Head Start: Comprehensive Approach to Identifying and Addressing 
Risks Could Help Prevent Grantee Financial Management Weaknesses 
(05-APR-05, GAO-05-473T).					 
                                                                 
In fiscal year 2004, the 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 around the country raised questions about 
the effectiveness of the oversight provided 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. This testimony discusses (1)  
the processes ACF uses to assess the programs' risks, (2) whether
those processes could be improved to ensure the accuracy and	 
reliability of the information ACF collects on its Head Start	 
grantees, and (3) whether ACF ensures that grantees with	 
financial management weaknesses correct those problems in a	 
timely manner.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-473T					        
    ACCNO:   A20759						        
  TITLE:     Head Start: Comprehensive Approach to Identifying and    
Addressing Risks Could Help Prevent Grantee Financial Management 
Weaknesses							 
     DATE:   04/05/2005 
  SUBJECT:   Aid for education					 
	     Data collection					 
	     Data integrity					 
	     Education program evaluation			 
	     Educational grants 				 
	     Federal funds					 
	     Federal grants					 
	     Financial management				 
	     Funds management					 
	     Grant monitoring					 
	     Internal controls					 
	     Preschool education				 
	     Program management 				 
	     Risk management					 
	     Strategic planning 				 
	     Program goals or objectives			 
	     Head Start Program 				 

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GAO-05-473T

United States Government Accountability Office

GAO Testimony

Before the Senate Committee on Health, Education, Labor and Pensions
Subcommittee on Education and Early Childhood Development

For Release on Delivery

Expected at 9:30 a.m. EST HEAD START

Tuesday, April 5, 2005

 Comprehensive Approach to Identifying and Addressing Risks Could Help Prevent
                    Grantee Financial Management Weaknesses

Statement of Marnie S. Shaul, Director
Education, Workforce, and Income Security Issues

GAO-05-473T

[IMG]

April 5, 2005

HEAD START

Comprehensive Approach to Identifying and Addressing Risks Could Help Prevent
Grantee Financial Management Weaknesses

  What GAO Found

ACF has not developed a comprehensive risk assessment system to identify
financial management weaknesses of Head Start grantees. ACF has many
processes it uses to collect information on how well grantees are
performing and managing their federal grant funds. But different
organizations within ACF conduct these activities, and we could not
identify a systematic process that ACF uses to bring together information
gained from the different data collection processes.

Moreover, when we looked more closely at each of the processes ACF uses to
oversee Head Start grantees, we identified flaws that limit the quality,
accuracy, and reliability of the information ACF collects. ACF does not
ensure that its on-site reviews are conducted in accordance with its own
guidelines for grantee compliance; it does not verify the accuracy of the
data grantees submit on key performance indicators each year; and it does
not reconcile grantees' actual withdrawals with reported expenditures
until all the funds have been spent. In addition, many of the staff we
spoke with said that they often learn about problems after they get calls
from parents and teachers-an ad-hoc, reactive approach on which ACF relies
too heavily instead of comprehensive, proactive risk assessment.

Our analysis of the data shows that more than half the grantees cited for
failure to comply with rules related to financial management were out of
compliance again with one or more financial management standards during
their next review. We also found poor linkages between grantee performance
and funding. ACF rarely invokes its authority to terminate grantees when a
community is being served by a poorly-performing grantee. Instead, ACF
usually tries to convince a grantee to relinquish its grant, and only then
will look for another grantee to serve that community. Opening competition
to qualified applicants to replace a poorly-performing grantee may be a
necessary step toward ensuring that as many eligible children as possible
are provided with services that meet Head Start's standards.

A comprehensive risk assessment system would provide ACF with the
information it needs to target its oversight more effectively, reduce the
risks inherent in managing a large federal grant program, and help
grantees manage resources more effectively.

                 United States Government Accountability Office

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss our recent report on oversight of
the Head Start program by the Department of Health and Human Services
(HHS). Although Head Start is a popular program and millions of low income
children have benefited from the program over the past 40 years, it is
important to ensure that all grantees are held accountable for achieving
program results and properly managing their federal funds. The
reauthorization of Head Start presents an opportunity to address some of
the management challenges facing the Head Start program.

Head Start is the federal government's single largest investment in early
childhood education and care for low-income children. HHS's Administration
for Children and Families (ACF) manages Head Start and relies on hundreds
of different grantees throughout the country to provide services to more
than 900,000 children and their families. Head Start funding increased
three-fold in real terms during the 1990s. Currently, ACF disburses about
$6.8 billion annually to Head Start grantees. As you can imagine, managing
a program of this size, with this many grantees and beneficiaries, can
present many challenges.

My testimony today will focus on how well ACF manages the risks associated
with the Head Start program. Specifically, I will discuss

o  ACF's processes to assess financial risks,

o  	how those processes can be improved to ensure the accuracy and
reliability of the information ACF collects on its Head Start grantees,
and

o  	the effectiveness of the approaches ACF uses to make sure Head Start
grantees address any financial management weaknesses in a timely manner.

My written statement is drawn from our recent report on Head Start risk
management, which was completed for the Committee in accordance with
generally accepted government auditing standards.1

1GAO, Head Start, Comprehensive Approach to Identifying and Addressing
Risks Could Help Prevent Grantee Financial Management Weaknesses,
GAO-05-176 (Washington, D.C.: Feb. 28, 2005).

In summary:

o  	ACF does not have a comprehensive risk assessment process it can use
to collect information on how well grantees are performing and managing
their federal grant funds. Such an assessment should be able to provide
ACF with the information it needs to target its oversight activities,
reduce the risks inherent in managing a large federal grant program, and
help prevent grantees from failing financially, through earlier
intervention. While ACF has many processes it uses to collect information
on its grantees, these efforts are conducted by different organizations
within ACF, and ACF does not have a process in place to systematically
bring the information together in one place to do an assessment of how
well the program is operating.

o  	When we looked more closely at ACF's oversight processes, we
identified flaws that limit the quality, accuracy, and reliability of the
information ACF collects on its grantees. For example, ACF does not have a
quality assurance process that could validate the findings of the reviews
it conducts of its grantees at least every 3 years; it does not verify the
accuracy of the data it asks its grantees to submit on key performance
indicators each year; and it does not reconcile a grantee's actual
withdrawals with its reported expenditures until all of the funds have
been spent. These flaws limit the information ACF has on Head Start
grantee's financial status and operations and, as a result, 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. 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. 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 grant funds too
quickly and did not adequately manage their grants to ensure that there
would be funds available throughout the school year.

o  	When ACF identified grantees with financial management problems, we
found that it took limited actions to ensure that grantees quickly
corrected their problems and made lasting changes to their programs so the
problems would not surface again. This is a concern because ACF's data
show that more than 76 percent of Head Start programs

that were reviewed in 2000 were out of compliance with financial
management standards, and more than half of these grantees were still out
of compliance during their next review. When we looked at the approach ACF
takes to ensure that grantees correct their problems, we found that ACF
most frequently relies on grantees to self-certify that they have
corrected their problems without ever visiting the grantees for
verification. 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 ACF
regional offices to determine the severity of the problem. As a result,
one grantee could be deemed deficient while another, with similar
problems, would not. We also found that ACF makes limited use of its
authority to terminate its relationship with poorly performing grantees.
ACF does not seek competition for a grant until after the current grantee
has exhausted all its appeals or it has convinced a poorly performing
grantee to voluntarily relinquish its grant. The process to remove a
grantee that fails to perform up to standards is protracted, and that
grantee can continue to receive funds long after financial management
weaknesses have been identified. In the meantime, the community has no
other option for Head Start services and low-income children may not
receive the quality or intensity of services that they need.

We made a number of recommendations in our report and ACF agreed to
implement many of them. Implementing these recommendations will go a long
way 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. More
importantly, however, these improvements should help ACF prevent grantee
financial management weaknesses before the problems become too severe. We
also recommended that ACF make greater use of its authority to seek
competition by taking steps to seek qualified applicants where the current
grantee fails to meet program requirements. While such a step should be
taken after carefully considering all available options, competition would
help to ensure that children are no longer served by poorly performing
grantees. Ultimately, enforcing all the program's requirements-especially
financial management requirements- strengthens the federal commitment to
poor children and their families by effectively managing scarce federal
resources and making sure as many eligible families as possible can
participate in the program.

Background

Begun in 1965 as part of the Johnson Administration's War on Poverty, Head
Start offers poor children and their families a range of services,
including preschool education, family support, health screenings, dental
care, and assistance in accessing medical services. The program may either
provide the services directly or facilitate access to existing services.
Eligibility for Head Start is generally limited to children who are below
the age of school entry and from families with incomes below the federal
poverty level or receiving cash assistance from the Temporary Assistance
for Needy Families program. To accomplish Head Start's goals for these
poor children and families, the Congress last year provided $6.8 billion
in federal funds, which HHS awards directly to nearly 1,700 grantees
nationwide. As funding for this longstanding program has grown, so has the
risk associated with any mismanagement of program funds.

While effective oversight of federal funds is always a guiding principle
in managing the various federal government programs, accounting scandals
in the private sector in 2001-2002 reinforced the need for organizations
to have stronger financial oversight. Since that time, both public sector
and private sector organizations-including many not-for-profit
organizations-are paying closer attention to managing the risks in their
operations. Indeed, the Office of Management and Budget (OMB) recently
revised its guidance for federal agencies' financial managers to better
integrate and coordinate their risk assessments and other management
activities.

The primary goal in managing any federal program is to provide reasonable
assurance that the program is operating as intended and is achieving
expected outcomes. A key step in the process of providing this assurance
is conducting a risk assessment. A risk assessment is a comprehensive
review and analysis of program operations, especially the management of
federal funds, to identify risks and to measure the potential or actual
impact of those risks on program operations. The potential for such risks
exist in all federal grant programs; for example, the diversion of funds
to other purposes, inefficient use of funds, failure to contribute the
grantee's share of funds, or other problems that reduce the effectiveness
with which financial resources are brought to bear on achieving program
goals. When a federal program relies heavily on grantees to provide
services, as the Head Start program does, the risk assessment process can
become more complex. Processes must be developed to assess the operations
of every grantee to ensure that each complies with program rules and to
measure whether each achieves expected results.

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 of these grantees operate other
federal, state, or local programs in addition to the Head Start program.
Many of these Head Start grantees also provide services by subcontracting
with other organizations, known as delegate agencies. In 2003, there were
about 800 delegates providing services in the Head Start program. Some
grantees had multiple delegate agencies while others had none. The various
layers of grantees, the administrative complexity of the program, and the
interrelationship between programs operated by the same grantee add to the
challenges of overseeing the Head Start program.

ACF uses a number of processes to collect information on grantee
performance and financial management. Table 1 summarizes ACF key processes
for monitoring Head Start grantees.

Table 1: ACF's Oversight Processes for Monitoring Grantees' Financial Management

Required Monitoring process frequency Purpose and description

On-site review (PRISM) Triennial 	To determine whether a grantee meets
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.

Various offices within ACF have roles in developing and implementing
processes to monitor grantee performance and financial management. (See
fig. 1). The Head Start Bureau develops program policies and designs the
program-specific oversight processes to collect information on grantee
performance. Staff from the ten regional offices implement the policies
developed by the other offices within ACF, ensure that all grantees are in
compliance with program rules, and frequently develop additional policies
to aid in their oversight responsibilities.

Figure 1: ACF Organizational Chart

Review of audits

Survey of grantees (PIR) and policies for on-site review (PRISM)

Renewal applications, day-to-day contacts with grantees, review of
financial reports, and implementation of on-site reviews (PRISM)

                    Source: GAO analysis of ACF information.

ACF Lacks a ACF uses many processes to collect information on grantee
performance Comprehensive Strategy to and financial management but does
not bring together this information to Assess Head Start Risks
comprehensively assess the program's risks or identify areas where it

might need new or improved processes to collect information. Staff in ACF
regional offices maintain day-to-day contact with the Head Start grantees
and monitor the operations of those grantees throughout the

country. Many of those regional office staff told us that they most
frequently learn if a grantee is having a problem through a call from a
parent or a teacher. The staff in the regional offices said these calls
are a routine part of their day-to-day monitoring activities.
Over-reliance on this approach can result in missed opportunities to help
grantees address management challenges before they become problems.
Greater linkages among the various programs offices and oversight
activities could produce a more comprehensive approach to assessing
program risks and help prevent financial management weaknesses in Head
Start grantees. (See fig. 2).

Figure 2: Head Start Oversight Activities Undertaken by Several Offices

Source : GAO analysis.

In our review of ACF's management of the Head Start program, we noted a
number of on-going activities that were not well-integrated and did not
present a comprehensive view of the program's risks. For example, Head
Start's 2004 Management Initiative targeted risks that were identified in
recent GAO reports, news articles, and congressional inquiries. The
Initiative targeted well-known problems such as underenrollment,
overenrollment of children from families that did not meet income
eligibility requirements, and excessive executive compensation at some
Head Start programs. However, efforts to address broader concerns about

program governance-the skills and knowledge of local Head Start governing
boards to effectively manage their programs-were notably absent from the
Initiative.

In another example of an ACF oversight process that is too limited in
scope, we reported that before 2004 ACF had not collected information it
could use to estimate the extent of improper payments made by grantees or
the Head Start Bureau. But when ACF began to collect this information, the
agency focused on just one type of improper payments to grantees- payments
made to grantees that enrolled too many children from families that did
not meet the program's income eligibility requirements. These improper
payments pose a program risk because eligible children may not have access
to services. While this effort is an important step in systematically
assessing risks, the study overlooked many other possible forms of
improper payments, such as those made to contractors, to grantees that are
significantly underenrolled, or for unallowable program activities.

Finally, we noted in our report that ACF relies on its regional offices to
assess their own operations for gaps that might pose risks to all ACF
programs, including Head Start. Such gaps might include failure to follow
ACF grant management policies or to maintain files on property acquired or
renovated with Head Start funds. Self-assessments can be an important
tool, but ACF had not recently conducted an independent compliance review
to ensure that its own grant policies are enforced and that the federal
government's financial interests are protected.

    Processes ACF Uses to Collect and Analyze Information on Grantees are Flawed

We found that the main processes ACF uses to collect information on its
grantees' financial management-on-site reviews, annual grantee surveys,
and analyses of financial reports and audits-have flaws that limit the
value of the information collected. The on-site review process, mandated
by the Head Start Act and often known as PRISM-the name of the review
protocol-is ACF's main tool to assess whether grantees are in compliance
with statutory and regulatory requirements. While the Head Start Bureau
has made progress in improving its on-site reviews, we found that problems
remain. We found that the Bureau has no process to ensure that the teams
of reviewers follow the Bureau's guidance. This is a concern because there
is evidence that some PRISM reviewers might not follow the guidance for
the on-site reviews. For example, comparisons of simultaneous on-site
reviews of the same grantees by two different teams-a PRISM review team
and an improper payments study team- revealed significant discrepancies.
Notably, 21 of the 50 grantees in the

improper payments study were cited for enrolling too many children that
did not meet the income eligibility guidelines, but the PRISM review teams
cited only 3 of those same grantees for failing to comply with income
eligibility criteria.

The effectiveness of on-site reviews to systematically identify grantees
with financial management weaknesses depends on some assurance that the
on-site review is implemented as designed and that the reviewers have the
necessary skills to assess grantees' compliance with Head Start
performance standards. The review teams are lead by staff from ACF's
regional offices and include a number of reviewers under contract with
Head Start. Many of these contractors are employees of Head Start programs
throughout the country. While this level of experience should indicate a
familiarity with Head Start program requirements, ACF does not check
reviewer credentials or test their knowledge of the rules before they are
sent to conduct reviews. ACF seeks feedback, on a voluntary basis, on the
contractors' performance but ACF's Director of Regional Operations
expressed reluctance to solicit feedback on the team leaders' performance.

ACF also uses an annual survey of its grantees to collect information on
the status of their programs to measure results, but ACF does not verify
the information collected. We reported last year that important
information, such as enrollment in many Head Start programs, is often
reported inaccurately. Also, our analysis raises concerns about the
reliability of the survey data. ACF relies on 700 checks of internal
consistency to ensure that data are reported accurately. Many ACF
officials said that the checks make it difficult for grantees to provide
inaccurate information. However, our own review of the internal
consistency of the data found problems; as long as grantees complete the
survey consistently, the data-whether accurate or not-would pass the
tests. While ACF officials said they would be able to address the problems
we identified in our analysis, because the data are used widely by
policymakers and the public to assess the program's results, until ACF
takes steps to ensure the accuracy of the database we urge caution in
using data from the survey to monitor Head Start grantees.

All Head Start grantees report on the status of their funds through
periodic financial reporting and annual audits of their financial
statements. We found that ACF made limited use of the information
collected through these two processes to analyze Head Start grantees'
financial status. For example, ACF does not routinely reconcile a
grantee's withdrawals with its reported expenditures until after the funds
have all been spent. It is

therefore difficult for ACF to identify grantees that might be drawing
down excess funds at the beginning of the grant period and risking
shortfalls at the end of the period. Regarding audits, all grantees must
obtain an annual audit of their financial statements and compliance with
selected federal laws and regulations. These audits are conducted under a
framework mandated by the Single Audit Act. While these audits may not be
as comprehensive as an on-site program review, they are designed to ensure
that federal grantees' financial statements are accurate, that they have
adequate checks and balances in place to protect federal funds, and that
they are in compliance with key regulations. However, ACF officials cited
limitations in the scope and timing of the audits for failing to use them
more systematically in their day-to-day oversight activities. In focusing
on the limitations of these audits, ACF officials may overlook some
valuable information on grantees' financial management practices.

    ACF Does Not Ensure that Grantees Effectively Resolve Financial Management
    Problems

One way to assess the effectiveness of the approaches ACF uses to address
grantees' financial management weaknesses is to examine whether grantees
resolve their problems and then stay in compliance. ACF's data from its
on-site reviews from 2000-2003 show that many grantees that were cited for
failing to comply with financial management requirements in one review
still had problems in their next review.2 Our analysis of the data shows
that more than half of the grantees cited for failure to comply with
financial management-related rules were out of compliance again with one
or more financial management standards during their next review. (See fig.
3).

2 The data base for on-site reviews, PRISM, contains both grantees and
grantees with any delegate agencies reviewed. The data presented in this
section contains both types of entities. When we analyzed the grantees
separately, we obtained the same results about percentages of grantees
that were non-compliant and had recurrent problems in their next review.

Figure 3: 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.

Moreover, the number of areas of financial management in which grantees
were noncompliant did not decrease with subsequent reviews. As figure 4
shows, of the 70 grantees cited in 2000 for problems in all three major
areas of financial management-fiscal management, program governance, and
record keeping/reporting-69 still had one or more problems in each area at
the next review.

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
consistently on time, the improved performance may not be sustained

Figure 4: Grantees with Recurring Financial Management Problems
(2000-2003)

When grantee problems are identified through on-site reviews or audits,
ACF often relies largely on grantees' self-certification that they have
corrected problems rather than imposing special conditions or conducting a
site visit. While self-certification may be appropriate in cases when
minor problems can be corrected quickly, the analysis in figure 4 suggests
that many grantees with problems are not getting the help they need to
correct their problems and make lasting improvements in their financial
management capabilities. We reviewed the files of 34 grantees with
financial management problems identified by ACF during its on-site
reviews. In 18 cases, ACF determined that the grantees' problems were not
severe enough to be deemed deficient-a term ACF uses to identify grantees
with severe problems. Of those 18 grantees ACF required 16 to submit
letters certifying that they had corrected the problems and no further
action was pursued. In the other 2 cases, ACF returned to the review the
grantees and found that they had not corrected their problems. 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. Because the two grantees had not corrected their

problems, as required by law, ACF deemed them deficient and required them
to develop a quality improvement plan.

ACF also relies primarily on self-certification to resolve problems
identified in grantees annual audits. In each of the 30 audits we tracked
from the date the auditor completed a report identifying financial
weaknesses until the regional office judged the audit findings resolved,
that judgment was based on a letter from the grantee rather than a site
visit or other follow-up. Regional staff said they relied on subsequent
audits to ensure that such findings are resolved, but we found it
frequently takes up to 2 years from the point an audit identifies a
problem until the regional office receives the next audit, during which
the grantee continues to receive federal funds. While the results of our
review in four regional offices may not represent the range of actions
taken by all ACF regional offices nationwide, we interviewed managers in
other regional offices who generally described similar procedures.

To the extent that grantees have recurring financial management problems,
more aggressive approaches might be appropriate. ACF has the authority to
impose special award conditions-such as requiring grantees to seek
approval for every withdrawal of grant funds-but ACF rarely imposes these
conditions. ACF can also make a follow-on visit to ensure that the grantee
has implemented corrective actions and is in compliance with the program's
rules. The Head Start Act requires ACF to conduct follow-on visits when it
determines that a grantee has such severe problems that it deems the
grantee deficient; ACF can also return to grantees with less severe
problems, but we found ACF rarely does so. We could not discern an
objective rationale for when ACF regional offices decide that a grantee is
deficient and when they do not. 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 problems cited, but the
regional offices deemed only 10 of the grantees deficient. Regional office
staff and their managers in the offices we visited said they meet to
discuss any problems identified during the on-site review to determine
whether to deem the grantee deficient, but they said they treat each case
differently and largely base their determinations on their previous
experiences with the grantee.

The most aggressive approach ACF can take to ensure that a community is
served by a Head Start grantee with sound financial management is to seek
a new grantee if the current grantee cannot perform as expected. However,
we found that ACF rarely terminates its relationships with
poorly-performing grantees. Instead, ACF said that, in lieu of terminating
a

poorly performing grantee, it will try to convince such a grantee to
voluntarily relinquish its right to its grant. When ACF does undertake the
protracted process of terminating its relationship with a grantee, the
grantee will continue to receive funding even if it appeals ACF's
decision-regardless of the appeal's merits. Under ACF's current
regulations, it must also fund a grantee's legal costs until the grantee
has exhausted its appeals before HHS' Departmental Appeals Board.
According to an Administrative Judge on the Appeals Board, no other HHS
grant program except Head Start allows grantees to continue receiving
funding throughout the appeals process.

When ACF decides to award a grant, the Head Start Act requires that ACF
give priority to grantees already operating a Head Start program in the
community. This aspect of the law provides important continuity for Head
Start services in a community. It also provides important stability for
grantees. However, the act allows the Secretary to deny priority to any
grantee the Secretary finds fails to meet the program's performance or
financial management requirements. Denial of priority status to current
Head Start grantees would open up the possibility of competition for the
grant among other qualified applicants. ACF could seek a new grantee that
can demonstrate the ability to manage federal funds responsibly, in
accordance with program rules, and that can provide high-quality Head
Start services to eligible children in the community. Obviously, denying
priority status to a grantee that has been a part of a community for
years, has educated multiple generations of children from that community,
and has employed a number of staff from the community is a major step that
should be taken after carefully considering all available options. But,
denial of priority status is a step that ACF should take if a grantee
fails to make the necessary changes to effectively manage its program.
Ultimately, enforcing all the program's requirements-especially financial
management requirements-is really about strengthening our commitment to
future generations of children, seeking better ways of managing scarce
federal resources, and making sure that we reach as many eligible families
as possible.

We made 8 recommendations in our report to improve the overall management
of the Head Start program, strengthen the tools ACF uses to collect useful
information on its grantees, and improve ACF's analysis of the information
it collects. Specifically we recommended that the Assistant Secretary for
Children and Families:

o  Produce a comprehensive risk assessment of the Head Start program and
update it periodically. Such an assessment should:

o  Consider plans to collect data on and estimate the extent of improper
payments made for unallowable activities, payments to grantees that are
significantly underenrolled, or other unauthorized activities,

o  Aim to improve the processes ACF currently uses to collect and analyze
information on program risks; for example, ACF should:

o  Train and/or certify its on-site reviewers to ensure they have the
skills and knowledge necessary to perform their responsibilities,

o  Develop an objective approach for regional office management to use in
assessing the severity of the problems identified during onsite reviews
and for finding grantees deficient or not, and

o  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  Verify key data from the annual survey of grantees to enhance the
usefulness of this data in overseeing its grantees and managing the
program, and

o  Seek ways to make greater use of the data it collects on the status and
use of federal funds through a periodic reconciliation of grantees'
reported expenditures with their withdrawals.

o  Take steps to obtain competition for a grant if ACF has determined that
the current grantee fails to meet program, financial management, or other
requirements. Such a competition could be held without giving priority to
the current grantee.

ACF agreed to implement most of our recommendations. However, ACF
expressed concerns about our last recommendation, suggesting that it did
not have the authority to seek competition from other qualified applicants
for grant funds in communities that are currently served by poorly
performing grantees without first terminating its relationship with such
grantees. Seeking other qualified applicants under these circumstances
would strengthen the linkages between a program's performance- including
financial management-and its funding. Congress may wish to seek other
qualified applicants and clarify the extent of ACF's authority to deny
priority status to grantees it determines fail to meet program, financial
management, and other requirements.

  GAO Contact and Staff Acknowledgments

(130469)

Mr. Chairman, that concludes my prepared statement. At this time, I would
be happy to take any questions you or other Committee Members may have.

For more information regarding this testimony, please call Marnie S. Shaul
at (202) 512-7215. Individuals making key contributions to this testimony
include Betty Ward-Zukerman, Bill J. Keller, Mark Ward, and Neal Gottlieb
of our Education, Workforce, and Income Security Team; Kim Brooks, Diane
Morris, and Gabrielle Fagan of our Financial Management and Assurance
Team; Curtis Groves of our Applied Research and Methodology Team; and
Richard Burkard and James Rebbe of our General Counsel.

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