated funds (FY 2003) Regional office Number
Percent of total grantees Amount (in millions)
Percent of total Head Start funds
Atlanta 288 17 1,119
Chicago 269 16 983
Dallas 219 13 800
Philadelphia 178 11 481
aTotal of 4 offices 954 57 3,382
Source: GAO analysis of ACF data.
aTotals may not add due to rounding.
We limited our selection to grantees that received $1 million or more
annually. Furthermore, in selecting grantees with deficiencies and
noncompliances, we also considered the existence of audit findings. At
each office, we selected grantees from each group in proportion to their
prevalence. We reviewed 55 grantees in the 4 offices for the reasons shown
in table 4.
Table 4: Reasons for Selecting and Reviewing Grantees, by Region
Basis for Selection ACF region
PRISM deficiency
PRISM noncompliance
Single Audit findings only Total
Atlanta 2 9 3
Chicago 4 9 1
Dallas 4 8 3
Philadelphia 3 7 2
Total 13 33 9
Source: GAO analysis.
In making our selection, we used data from the information system used to
record PRISM data, which as discussed above, we had found reliable for our
purposes; and from the Single Audit Clearinghouse database maintained by
the Bureau of the Census. The Department of Commerce's Inspector General
determined that a high reliance can be placed on the system of internal
controls covering the accuracy and completeness of the data in the
clearinghouse database.
Appendix I: Scope and Methodology
In reviewing each grant file, we recorded information on:
o the grantee's funding levels, years in the program, and contact
information,
o results of PRISM reviews and the related follow-up actions,
o Single Audit reports and related follow-up actions,
o PIR information,
o grant application processing, and
o grantee monitoring.
Where necessary, we also met with program and financial specialists for
these grantees to obtain relevant information that was not in the grant
files. A second GAO analyst reviewed the data collection instrument to
ensure that information from the grant file was properly recorded.
Our work was conducted from January through December 2004 in accordance
with generally accepted government auditing standards.
Appendix II: Comments from the Department of Health and Human Services
Appendix II: Comments from the Department of Health and Human Services
Appendix II: Comments from the Department of Health and Human Services
Appendix II: Comments from the Department of Health and Human Services
Appendix III: GAO Contacts and Staff Acknowledgments
GAO Contacts Betty Ward-Zukerman, (202) 512-2732, [email protected]
Bill J. Keller, (202) 512-8971, [email protected]
Acknowledgments In addition to those named above, Kimberly Brooks, Richard
Burkard, Gabrielle Fagan, Neal Gottlieb, Curtis Groves, Diane Morris,
Luann Moy, Corinna Nicolaou, James Rebbe, Tovah Rom, Kathryn Rooney, and
Mark Ward made key contributions to the report.
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