    Discretionary Grants: Further Tightening of Education's
    Procedures for Making Awards Could Improve Transparency and
    Accountability (21-FEB-06, GAO-06-268).

    In the past 3 years, Education awarded an average of $4.8 billion
    annually in discretionary grants through its competitive awards
    process and through consideration of unsolicited proposals. GAO
    assessed Education's policies and procedures for both competitive
    awards and unsolicited proposals awarded by its Office of
    Innovation and Improvement in 2003 and 2004 and determined
    whether it followed them in awarding grants in those years. GAO
    also reviewed Education's grant award decisions for several 2001
    and 2002 grants to determine whether the department followed its
    own policies.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-268
        ACCNO:   A47359
      TITLE:     Discretionary Grants: Further Tightening of Education's
    Procedures for Making Awards Could Improve Transparency and
    Accountability
         DATE:   02/21/2006
      SUBJECT:   Discretionary grants
    	     Educational grants
    	     Grant administration
    	     Grant award procedures
    	     Internal controls
    	     Policy evaluation
    	     Policies and procedures
    	     Transparency
    	     Dept. of Education Credit Enhancement
    	     for Charter Schools Facilities Program

    	     Voluntary Public School Choice Program

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    GAO-06-268

         * Results in Brief
         * Background
              * Trends in Discretionary Grants Awards
              * Competitive Grant-Making Process
              * Process for Making Awards Based on Unsolicited Proposals
         * In 2001 and 2002, Education Made Exceptions to Its Policies
              * Arkansas Department of Education
              * America's Charter School Finance Corporation
              * National Council on Teacher Quality
         * In 2003 and 2004, Education Strengthened Its Policies for Co
              * Education in 2003 Introduced New Controls to the Competitive
              * In 2003 and 2004, Education Generally Adhered to Its Policie
              * Formal Plans That Govern Grant Competitions Frequently Were
              * Screenings for Grantee Competence, Eligibility, and Allowabl
         * Education Selected Unsolicited Proposals That Varied Greatly
         * Conclusions
         * Recommendations for Executive Action
         * Agency Comments
         * Education
         * Grants Management
              * Order by Mail or Phone

    Report to the Ranking Minority Member, Education and the Workforce
    Committee, House of Representatives

    United States Government Accountability Office

    GAO

    February 2006

    DISCRETIONARY GRANTS

    Further Tightening of Education's Procedures for Making Awards Could
    Improve Transparency and Accountability Discretionary Grants Discretionary
    Grants Discretionary

    GAO-06-268

    Contents

    Letter 1

    Results in Brief 2
    Background 5
    In 2001 and 2002, Education Made Exceptions to Its Policies in Awarding
    the Three Grants 9
    In 2003 and 2004, Education Strengthened Its Policies for Competitive
    Grants and Generally Adhered to Them 12
    Education Selected Unsolicited Proposals That Varied Greatly in Content
    and Provided Extensive Technical Assistance 15
    Conclusions 18
    Recommendations for Executive Action 18
    Agency Comments 19
    Appendix I Scope and Methodology 22
    Appendix II Grants Awarded Based on Unsolicited Proposals (2003-2004) 25
    Appendix III Comments from the Department of Education 28
    Appendix IV GAO Contacts and Staff Acknowledgments 31
    Related GAO Products 32

    Tables

    Table 1: Comparison of Policy Guidance for 1997 and 2003 for Select
    Requirements 13
    Table 2: Grants Awarded in 2003 Based on Unsolicited Proposals (cumulative
    obligations as of November 30, 2005) 25
    Table 3: Grants Awarded in 2004 Based on Unsolicited Proposals (cumulative
    obligations as of November 30, 2005) 27

    Figures

    Figure 1: Education Grants-fiscal year 2005 (in billions of dollars) 5
    Figure 2: Fund for the Improvement of Education Appropriations, 1989-2005
    (in millions of inflation-adjusted dollars) 8
    Figure 3: Voluntary Public School Choice Funding in Fiscal Year 2002 10

    Abbreviations

    ABCTE American Board for Certification of Teacher Excellence

    ATRP Application Technical Review Plan

    FIE Fund for the Improvement of Education

    GAPS Grant Administration and Payment System

    IES Institute of Education Sciences

    IG Inspector General

    OII Office of Innovation and Improvement

    NCTQ National Council on Teacher Quality

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
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    separately.

    United States Government Accountability Office

    Washington, DC 20548

    February 21, 2006

    The Honorable George Miller Ranking Minority Member Committee on Education
    and the Workforce House of Representatives

    Dear Mr. Miller:

    In fiscal year 2005, the Department of Education (Education) provided more
    than $42 billion in grants to state and local education agencies, school
    districts, colleges and universities, and other organizations to conduct
    various program and research activities. While Congress directs the
    allocation of most of these funds, a small portion of this money-$4.7
    billion in 2005-is awarded by the Secretary either through program
    competitions or through consideration of unsolicited proposals. In the
    case of competitions, selection of awardees is governed by regulations and
    policies designed to ensure that federal funds are directed to those
    proposals of highest merit. In the case of proposals that are unsolicited,
    awards are to be made to grantees that are recommended for funding by
    external reviewers based on proposals they deem to be of high quality and
    national significance.

    Allegations were made that Education did not follow its policies in making
    the grant awards that benefited specific grantees. You asked us to review
    two grant awards-a competitive grant awarded in 2002 from the Voluntary
    Public School Choice program to the Arkansas Department of Education to
    fund its partnership with K12, Inc.,1 and a 2001 award based on an
    unsolicited proposal to the National Council on Teacher Quality (NCTQ). In
    the course of our review, program officials directed us to another
    competitive grant where they noted similar concerns as those raised in
    your letter. This third grant was awarded from the Credit Enhancement for
    Charter School Facilities Grant program to America's Charter School
    Finance Corporation. The grants in question were awarded in 2001 and 2002
    and Education has subsequently issued new guidance for making grant awards
    and has moved the grant programs in question to the newly created Office
    of Innovation and Improvement (OII). We assessed Education's policies and
    procedures for both competitive awards and unsolicited proposals in 2003
    and 2004 and determined whether Education followed them in awarding grants
    in those years and we reviewed Education's grant award decisions for
    several 2001 and 2002 grants to determine whether the department followed
    its own policies.

    1K12, Inc. provides on-line curriculum for students enrolled in public
    schools, including students who were previously home-schooled or attended
    private schools.

    To assess the policies and procedures in place for the 2003 and 2004
    competitive awards processes, we reviewed departmental guidance issued in
    March 2003 that governed the grants awarded in those years. We reviewed a
    stratified random sample of 91 of the 521 competitive grants made by OII
    in 2003 and 2004, including all 10 grants with over $15 million in
    obligations. All percentage estimates from this sample have margins of
    error of plus or minus 10 percent or less. To assess Education's process
    for reviewing unsolicited proposals in 2003 and 2004, we reviewed
    departmental guidance and all 65 files for unsolicited grants awarded by
    OII in 2003 and 2004. We used the department's Grant Administration and
    Payment System (GAPS) to identify all grants awarded in 2003 and 2004. We
    assessed the reliability of the data in GAPS and found it to be reliable
    for our purposes. To review Education's decisions to award the 2001 and
    2002 grants, we obtained and reviewed departmental grant-making guidance
    in place at the time these grants were awarded. To determine whether or
    not departmental guidance was followed, we reviewed the official grant
    files for each of these grants, the corresponding files for the
    competitions that contain information on all of the applicants' proposals,
    the competition plans, and external reviewers' rankings and comments. In
    2002, 34 applicants competed for grants from the Credit Enhancement for
    Charter School Facilities Grant program and Education awarded five grants,
    including the grant in question. That year, the department also considered
    21 unsolicited proposals and made awards to 18 grantees, including the
    grantee in question. In 2002, 46 applicants participated in the Voluntary
    Public School Choice grant competition and the department awarded 13
    grants, including the grant in question. For additional details about our
    scope and methodology, see appendix I. Our work was conducted from May
    2005 through February 2006 according to generally accepted government
    auditing standards.

                                    Results in Brief

    In 2003 and 2004, after Education introduced some new management controls
    to improve its process for awarding competitive grants, we found the
    department generally adhered to its policies, although certain procedures
    were not always followed or documented. In our review of all 25
    competitions we found no evidence that Education made funding reductions
    without conducting budget analyses of the potential impact of the cuts on
    the projects or rescored applications after they had been assessed by
    expert reviewers. However, we found that some areas of the guidance were
    not always followed. In particular, Education's competition plans were not
    finalized prior to the competition, as required and, as a result, could
    have been subject to change. In addition, in the sample of files that we
    reviewed we found many lacked documentation that Education had conducted
    reviews to screen out (1) incompetent or unreliable applicants by
    examining, among other factors, their past audit histories; (2) ineligible
    grantees; or (3) proposals for unallowable expenditures. Policy officers
    for grants said that they never implemented a policy to check a grantee's
    audit history to ascertain an applicant's ability to manage grant funds
    competently and reliably. Our file review confirmed that this check was
    rarely done. In addition, even though program officials said they perform
    checks for eligibility and analyze the applicants' proposed budgets before
    grants are awarded, we found that about half of the files lacked evidence
    that these checks were completed.

    In 2003, Education also took steps to centralize and improve its process
    for reviewing unsolicited proposals; however, it still bases its screening
    decisions on proposals that vary greatly and frequently provides extensive
    technical assistance for some applicants. Following a departmental
    reorganization in 2003, Education established a centralized process for
    reviewing unsolicited proposals. To select among the proposals it
    received, senior OII officials told us they chose those proposals that
    aligned with the Secretary's priorities. In response to an Education
    Inspector General (IG) report, Education revised it procedures to document
    better that required screenings were conducted and to ensure that only
    applicants recommended for funding by expert reviewers received awards.
    While Education developed a standard process for reviewing unsolicited
    proposals, it did not require that proposals be submitted in a standard
    format and, as a result, the proposals the department received varied
    greatly in content and detail. Nonetheless, OII has to make its
    determination that proposals are likely to meet regulatory requirements
    for exceptional quality and national significance on the basis of these
    varying proposals. Also, OII provided extensive technical assistance to
    some applicants, including, in some instances, providing applicants with
    the notes of peer reviewers and allowing applicants to revise and resubmit
    applications. Specifically, in 2004, 10 of the 27 applicants failed to
    garner the reviewers' support and were provided another chance to apply.
    Of those 10 applicants, 8 revised their proposals, received favorable
    recommendations from peer reviewers and were subsequently funded.

    However, in awarding the three grants in 2001 and 2002, we found that
    Education made exceptions to its policies that benefited the grantees in
    question. For the two competitive grants, we found that Education
    officials reduced funding to all of the grantees to accommodate awards to
    lower-rated grantees and did not conduct budget analyses of the potential
    impact of these reductions on the proposals. In doing so, Education
    altered the selection methodology it had planned to use after it had
    developed a list of grantees recommended for funding. In the first
    competition, grantees' requested amounts were decreased by 47 percent
    across the board-while the award to the grantee in question, which was the
    lowest ranked on the list-was reduced just 23 percent. In the second
    competition, an Education official re-reviewed the two applications that
    were ranked just below those recommended for funding. In doing so,
    Education rescored the applications and reversed their rank order. This
    process resulted in the grantee's in question receiving the higher
    ranking. The list of grantees to be funded was then expanded to include
    the grantee in question. Consequently, the highest ranked grants received
    funding reductions between 16 percent and 40 percent while the grantee in
    question received a funding reduction of about 50 percent. On the third
    grant, which was an unsolicited proposal, we found that Education lacked
    an objective process to reconcile disagreements among reviewers and
    awarded a grant that two of three reviewers recommended against funding.
    Furthermore, we found that Education awarded four grants in 2001 that had
    not been recommended for funding by any one of the three reviewers,
    contrary to Education's regulation.

    While the new management controls Education put in place to govern its
    competitive awards process provide reasonable assurance that awards are
    made appropriately, we are recommending that the Secretary take steps to
    ensure that the new controls are consistently followed and that programs
    officers better document the steps that are required under the new
    controls. Education agreed with these recommendations and said it has
    implemented corrective actions. In addition, to improve the process for
    selecting and awarding grants based on unsolicited proposals, we are
    recommending that the OII develop a more systematic format to select
    proposals for peer reviewers. Education disagreed with this recommendation
    and said it would not help the agency select high-quality proposals. While
    we have modified our recommendation to address some of Education's
    concerns, we think that collecting some systematic information would
    enhance Education's ability to more effectively screen the quality of its
    applicants. Based on this review, GAO is not recommending that the
    Secretary take actions regarding the three 2001 and 2002 grants we
    reviewed in detail because we found no clear violation of applicable
    statutes and regulations.

                                       Background

    Education administers discretionary grants both through competitions and
    through consideration of unsolicited proposals. In 2003, OII awarded 267
    competitive grants totaling $335 million and 41 grants based on
    unsolicited proposals totaling $64 million. In 2004, the department
    approved 254 competitive grants for $826 million and 24 grants for
    unsolicited proposals totaling $17.5 million.

    Trends in Discretionary Grants Awards

    Education distributed more than $42 billion in grants in fiscal year 2005,
    but only a small portion-12 percent-was discretionary. The rest of the
    funds were allocated to grantees on the basis of statutory formulas or as
    a result of a congressional earmarks; the department has no discretion
    over who receives grants from those funds. (See fig. 1).

    Figure 1: Education Grants-fiscal year 2005 (in billions of dollars)

    Although Education's grant awards have increased by about a third since
    before the enactment of the No Child Left Behind Act, funding for
    discretionary grants decreased by 19 percent. Most of the increase in
    grant funding is allocated through formula grants, such as Title
    I-Improving the Academic Achievement of the Disadvantaged. Total funding
    for formula grants grew by about 45 percent between 2001 and 2005.

    Competitive Grant-Making Process

    In the case of competitions, selection of awardees is governed by policies
    and procedures designed to ensure a fair and objective evaluation of all
    of the applications. Education begins the competition process by
    publishing a notice in the Federal Register. This announcement serves as a
    notice that federal funds are available through a specific program and
    invites interested parties to prepare an application for funding. The
    notice provides information on the estimated number of awards that will be
    made and the estimated size of each award. Importantly, the notice
    establishes the rules by which the competition will be conducted; among
    other things, this notice provides information on the eligibility
    criteria, the issues Education expects the applicants to address in their
    applications, and the evaluation criteria for the competition. The notice
    serves as a blueprint for applicants to use in developing a successful
    application.

    In addition, program officials must develop a plan for how they will
    administer the competition. The competition plan, known as an Application
    Technical Review Plan (ATRP), is a key management control that helps
    promote fairness and transparency in the process. The competition plan
    includes such information as the schedule for the competition, the process
    for identifying and using external peer reviewers, the composition of the
    peer reviewer panels, a description of how the applications will be
    assigned to these panels, the process for resolving peer reviewers'
    conflicts of interest, and the methodology for selecting applications for
    funding. Any deviation from the original plan for reviewing the
    applications, selecting applicants, and approving the list of prospective
    grantees must be justified in writing, which is designed to enhance
    transparency.

    Another key control for ensuring fairness in the award process for grants
    is the peer review process. Peer reviewers are typically external experts
    who bring an independent assessment of the merits of the applications. The
    number of individuals selected to serve as peer reviewers depends on the
    number of applications received for a specific competition. These peer
    reviewers are usually grouped together in panels of three or more members
    to review applications. Each peer reviewer independently reads and scores
    a group of applications randomly assigned to the panel, generally using a
    numerical scoring system, against program criteria based on legislative
    and regulatory requirements. Program officials prepare a single score for
    each application-usually by averaging the scores of all the peer reviewers
    on the panel that reviewed the application or, less frequently, using a
    statistical technique to equalize unusual scoring variances among
    reviewers. Program officials then prepare a rank-ordered list of
    applications based on the single scores and use this list to prepare their
    funding recommendations.

    Education's regulations stipulate that the rank-order list is one of many
    factors the Secretary may use in selecting new grants. The Secretary may
    also use information from the application as well as information
    concerning the applicants' performance and use of funds under a previous
    award. Ultimately, the peer reviewers' comments are advisory, and the
    Secretary can determine which new grants to fund based on the program
    criteria outlined in the statute and the Federal Register notice.

    In addition to developing the ATRP, Education's policy requires program
    officials to screen the applicants for eligibility, typically before
    applications are peer reviewed. Before making an award, program officials
    must conduct checks to ensure the applicants' competence to manage federal
    funds. A budget analysis is also required to be conducted to ensure that
    no grant funds are awarded for unallowable purposes.

    Process for Making Awards Based on Unsolicited Proposals

    Education's policy is to award the vast majority of discretionary grant
    funds through the competitive process, however it may also fund grants
    based on unsolicited proposals. Although Education can fund unsolicited
    proposals from any program, the primary source for funding such proposals
    is the Fund for the Improvement of Education (FIE). This program was
    created in 1988 as the Secretary's Fund for Innovation in Education.2 At
    the time, it provided the Secretary with the authority to fund proposals
    that showed promise of identifying and disseminating innovative
    educational approaches. The program has been reauthorized over the years,
    most recently in 2002 with enactment of the No Child Left Behind Act and
    maintains flexibility by providing the Secretary with the authority to
    fund "meritorious" programs to improve the quality of elementary and
    secondary education at the state and local levels and help all children
    meet challenging state academic content and student academic achievement
    standards. The FIE program is also used to fund congressional earmarks for
    elementary and secondary education activities. The statute does not
    require Education to compare the relative merits of all the proposals it
    receives in any given year; however, it does require that the Secretary
    use a peer review process for reviewing applications. Appropriations for
    the FIE program remained relatively steady until 1998. Since 1998
    appropriations increased dramatically. (See fig. 2).

    2Pub. L. No. 100-297, S: 4601 (Apr. 8, 1988).

    Figure 2: Fund for the Improvement of Education Appropriations, 1989-2005
    (in millions of inflation-adjusted dollars)

    Before funding unsolicited proposals, Education must also make sure that
    the regulatory requirements for funding such proposals are met. Education
    must first determine whether the unsolicited proposal could be funded
    under a competitive grant program; if it could be funded under a
    competition, the Secretary refers the proposal to the appropriate
    competition. If an appropriate competition does not exist, departmental
    regulations require the Secretary to decide if (1) there is a substantial
    likelihood that the application is of exceptional quality and national
    significance, (2) the application satisfies the requirements of all
    applicable statutes and codified regulations that apply to the program,
    and (3) selection of the project would not have an adverse impact on the
    funds available for other awards planned for the program.3 If these
    criteria are met, Education assembles a panel of experts to evaluate the
    unsolicited proposal based on the selection criteria. If the experts
    highly rate the application and determine that the application is of such
    exceptional quality and national significance that it should be funded as
    an unsolicited application, then the Secretary may fund the application.4

      In 2001 and 2002, Education Made Exceptions to Its Policies in Awarding the
                                      Three Grants

    Education made progress since 2003 in improving its policies for awarding
    discretionary grants; however, prior to these improvements we found that
    Education made exceptions to its policies that benefited the grantees in
    question. For the two competitive grants, we found that Education
    officials reduced funding to all of the grantees to accommodate awards to
    lower-rated grantees and did not conduct analyses to assess the impact of
    these reductions on the ability of the applicants to achieve the goals of
    their projects. In doing so, Education broke from established practice by
    altering its selection methodology after it had developed a list of
    grantees recommended for funding. With regard to the third grant, which
    was an unsolicited proposal, we found that Education made the award with
    approval from only one of three independent reviewers and lacked a process
    for reconciling differences among peer reviewers' ratings. Furthermore,
    Education awarded four unsolicited grants in 2001 that had not been
    recommended for funding by any one of the three reviewers, contrary to
    departmental regulations.

    Arkansas Department of Education

    In order to fund a grant to the Arkansas Department of Education,
    Education officials reduced the prospective grant awards to all other
    competitors in the 2002 Voluntary Public School Choice Program by nearly
    50 percent. Specifically, Education's program office recommended 10
    grantees for funding, but subsequently expanded this list to 13 awardees,
    including 13th-ranked Arkansas. As part of its decision to fund 13 grants
    instead of 10, Education funded each of the top 12 grantees at just 53
    percent of its request, while it funded Arkansas at 77 percent of its
    request. (See fig. 3).

    334 C.F.R. 75.222 (b).

    434 C.F.R. 75.222 (e).

    Figure 3: Voluntary Public School Choice Funding in Fiscal Year 2002

    Note: State of Florida requested $7.35 million but amount of request was
    capped by Education at $5 million.

    In reducing the grant awards to accommodate 13 grants, Education set aside
    its policy to conduct a thorough budget analysis of the programmatic
    impact of the reductions. The program official responsible for the
    competition received assurances from all of the grantees that they could
    still achieve the goals of their proposals with decreased funds, and
    according to this official, all of the grantees submitted revised budgets
    reflecting reduced award amounts. However, this official told us that
    Education did not analyze the revised budgets, and we found no evidence
    from our file review that a budget analysis was conducted to determine if
    there would be a programmatic impact resulting from the reductions.
    Additionally, neither the assurances nor the rescoped proposals, which
    given the magnitude of the reductions could be substantially different
    from original proposals, were vetted by any external reviewers. For
    example, Arkansas scaled back its proposal by eliminating foreign language
    instruction and summer school programs.

    In addition, we found that Education broke from established practice and
    altered its selection methodology outlined in the competition plan. The
    department's original list of 13 grantees would have required cutting the
    requests of the applicants other than Arkansas across-the-board by 51
    percent in order to fund each applicant. Arkansas received a reduction of
    only 23 percent. The department altered its selection methodology, which
    resulted in one grant request for $3.6 million being replaced by one for
    $749,000. Using the new methodology, funding reductions for each of the 12
    grantees went from 51 percent to 47 percent. Officials told us it was not
    normal procedure to make changes to the selection methodology so close to
    the time of the award decision.

    America's Charter School Finance Corporation

    We found that the process used by senior departmental officials in making
    an award to America's Charter School Finance Corporation under the Credit
    Enhancement for Charter School Facilities program set aside departmental
    policy and varied from standard departmental practice. Specifically, after
    receiving a list of four grantees recommended for funding, the deputy
    secretary asked his staff-a senior political appointee-to re-review the
    fifth and sixth ranked competitors, as ranked by expert reviewers. Based
    on this re-review, the order of the fifth and sixth ranked grantees was
    reversed, according to the department official conducting this review,
    because "the application from America's Charter was stronger and had been
    evaluated too harshly by its peer review panel." Program officials said
    that they had never before experienced a case whereby a senior political
    appointee selectively re-reviewed and rescored particular applicants after
    the peer review process had been completed. Furthermore, the appointee
    recommended that "this excellent, ambitious application be awarded the
    fifth of five allowable grants," expanding the initial list recommended by
    the program staff. To fund five grantees, program officials reduced the
    awards to each of the grantees by anywhere from 16 to 40 percent. We found
    no evidence that a budget analysis was conducted, as required by policy,
    to determine whether the reductions impeded the grantee's ability to
    perform the proposed activities and achieve the intended outcomes on which
    the reviewers based their scores.

    National Council on Teacher Quality

    In the case of the grant to NCTQ in 2001, Education awarded $5 million to
    the council, despite the fact that its proposal was not recommended for
    funding by two of three reviewers. The council's award was based on an
    unsolicited proposal to create a new national accreditation program for
    teachers-the American Board for Certification of Teacher Excellence
    (ABCTE).5 We also found that in 2001 Education funded eight other
    unsolicited proposals that had been rejected by at least two of three
    reviewers. Four of these eight were funded despite not being recommended
    by any of the three reviewers, which was contrary to departmental
    regulations.

    In 2003 and 2004, Education Strengthened Its Policies for Competitive Grants and
                               Generally Adhered to Them

    In 2003, Education strengthened some of its policies governing the
    competitive grant process and in both 2003 and 2004 generally adhered to
    its key policies, although certain procedures were not always carried out
    or documented. In our review of all 25 competitions we did not find
    evidence that Education made funding reductions without conducting budget
    analyses of the potential impact on the proposals or rescored applications
    after they had been assessed by expert reviewers. Nor did we encounter any
    changes to the competition plans for 2003 and 2004 after peer reviewers
    had assessed the applications. However, we did find found that many of the
    original competition plans we examined had not been finalized-that is to
    say, formally approved. For this reason, we cannot be certain that all
    competitions had proceeded without alteration to the plans. In addition,
    we found many of the grant files lacked documentation documented evidence
    that Education had conducted three standard procedures for screening
    potential grantees: (1) a review of the applicant's compliance with audit
    requirements; (2) a review of the applicant's eligibility for the program;
    and (3) a review of requested costs and expenses to determine whether they
    were allowable.

    Education in 2003 Introduced New Controls to the Competitive Grant Process

    In 2003, Education added certain controls over the competitive grants
    process aimed at increasing its fairness and transparency. Among these is
    an explicit requirement to document any changes to a competition plan,
    which would include changes to how competitors are scored or how peer
    reviewers are selected. The new guidance provides that if there is a need
    to deviate from a plan during a competition, it should be formally amended
    and a written justification should be approved by a senior departmental
    official and included in the official file for the competition. Also, the
    department clarified the conditions under which it may reduce funding from
    what was applied for. In addition, the department added several checks for
    program staff to consider before making awards as part of their
    responsibility for determining that potential awardees are competent to
    manage federal funds. One of these checks requires that program staff
    submit for screening a list of the likely awardees to determine whether
    any have a grant history and met auditing requirements.6 If the audit
    record reveals any problem, program staff are required to withhold or
    delay an award until such problems are resolved.7 Table 1 compares certain
    requirements from Education's 1997 guidance with 2003 guidance.

    5In 2003 NCTQ submitted another unsolicited proposal for $35 million to
    cover 5 years. In 2003, all three peer reviewers rated NCTQ's proposal
    highly and it was funded. Officials told us that Education has funded
    ABCTE directly since 2004, after NCTQ transferred the grant. Although the
    Congress sharply cut the funding for discretionary grants from the FIE
    program in 2005, this grant is now funded through the Advanced
    Credentialing Program.

    Table 1: Comparison of Policy Guidance for 1997 and 2003 for Select
    Requirements

                         1997 Policy guidance   2003 Policy guidance
    Approval of       The plan is subject to The plan must be approved by the
    competition plan  review and approval of principal officer or his/her
                         the senior officer or  designee.
                         his/her designee.
    Changes to        Not addressed.         If there is a need to deviate
    competition plan                         from the plan during a
                                                competition, the plan should be
                                                amended, and a written
                                                justification of why the plan was
                                                amended must be approved by the
                                                Principal Officer or his/her
                                                designee and included in the
                                                competition file.
    Reductions from   Program offices must   Program staff must ensure that
    requested amounts assure that any        any recommended changes to the
                         reductions from        project activities or requested
                         requested amounts do   amounts do not impede the
                         not impede the         applicant's ability to perform
                         grantee's ability to   the proposed activities and
                         perform proposed       achieve the intended outcomes. In
                         activities and achieve limited circumstances, the
                         intended outcomes on   department may fund projects for
                         which the reviewers    less than their requested amounts
                         based their            as long as it does not result in
                         recommendation for     a change to the scope or
                         making an award.       objectives of the funded
                                                application.
    Pre-award check   Not addressed.         In reviewing applications,
    of grantee's                             program staff should consider
    audit history                            whether the applicant has
                                                submitted federally-required
                                                audits, and, if applicable,
                                                adhered to corrective actions
                                                required in those audits.

    Source: GAO analysis of Education's A Basic Guide to the Discretionary
    Grants Process (1997) and Handbook for the Discretionary Grant Process
    (2003).

    6OMB Circular A-133, which implements the Single Audit Act, as amended,
    requires nonfederal entities that expend $500,000 or more in federal funds
    to have a single or program-specific audit conducted for that year.

    7Another option available to program managers is to designate the
    candidate as high risk and make the award.

    In 2003 and 2004, Education Generally Adhered to Its Policies for Competitive
    Grants

    In our review of all 25 competitions run by OII in 2003 and 2004, we found
    that Education generally adhered to its policies for ensuring fairness in
    the competitive process, and we found no evidence that Education made
    funding reductions without conducting budgetary analysis of the potential
    impact on the proposals. Nor did we find any instances in which Education
    officials re-reviewed peer reviewers' initial assessments. In addition, we
    found that grants were generally awarded to the highest-scoring eligible
    applicants, as policy requires, and that exceptions to the rank order were
    appropriately documented and justified, as policy requires. For example,
    we found several instances where applicants were dropped from the slate
    because they were ineligible for the program.8

    Formal Plans That Govern Grant Competitions Frequently Were Not Finalized As
    Required

    In 2003 and 2004 we found no evidence that competition plans-the
    procedural and scoring blueprint for each grant competition and a key
    management control-were changed after the expert reviews were completed.
    However, only 5 of the 14 plans covering the 25 competitions had been
    finalized as required. Specifically, the plans did not contain
    documentation of approval by a principal officer, nor did the plans show
    whether they had been amended. Without such documentation, we could not
    determine whether changes had, in fact, been made to the plans that would
    have required justification and approval under Education's 2003 guidance.
    Officials acknowledged that competition plans should be signed and dated
    when they are developed, but officials said they at times overlooked this
    step. Additionally, they said that any amendments to the plans were rare
    and usually not substantive in nature.

    Screenings for Grantee Competence, Eligibility, and Allowable Expenses Were Not
    Always Performed or Documented by Education Officials

    Further, our review of the 2003 and 2004 grants showed that the files
    frequently lacked documentation that Education had conducted three
    management controls that are designed to ensure that applicants are
    qualified to receive federal funds. Specifically, many of the files did
    not contain evidence that Education determined whether the applicant had
    any past audit findings, met the eligibility requirements for the program,
    or requested any unallowable expenses. We estimate that in 98 percent of
    the files, there was no evidence that program officers checked a grantee's
    audit history-a key check on an applicant's ability to manage federal
    grant funds. The guidance requires program staff to submit lists of
    potential applicants to the audit administrator to determine whether
    applicants submitted federally required audits and, if applicable, adhered
    to corrective actions required in the audits. The director of the audit
    division informed us, however, that this check was not universally
    implemented due to resource constraints. As a result, there is no
    pre-award assessment of an applicant's prior performance under any
    previous federal grant, or that an applicant with audit findings resolved
    any deficiencies before a new grant was awarded.

    8Officials said this occurred when Education received many more
    applications than anticipated and found it necessary to rank applications
    before they are screened for eligibility. Subsequent screening resulted in
    removal from the funding slate.

    Further, we estimate that 45 percent of the grant files did not contain
    documentation that Education, prior to award, screened the applicants for
    eligibility, and 68 percent of the grant files did not contain
    documentation of a thorough analysis of the applicant's requested budget
    to determine whether all costs were allowable. Program officials assured
    us that they perform both of these checks and acknowledged that
    documentation of the checks should be in the file.

      Education Selected Unsolicited Proposals That Varied Greatly in Content and
                        Provided Extensive Technical Assistance

    While Education has taken steps to centralize and improve its process for
    reviewing unsolicited proposals, it based its screening decisions on
    proposals that varied greatly and frequently provided extensive technical
    assistance. Prior to a departmental reorganization, Education officials
    told us there was no established process for considering unsolicited
    applications; instead, various offices within Education ushered select
    applications through a peer review process, and the Secretary decided
    among those which to fund. In December 2002, the Secretary notified the
    various offices within the department to send any unsolicited proposals
    relating to elementary and secondary education initiatives to OII for
    review.

    In 2003, OII developed a process for reviewing unsolicited proposals to
    determine which would be asked to submit an application for peer review.
    To select among the proposals received, senior OII officials told us they
    chose those proposals that aligned with the Secretary's priorities. At the
    beginning of the year, these officials said they met with the Secretary to
    discuss his priorities and then, over the course of the year, selected
    some that matched the Secretary's priorities to submit full applications.
    In 2004, Education's IG reviewed OII's process to ensure that it complied
    with departmental regulations and policy and found that it failed to
    document compliance with a number of regulatory requirements.9
    Specifically, the IG reported that Education was not documenting whether
    unsolicited proposals that had been selected for peer review had been
    screened to ensure, among other things, that there was a substantial
    likelihood that the application was of exceptional quality and national
    significance, as required by regulations. In response to the IG's
    findings, OII began to document the required screenings by including a
    memo in the grant file for each proposal that it planned to forward to
    peer review certifying, among other things, that there was a substantial
    likelihood that peer reviewers would deem the proposal to be of
    exceptional quality and national significance.

    While Education developed a standard process for reviewing unsolicited
    proposals, these proposals varied greatly in content and detail. OII
    officials said that the proposals could range from multipage documents
    from experienced grantees to less formal proposals-sometimes one-page
    letters or e-mails-from novice grantees. OII does not require that
    proposals be in a standard format before it selects which ones to forward
    to peer reviewers. OII officials told us it was often difficult to discern
    from the submitted material which proposals would ultimately gain the
    support of the peer reviewers. Nonetheless, OII made its determinations
    that proposals were likely to meet regulatory requirements of national
    significance and exceptional quality on the basis of these varying
    proposals. OII officials said that because the regulatory criteria
    defining significance and quality are broad10 many of the proposals
    submitted during the year met the criteria.

    OII officials said that they were concerned that if they had to promulgate
    rules governing the format or topics for unsolicited proposals, they might
    be overwhelmed with applicants. However, another office within
    Education-the Institute of Education Sciences (IES)-invites unsolicited
    research proposals and requires a standard submission. IES' invitation
    provides guidance on standardized presentation formats-proposals are
    limited to six pages-and imposes deadlines on submitting the proposals to
    IES.11

    9Office of the Inspector General, U. S. Department of Education,
    Improvements to Department Policy on Unsolicited Applications,
    ED-OIG/L03-E0026 (Washington, D.C.: Mar. 8, 2005).

    1034 C.F.R. 75.210.

    We also found that OII provided extensive technical assistance to some
    applicants. Our file review of unsolicited proposals showed that in many
    cases OII staff were in regular communication with the applicants,
    provided them with suggestions for how to organize and structure the
    narrative portion of their applications, assisted them in preparing
    proposed budgets, and commented on drafts of their applications.

    In 2003, despite Education's screening and technical assistance efforts,
    peer reviewers gave low scores to 14 of 42 applicants, and Education
    funded 13 of these low-scoring proposals.12 (See appendix II for a list of
    grants awarded in 2003 based on unsolicited proposals). In its 2004 study,
    the IG found that OII failed to comply with regulations that make funding
    for unsolicited proposals contingent on recommendations from peer
    reviewers. In response to the IG's findings and to comply with the
    regulation, OII began, in 2004, to ask the peer reviewers to provide
    recommendations for or against funding, rather than just having them
    provide a numerical score for each proposal.

    However, in 2004, if peer review failed to recommend approving a proposal
    that OII had selected, OII provided the applicants with the reviewers'
    comments and asked them to rewrite their proposals. In 2004, 10 of the 27
    applicants failed to garner the reviewers' support. Of those 10 grantees,
    2 declined to resubmit their applications-citing time constraints-and were
    not approved. The remaining eight applicants revised their proposals and
    were subsequently recommended for approval by peer reviewers after the
    revisions were submitted. All eight were approved and funded. (See app.
    III for a list of grants awarded in 2004 based on unsolicited proposals).

    11In 2004, IES received 171 proposals; they were screened by IES staff to
    ensure that the research would likely make a contribution to IES' overall
    research agenda-a selection criteria that is nearly as broad as FIE's
    requirement that the proposal should be nationally significant and of
    exceptional quality. Based on that screening process, IES asked eight
    prospective applicants to submit a full application and, like any
    unsolicited proposals that received funding from Education, IES submitted
    those applications to peer reviewers for their recommendations. Peer
    reviewers do not score the applications but provide written narrative
    comments. IES bases its decisions to award grants on these comments. In
    2005, IES funded four of the eight proposals.

    12We defined low scores as any score of 70, out of 100, or below.

                                      Conclusions

    The Department of Education has the responsibility to ensure that when it
    makes discretionary grant awards it follows a transparent and fair process
    that results in awards to deserving eligible applicants. In the case of
    unsolicited applications, OII's process is designed to meet statutory and
    regulatory requirements. However, Education based its decisions about the
    likely national significance and quality of proposals on information that
    varied greatly in detail and, as a result, sent applications forward for
    peer review that sometimes required extensive revisions. Without requiring
    a more uniform format for unsolicited proposals, OII may not have adequate
    information on which to base its screening decisions.

    Regarding its competitive awards process, the department has put in place
    management controls that, if followed, provide a reasonable assurance that
    awards are made appropriately. These controls protect the integrity and
    transparency of the departmental grant award process by requiring, among
    other things, that competition plans are finalized prior to the
    competition, that any changes to such plans are documented and approved,
    that grantees are screened for competency and eligibility, and that
    departmental officials determine that proposed activities are allowable
    under the law. When the department does not consistently follow these
    procedures, as we found to be the case, the integrity of its competitive
    grant award process may be undermined. Furthermore, in the absence of such
    diligence, actions taken that benefit specific grantees, such as those we
    found in 2001 and 2002, could happen again.

                          Recommendations for Executive Action

    We are making four recommendations to the Secretary of Education to
    address certain shortcomings in the department's grant-making policies
    through a variety of executive actions designed to promote fairness,
    enhance transparency, and provide greater access to funding opportunities.
    Specifically, to improve the process for selecting and awarding grants
    based on unsolicited proposals, we are recommending that the Secretary

               o  develop a more systematic format to select unsolicited
               proposals for further consideration by peer reviewers.

    In addition, to ensure fairness and improve transparency in the
    competitive grants process, we recommend that the Secretary take the
    following steps:

               o  Ensure that all competition plans are finalized before
               competitions begin and if a plan needs to be amended during a
               competition, the Secretary should provide assurances that any such
               amendment is justified in writing and has been approved by a
               senior department official.
               o  Implement departmental policy to screen all applicants for
               compliance with audit requirements before the award, and ensure
               that outstanding audit issues-if there are any-are addressed
               before making an award.
               o  Take appropriate steps to ensure that program officers better
               document required checks such as budget analyses and eligibility
               screening.

                                    Agency Comments

    Education provided us with comments on a draft of this report; these
    comments appear in appendix III. Education also provided technical
    comments that we incorporated as appropriate. Education agreed with 3 of
    our recommendations for improving the transparency of its competitive
    review process and said it has already taken steps to improve its guidance
    and training. Specifically, it agreed to (1) finalize competition plans
    before the competitions begin and obtain approvals from senior department
    officials for any amendments to the plans, (2) ensure that program
    officers better document their analyses of applicants' budgets and
    eligibility, and (3) implement departmental policy to screen all
    applicants for compliance with audit requirements before awarding any new
    grants.

    Education disagreed with our recommendation that it develop a more
    systematic approach-modeled after the approach used by IES-to select
    unsolicited proposals for further consideration by peer reviewers.
    Education said implementation of our recommendation would not help it to
    select high-quality applications because of the broad nature of the FIE
    program. We disagree and think that collecting some systematic information
    would enhance Education's ability to more effectively screen the quality
    of its applicants and enhance the transparency and consistency of this
    process. As we reported, Education officials acknowledge that, due to the
    nature of the proposals, it is often difficult to make quality screening
    decisions. We acknowledge that FIE awards and IES' research grants are
    fundamentally different, but we point out that the FIE program does not
    necessarily need to collect information that is as detailed or that would
    place unnecessary burdens on organizations seeking FIE funds. To make it
    clear that Education should focus on developing a systematic approach to
    selecting unsolicited proposals rather than duplicating the approach used
    by IES, we have modified our recommendation and removed reference to IES.

    As agreed with your staff, 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 Secretary of Education, Education's OII, 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 .

    If you or your staff have any questions regarding this report, please
    contact me at (202) 512-7215. Contact points for our Offices of
    Congressional Relations and Public Affairs are listed on the last page of
    this report. Key contributors are listed in appendix IV.

    Sincerely yours,

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

    Appendix I: S Appendix I: Scope and Methodology

    This appendix discusses in detail our scope and methodology for (1)
    reviewing Education's grant award decisions for the 2001 and 2002 grants
    in question to determine whether the department had followed its policies
    in place at the time, (2) assessing the department's policies and
    procedures in place in 2003 and 2004 for the competitive awards process
    and determining whether Education followed them in making such awards in
    those years, and (3) assessing Education's process for reviewing
    unsolicited proposals in 2003 and 2004.

    Scope

    To review Education's grant award decisions for the 2001 and 2002 grants,
    we limited our in-depth inquiry to the three grants in question. These
    grants were awarded before Education reorganized in 2003. In 2003,
    Education created OII and consolidated a number of grant programs with it.
    The grants in question were funded from programs that are now housed in
    OII. In addition, in 2003 Education published revised agency guidance on
    awarding. This guidance governs the policies and procedures program staff
    must follow in holding grant competitions and in awarding grants.
    Consequently, we chose 2003 and 2004 as the time period for our systematic
    review of both competitive grants and grants based on unsolicited
    proposals.

    We used the department's GAPS to identify all grants awarded in 2003 and
    2004. We assessed the reliability of the data in GAPS and found it to be
    reliable for our purposes. We reviewed the competition files from all 25
    discretionary grant competitions held in 2003 and 2004. During this 2-year
    period, a total of 521 grants were awarded. Ten of these grants were for
    $15 million or more; we selected all of these grants for review. Of the
    remaining 511 competitive grants awarded for amounts under $15 million, we
    selected a random sample of 81 additional grants to review. The sample
    size was calculated to achieve a precision of plus or minus 10 percent for
    an attribute estimate with an expected proportion of 50 percent and a 95
    percent confidence level. With this probability sample, each grant in the
    population had a known nonzero probability of being selected. Each sample
    grant was subsequently weighted in the analysis to account statistically
    for all the members of the population, including those that were not
    selected. All percentage estimates from this sample have margins of error
    of plus or minus 10 percent or less.

    In addition to 91 competitive awards, we examined all 65 grants based on
    unsolicited proposals made by OII during 2003 and 2004. In 2003, $64
    million was awarded to 41 unsolicited grantees; in 2004, $17.5 million was
    awarded to 24 unsolicited grantees.

    The grantees we examined were collectively awarded $507 million, or 41
    percent of the $1.24 billion total competitive and unsolicited grant funds
    awarded in 2003 and 2004 by OII.

    Methodology

    To review the 2001 and 2002 grants in question to determine whether the
    department had followed its policies, we reviewed departmental
    grant-making guidance in place at the time these grants were awarded and
    the official grant files for each of these grants. For the two competitive
    grants, we also examined the corresponding files for the competitions that
    contain information on all of the applicants' proposals, the competition
    plans, and external reviewers' rankings and comments. In addition, for the
    competitions, we interviewed relevant managers and program officers
    responsible for monitoring the grants, program attorneys, and ethics
    officials. For the unsolicited grant, we reviewed the official grant file,
    including the peer review comments. For comparison, we also reviewed the
    expert reviewers' rankings and comments for all other unsolicited awards
    made in 2001. Further, we interviewed program officials responsible for
    monitoring the grant.

    To assess the department's policies and procedures in place in 2003 and
    2004 for the competitive awards process and determine whether Education
    followed them in making such awards in those years, we examined
    departmental guidance issued in March 2003 that governed the grants
    awarded in those years as well as applicable statutes authorizing
    competitions and regulations. Also, we reviewed competition files and
    individual grant files for grants awarded during this 2-year period. In
    reviewing the competition files, we recorded information in the Federal
    Register notice inviting applications, the competition plan, the funding
    memo and slate from the Deputy Under Secretary to the Executive Secretary
    and information on the funded grantees from the GAPS. We used a structured
    instrument to collect information about each grant. In reviewing each
    individual grant file, we recorded information on the (1) grantee's
    funding levels, years in the program, and contact information; (2)
    application processing by Education, including funding checklists,
    application log screening forms, and budget analysis; (3) peer reviewers'
    comments and rankings; and (4) single audit database reports. We also
    interviewed key program officials from three of OII's six program offices
    to ascertain their familiarity with departmental guidance and to help us
    better understand how they implemented the department's guidance.

    Similarly, to assess Education's process for reviewing unsolicited
    proposals in 2003 and 2004, we reviewed departmental guidance and all 65
    files for unsolicited grants awarded by OII in 2003 and 2004. We collected
    information from this review on the processes used by the department to
    assess each successful application for its quality and its national
    significance, the level of technical assistance provided to each
    successful application, the peer reviewers' comments on each application,
    and any additional post-review support provided to the awardees. Again, we
    used a structured instrument to collect information about each grant. In
    addition, we interviewed officials responsible for administering grants
    based on unsolicited proposals.

    We conducted our work between May 2005 and February 2006 in accordance
    with generally accepted government auditing standards.

    Appendix II: Grants Awarded Based on Unsolicited Proposals (2003-2004)
    Appendix II: Grants Awarded Based on Unsolicited Proposals (2003-2004)

    Table 2: Grants Awarded in 2003 Based on Unsolicited Proposals (cumulative
    obligations as of November 30, 2005)

    Category of grant    Grants awarded                           Grant amount
    Charter Schools      American Academy of
                            Liberal Education                            $900,000
                            Arizona State University                    3,179,416
                            Education Commission of
                            the States                                    500,400
                            National Association of
                            Charter School
                            Authorizers                                 1,513,500
                            National Association of
                            State Directors of
                            Special Education                           1,620,435
                            New Schools Venture Fund                    5,997,900
                            New Visions Charter
                            School                                        950,453
    Supplemental         Catholic Social Services
    Education Services   of the Archdiocese of
    (SES)-Faith Based    Philadelphia
    Organizations                                                       82,560
                            Communities in Schools,
                            New York, Inc.                                 80,000
                            Holy Redeemer
                            Instructional Church of
                            God in Christ                                  75,000
                            New Community
                            Corporation                                    80,000
                            Public/Private Ventures                        80,000
                            St. Stephen's Church of
                            God in Christ                                  80,000
    Supplemental         American Institutes for
    Education Services   Research                                    1,000,080
    Parental Options     Flagstaff Unified School
                            District                                      500,000
                            Great Schools.net, Inc.                       500,000
    Public Information   Black Alliance for
    Campaign             Educational Options                           500,000
                            University of
                            Minnesota/National
                            Governors Association                         607,147
                            Greater Educational
                            Opportunities Foundation                      370,000
                            Hispanic Council for
                            Reform and Educational
                            Options                                       499,907
    Science/Math         American Society of
                            Mechanical Engineers                          123,783
                            Cisco Learning Institute                      399,619
                            Direction Services, Inc.                      200,000
                            National Academy of
                            Engineering                                  $184,499
    Teacher Quality      Apple Tree Institute for
    Initiatives          Education Innovation                         $500,000
                            Jackson State University                   $2,250,000
                            Milken Family Foundation                   $1,800,000
                            National Center for
                            Education Information
                            (NCEI)                                     $2,250,000
                            National Council for
                            Accreditation of Teacher
                            Education                                  $4,496,423
                            NCTQ/ABCTE                                $17,902,700
                            Oquirrh Institute/NCTQ                       $677,318
                            Teach For America (2
                            grants)                                    $4,000,000
                            The New Teacher Project                    $2,500,000
    Other                Keep America Beautiful   Environmental
                                                     education           $150,000
                            Charter School of the    Arts in
                            Chicago Children's Choir education           $750,000
                            Los Angeles Operation    Financial
                            HOPE, Inc                literacy            $250,000
                            National Association of  Rural education
                            State Boards of
                            Education                                    $268,480
                            Best Friends Foundation, Mentoring
                            Inc                                        $1,121,043
                            Association of           School
                            Educational Service      improvement
                            Agencies                                     $400,300
                            The Broad Foundation     Data services     $4,700,000
    Total obligations                                              $64,040,963

    Source: GAO analysis of U.S. Department of Education data.

    Table 3: Grants Awarded in 2004 Based on Unsolicited Proposals (cumulative
    obligations as of November 30, 2005)

    Category of grant             Grants awarded                  Grant amount
    Charter Schools               Colorado Children's
                                     Campaign                            $101,310
    Public Information            Abyssinian
    Campaigns-Supplemental        Development
    Education Services for Faith  Corporation
    Based Organizations                                                400,000
                                     Public/Private
                                     Ventures                           1,604,831
    Public Information            Black Alliance for
    Campaigns-Parental Options    Educational Options                  400,000
                                     Cuban American
                                     National Council                     631,775
                                     Greater Educational
                                     Opportunities
                                     Foundation                           375,000
                                     Hispanic Council for
                                     Reform and
                                     Educational
                                     Opportunities                        400,000
                                     National Urban League                250,000
                                     National Council of
                                     Negro Women, Inc.                    264,234
    Public Information            Corporation for
    Campaigns-Charter Schools     Educational Radio and
                                     Television (CERT)                     20,000
    Science/Math                  Accountability Works,
                                     Inc./Education
                                     Leaders Council                      492,924
                                     National Alliance of
                                     State Science and
                                     Mathematics
                                     Coalitions                           175,000
                                     Research for Better
                                     Schools, Inc.                         99,793
                                     Tech Corps                           241,510
    Teacher Quality Initiatives   California State
                                     University                           522,928
                                     Teach For America                  2,000,000
                                     University of Dayton
                                     School of Education                  100,000
    Public School Choice          Center for Education
                                     Innovation-Public
                                     Education Association              1,214,462
    Other                         National Football     Mentoring
                                     Foundation and
                                     College Hall of Fame,
                                     Inc                                1,498,848
                                     Alpha Kappa Alpha     Reading
                                     Sorority, Inc.                     1,000,000
                                     First & Goal, Inc.    Mentoring       75,000
                                     Reach Out and Read    Reading
                                     Inc                                3,976,400
                                     Association of        Rural
                                     Educational Service   education
                                     Agencies                           1,480,903
                                     Youth E-Vote, Inc     Voter          175,000
                                                           education
    Total obligations                                              $17,499,918

    Source: GAO analysis of U.S. Department of Education data.

    Appendix III: Comments from the Department of Education Appendix III:
    Comments from the Department of Education

    Appendix IV: A Appendix IV: GAO Contacts and Staff Acknowledgments

    GAO Contacts

    Marnie S. Shaul, (202) 512-2732, shaulm@gao.gov

    Acknowledgments

    Bryon Gordon, Assistant Director, and Bill Keller, Analyst-in-Charge,
    managed this assignment and made significant contributions to all aspects
    of this report. Ellen Soltow also made significant contributions, and Jim
    Ashley, Joel Grossman, and Jerry Sandau aided in this assignment. In
    addition, Richard Burkard and Jim Rebbe assisted in the legal analysis,
    and Sue Bernstein assisted in the message and report development.

    Related GA Related GAO Products

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    U.S. Department of Education's Use of Fiscal Year Appropriations to Award
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    Financial Management: Review of Education's Grantback Account.
    GAO/AIMD-00-228 . Washington, D.C.: August 8, 2000.

    Education Discretionary Grants: Awards Process Could Benefit From
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    Department of Education Grant Award. GAO/HRD-93-8R . Washington, D.C.:
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                                   Grants Management

    Grants Management: Additional Actions Needed to Streamline and Simplify
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    Federal Assistance: Grant System Continues to Be Highly Fragmented.
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    Welfare Reform: Competitive Grant Selection Requirement for DOT's Job
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    Grant Financial System Requirements: Checklist for Reviewing Systems Under
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    Washington, D.C.: September 3, 2001.

    Grant Financial System Requirements. GAO/JFMIP-SR-00-3 . Washington, D.C.:
    June 1, 2000.

    (130462)

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    Highlights of GAO-06-268, a report to the Ranking Minority Member,
    Committee on Education and the Workforce, House of Representatives

    February 2006

    DISCRETIONARY GRANTS

    Further Tightening of Education's Procedures for Making Awards Could
    Improve Transparency and Accountability

    In the past 3 years, Education awarded an average of $4.8 billion annually
    in discretionary grants through its competitive awards process and through
    consideration of unsolicited proposals. GAO assessed Education's policies
    and procedures for both competitive awards and unsolicited proposals
    awarded by its Office of Innovation and Improvement in 2003 and 2004 and
    determined whether it followed them in awarding grants in those years. GAO
    also reviewed Education's grant award decisions for several 2001 and 2002
    grants to determine whether the department followed its own policies.

    What GAO Recommends

    GAO recommends several improvements to Education's grant award processes.
    Education agreed with all three recommendations for improving the
    competitive awards process and said it has implemented corrective actions.
    Education disagreed with GAO's recommendation to develop a more systematic
    approach to selecting unsolicited proposals and said it would not help the
    agency select high-quality applications. GAO modified its recommendation
    to address some of Education's concerns, but thinks collecting some
    systematic information would help Education effectively screen applicants.
    GAO is not recommending the Secretary take actions regarding the three
    2001 and 2002 grants GAO reviewed in detail because GAO found no clear
    violation of applicable statutes and regulations.

    In 2003 and 2004, the Department of Education took steps to improve its
    procedures for awarding discretionary grants through competitions but
    certain procedures were not always followed. During this time, after
    Education introduced some new management controls to its competitive
    grants procedures, we found it generally adhered to these new policies.
    For example, GAO did not find evidence that Education reduced any
    applicant's request without first conducting a budget analysis, as
    required, or that Education rescored applications after they had been peer
    reviewed. However, certain procedures were not always followed; for
    example, Education frequently did not finalize its plans for conducting
    competitions before starting the competitions-a step that would help
    ensure transparency in making awards. In addition, many files lacked
    documentation that the department screened the applicants, as required, to
    identify incompetent applicants, ineligible grantees, or unallowable
    expenditures.

    Since 2003, Education has also taken steps to reform its process for
    awarding grants based on unsolicited proposals, but it based its screening
    decisions on proposals that vary greatly and frequently provided extensive
    technical assistance. Following a departmental reorganization, Education
    established a centralized process for reviewing unsolicited proposals.
    However, these proposals, which Education used as a basis to certify that
    there is a substantial likelihood that the application will meet
    regulatory requirements, varied greatly in content and detail. GAO also
    found that Education provided extensive technical assistance to
    applicants, in some instances, providing applicants with the notes of peer
    reviewers and allowing applicants to revise and resubmit applications.
    Specifically, in 2004, 10 of the 27 applicants did not get reviewers'
    support and were provided a chance to re-apply. Of those 10 applicants, 8
    revised their proposals, received favorable recommendations, and were
    subsequently funded.

    Prior to 2003, Education made exceptions to some of its policies in
    awarding three grants, totaling about $12.3 million, where particular
    allegations were raised. Two of the grants were awarded through a
    competitive process, but GAO found that Education reduced funding to all
    of the grantees to expand the number of grantees funded and to accommodate
    awards to lower rated grantees. In doing so, Education altered its
    selection methodology after it developed and recommended a list of
    grantees. In one case, Education rescored and reversed the order of
    selected grantees after the peer reviewers had completed their
    assessments. Education awarded the third grant based on an unsolicited
    proposal and regulations require that the department seek recommendations
    from peer reviewers prior to funding. In this case, the peer reviewers
    could not agree on a recommendation. GAO found that Education lacked a
    process to reconcile disagreements among reviewers and awarded a grant
    that two of three reviewers did not recommend. Moreover, Education awarded
    four grants in 2001 for unsolicited proposals that had not been
    recommended for funding by any one of the three reviewers.
    *** End of document. ***