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

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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, [email protected]

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

                                   Education

U.S. Department of Education's Use of Fiscal Year Appropriations to Award
Multiple Year Grants. B-289801 . Washington, D.C.: December 30, 2002.

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
Additional Improvements. GAO/HEHS-00-55 . Washington, D.C.: March 30,
2000.

Department of Education Grant Award. GAO/HRD-93-8R . Washington, D.C.:
December 9, 1992.

                               Grants Management

Grants Management: Additional Actions Needed to Streamline and Simplify
Processes. GAO-05-335 . Washington, D.C.: April 18, 2005.

Grants Management: EPA Needs to Strengthen Efforts to Provide the Public
with Complete and Accurate Information on Grant Opportunities. GAO-05-149R
. Washington, D.C.: February 3, 2005.

Federal Assistance: Grant System Continues to Be Highly Fragmented.
GAO-03-718T . Washington, D.C.: April 29, 2003.

Welfare Reform: Competitive Grant Selection Requirement for DOT's Job
Access Program Was Not Followed. GAO-02-213 . Washington, D.C.: December
7, 2001.

Grant Financial System Requirements: Checklist for Reviewing Systems Under
the Federal Financial Management Improvement Act. GAO-01-911G .
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.
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