Grants Management: EPA Has Made Progress in Grant Reforms but	 
Needs to Address Weaknesses in Implementation and Accountability 
(12-MAY-06, GAO-06-625).					 
                                                                 
The Environmental Protection Agency (EPA) has faced challenges	 
for many years in managing its grants, which constitute over	 
one-half of the agency's budget, or about $4 billion annually.	 
EPA awards grants through 93 programs to such recipients as state
and local governments, tribes, universities, and nonprofit	 
organizations. In response to concerns about its ability to	 
manage grants effectively, EPA issued its 5-year Grants 	 
Management Plan in 2003, with performance measures and targets.  
GAO was asked to assess EPA's progress in implementing its grant 
reforms in four key areas: (1) awarding grants, (2) monitoring	 
grantees, (3) obtaining results from grants, and (4) managing	 
grant staff and resources. To conduct this work, GAO, among other
things, examined the implementation of the reforms at the	 
regional level for two Clean Water Act programs in 3 of EPA's 10 
regional offices.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-625 					        
    ACCNO:   A53959						        
  TITLE:     Grants Management: EPA Has Made Progress in Grant Reforms
but Needs to Address Weaknesses in Implementation and		 
Accountability							 
     DATE:   05/12/2006 
  SUBJECT:   Accountability					 
	     Documentation					 
	     Federal grants					 
	     Grant administration				 
	     Grant award procedures				 
	     Grant monitoring					 
	     Performance appraisal				 
	     Performance management				 
	     Performance measures				 
	     Personnel management				 
	     Strategic planning 				 
	     EPA Grants Management Plan 			 

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GAO-06-625

     

     * Results in Brief
     * Background
     * EPA Has Strengthened the Award Process, but Lack of Key Docu
          * EPA Has Expanded the Use of Competition to Select the Most Q
          * EPA Has Issued New Policies and Guidance to Improve Grant Aw
          * Lack of Cost Review Documentation Could Compromise Accountab
     * EPA Has Improved In-depth Monitoring to Identify Agencywide
          * In-depth Monitoring Results Can Be Analyzed Nationwide to Id
          * Inadequate Documentation of Ongoing Monitoring Hinders Accou
          * EPA Has Reduced Its Closeout Backlog, but Grant Closures Are
               * EPA Has Effectively Reduced Its Historic Closeout Backlog
          * EPA Does Not Always Close Out Grants in a Timely Manner
               * Grants Were Not Always Closed Out Properly
     * EPA Has Initiated Actions to Obtain Results from Grants, but
          * EPA Has Developed a Performance Measure and Issued a New Pol
          * Efforts to Obtain Results from Grants Are Not Yet Complete
     * EPA Has Taken Steps to Manage Grants Staff and Resources Mor
          * EPA Is Examining Grants Staff Workload
          * EPA Has Provided Some Training on Grant Policies
          * EPA Has Developed a Grants Database but Has Not Completed a
          * EPA Has Taken Steps to Enhance Staff and Management Accounta
     * Conclusions
     * Recommendations
     * Agency Comments and Our Response
     * GAO Contact
     * Staff Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Report to the Chairman, Subcommittee on Water Resources and Environment,
Committee on Transportation and Infrastructure, House of Representatives

United States Government Accountability Office

GAO

May 2006

GRANTS MANAGEMENT

EPA Has Made Progress in Grant Reforms but Needs to Address Weaknesses in
Implementation and Accountability

GAO-06-625

Contents

Letter 1

Results in Brief 3
Background 6
EPA Has Strengthened the Award Process, but Lack of Key Documentation
Raises Accountability Concerns 12
EPA Has Improved In-depth Monitoring to Identify Agencywide Problems, but
Weaknesses Remain in Ongoing Monitoring and in Closing Out Grants 19
EPA Has Initiated Actions to Obtain Results from Grants, but Its Efforts
Are Not Complete 36
EPA Has Taken Steps to Manage Grants Staff and Resources More Effectively
but Still Faces Major Management Problems 41
Conclusions 47
Recommendations 48
Agency Comments and Our Response 49
Appendix I: Scope and Methodology 51
Appendix II: GAO Contact and Staff Acknowledgments 55
Related GAO Products 56

Tables

Table 1: EPA's Performance Targets and Measures for Promoting Grants
Competition, All New Grants and Nonprofit Grants, Fiscal Years 2002-2005
15
Table 2: Use of Ongoing Monitoring Checklist in Region 1 and 9 Grant Files
for Two Programs 23
Table 3: EPA's Current Closeout Performance Target Compared with Percent
EPA Reported as Meeting That Target, Reporting Fiscal Years 2003-2005 27
Table 4: Minimum and Maximum Times Allowed under EPA's Current Closeout
Performance Measure 27
Table 5: Percent of Grants Closed Out Agencywide and for Program and
Regional Offices, by Length of Time to Closeout, Fiscal 2005 Reporting
Year 28
Table 6: Comparison of EPA's Performance against the Current Closeout
Measure and the 180-Day Standard, Fiscal 2005 Reporting Year 29
Table 7: Length of Time It Took Grantees to Deliver Final Financial and
Technical Reports for Two Grant Programs in Regions 1, 5, and 9 30
Table 8: Length of Time Elapsed for Grants Management Offices to Close Out
Grants after Grantee Provides Final Reports for Two Grant Programs,
Regions 1, 5, and 9 32
Table 9: Extent to Which EPA Met Its Target for the Percent of Grant
Workplans with Environmental Outcomes, 2003-2005 37
Table 10: Combined OMB PART Ratings of EPA Grant Programs, 2004-2006 40
Table 11: OMB PART Scores for All Components of the Combined Rating,
Fiscal Year 2006 41
Table 12: Number of Active and Closed Wetland and Nonpoint Source Grants
from January 1, 2004, through June 30, 2005, in the Universe and the
Number of Grants GAO Reviewed in Three Regions 53

Figures

Figure 1: EPA's Key Offices Involved in Grant Activities 6
Figure 2: States Covered by EPA's 10 Regional Offices 7
Figure 3: Percentage of EPA Grant Dollars Awarded by Recipient Type,
Fiscal Year 2005 9

Abbreviations

EPA Environmental Protection Agency OMB Office of Management and Budget
PART Program Assessment Rating Tool

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United States Government Accountability Office

Washington, DC 20548

May 12, 2006

The Honorable John J. Duncan, Jr. Chairman Subcommittee on Water Resources
and Environment Committee on Transportation and Infrastructure House of
Representatives

Dear Mr. Chairman:

The Environmental Protection Agency (EPA) has faced challenges for many
years in managing its grants, which constitute over one-half of the
agency's budget, or about $4 billion annually. To support its mission of
protecting human health and the environment, EPA awards grants through 93
programs to a variety of recipients, including state and local
governments, tribes, universities, and nonprofit organizations. As of
September 30, 2005, EPA was administering grants through headquarters and
regional offices to 4,075 grant recipients. Given the size and diversity
of EPA's grant programs, its ability to efficiently and effectively
accomplish its mission depends to a large extent on how well it manages
its grant resources and builds accountability for results into its
efforts.

In response to concerns about its ability to manage grants effectively,
EPA issued its Grants Management Plan.1 In this plan, EPA for the first
time presented goals, objectives, milestones, and performance measures
with targets for tackling the agency's long-standing grants management
problems. The 5-year plan was comprehensive in that it set forth five
major goals that the agency sought to achieve. These goals addressed major
concerns we had identified in our 2003 report on grants management.2 EPA
has also issued a series of policies to implement the plan and other grant
reforms.3 The plan's goals are to (1) strengthen the award of grants by
using competition to select grantees for certain awards to ensure that the
best applicants are chosen; (2) monitor grants to ensure that grantees are
making progress toward their objectives and, at the end of the project
period, to ensure that recipients have provided all financial and
technical reports before closing out the grants; (3) obtain results from
grants by identifying and measuring their environmental and public health
outcomes; (4) enhance the skills of EPA personnel involved in grants
management; and (5) leverage technology to improve program performance.
Each of these goals is challenging, especially measuring the outcomes of
environmental activities, but EPA needs to demonstrate the results
achieved through its $4 billion annual investment in grant programs. EPA
is currently revising this plan to reflect accomplishments achieved and to
address remaining issues.

1EPA, Grants Management Plan, 2003-2008. EPA-216-R-03-001 (Washington,
D.C.: April 2003).

2GAO, Grants Management: EPA Needs to Strengthen Efforts to Address
Persistent Challenges, GAO-03-846 (Washington, D.C.: Aug. 29, 2003.

3For this report, grant reforms include EPA's Grants Management Plan,
policies issued just prior to and after the issuance of the plan, and
related efforts.

You asked us to assess EPA's progress in implementing its grant reforms
for (1) awarding grants, (2) monitoring grantees, (3) obtaining results
from grants, and (4) managing grant staff and resources.

To address these issues, we conducted our work at EPA's headquarters and
regional offices. EPA conducts its grant activities through its Office of
Grants and Debarment-the office primarily responsible for grant
policies-and program offices, located in both headquarters and 10 regional
offices-offices primarily responsible for implementing the grant policies.
At EPA headquarters, we reviewed EPA documents, including the Grants
Management Plan, policies and guidance, internal reviews of management
operations,4 and annual post-award monitoring plans.5 We also interviewed
Office of Grants and Debarment officials. In addition, we interviewed
officials and obtained information from EPA's Office of Water, one of the
program offices involved with grants. We reviewed EPA's Office of
Inspector General reports as well as the Office of Management and Budget's
(OMB) Program Assessment Rating Tool (PART).6 We also reviewed prior GAO
reports.

4EPA's internal grants management reviews consist of (1) comprehensive
grants management reviews of headquarter and regional offices conducted
periodically by the Office of Grants and Debarment; (2) grants performance
measure reviews performed annually by the Office of Grants and Debarment,
using documentation in the agency's grants databases; and (3) periodic
grants management self-assessments conducted by EPA program and regional
offices.

5EPA policy requires that offices provide annual post-award monitoring
plans that address how the offices plan to manage their monitoring
activities for the upcoming year.

6OMB's PART is a diagnostic tool meant to provide a consistent approach to
evaluating federal programs.

In conducting our work, you asked us to address the implementation of
EPA's grant reforms at the regional level for Clean Water Act programs. We
selected Wetland Program Development Grants (wetland grants) because it is
a discretionary grant program-that is, EPA decides who receives the award
and its amount, and the program is subject to competition. We selected
Nonpoint Source Management Program Grants (nonpoint source grants) because
it is a type of formula-based grant program-grants that are often awarded
on the basis of formulas prescribed by law or agency regulation.7 We
reviewed EPA's progress at the regional level by selecting grants in 3 of
EPA's 10 regional offices: Region 1 (Boston), Region 5 (Chicago), and
Region 9 (San Francisco). We selected these regions, in part, because,
collectively, they represent a significant share of regional grant funding
for the two programs we reviewed and geographic dispersion. At the
regional offices, for these two grant programs, we reviewed grant files,
and interviewed EPA grant specialists-who are responsible for overseeing
the grantees' administrative and financial activities-and EPA project
officers-who are responsible for overseeing the grantees' programmatic and
technical activities. Our regional work provides insights into regional
grant activities in the two Clean Water Act programs in the three regions
we visited, but it is not generalizable to all grants in all regions
because we (1) selected only two of the programs conducted in these
offices and (2) incorporated nonprobability sampling into our grant
selection process. In conducting our review, we did not assess the
implementation of some of EPA's policies because they had been issued too
recently. Finally, we obtained EPA data used in this report from the
agency's grants computer databases (Grants Information and Control System
and the Integrated Grants Management System), which have not had a
complete data reliability review. However, we determined that the data
elements we used in this report were sufficiently reliable for our
purposes in this report. (App. I provides a more detailed description of
our scope and methodology.) We performed our work between February 2005
and April 2006, in accordance with generally accepted government auditing
standards.

                                Results in Brief

EPA has made progress in achieving the grant reforms laid out in its
Grants Management Plan, but weaknesses in implementation and
accountability continue to hamper effective grants management in four
areas. First, EPA has strengthened its award process by, among other
things, expanding the use of competition to select the most qualified
applicants. EPA also issued new policies and guidance to improve the
awarding of grants. For example, EPA now requires that certain nonprofit
organizations document that they have administrative and financial systems
to manage grants. While EPA has made notable progress, its internal
reviews in program and regional offices have found that staff do not
always fully document their reviews of grantees' cost proposals. We also
found this problem in one of the three regions we visited. This
documentation problem may hinder EPA's ability to be accountable for the
reasonableness of the grantees' estimated costs for performing the
proposed work. Because of the continuing problems with documenting cost
reviews, EPA is reexamining its cost review policy for grants.

7EPA has two types of formula-based programs, nondiscretionary and
continuing environmental programs, which is hybrid of nondiscretionary and
discretionary grant programs. The nonpoint source grant program is a
continuing environmental program.

Second, EPA has improved some aspects of monitoring, but long-standing
problems in documentation and grant closeouts remain. Specifically, EPA
has begun to review the results of its in-depth monitoring to identify
systemic grantee problems, but staff do not always document whether
grantees have taken corrective actions. Similarly, EPA and we found that
grant specialists and project officers do not always document ongoing
monitoring. Ongoing monitoring is critical because, at a minimum, EPA
conducts it on every grant at least once a year throughout the life of the
grant and uses the results to determine whether the grantee is on track in
meeting the terms and conditions of the grant. A lack of documentation
raises questions about the adequacy of the project officers' and grant
specialists' ongoing monitoring of grantee performance. This lack of
documentation occurred, in part, because managers have not fulfilled their
commitment to ensure adequate documentation. Concerning grant closeouts,
EPA uses closeouts to ensure that (1) grant recipients have met all
financial requirements and have provided final reports and (2) any
unexpended balances are returned to the agency. EPA's policy states that
closeouts should occur within 180 days after the grant's project end date.
However, agency officials do not always comply with this policy.
Specifically, for fiscal year 2005, EPA (1) closed out only 37 percent of
the grants within the 180 days and (2) did not always properly close out
grants in the regional files we reviewed. EPA has formed a work group to
review its monitoring and closeout polices and plans to revise these
policies in 2006.

Third, EPA has initiated actions to obtain environmental results from its
grants, but its efforts are not complete. EPA has included a performance
measure in its Grants Management Plan for identifying expected
environmental results from grants. In addition, EPA issued an
environmental results policy, effective in January 2005. This policy, for
the first time, requires EPA staff to ensure that grant workplans specify
well-defined environmental results, which enables EPA to hold grantees
accountable for achieving them. To assess the agency's effectiveness in
implementing its environmental results policy, EPA identified seven
criteria that grant agreements should meet. However, EPA's current
performance measure does not take into account the new criteria for
identifying and measuring results from grants established by the policy.
Furthermore, EPA acknowledges that it has not identified better ways to
integrate its systems for reporting on the results of grants. While EPA
has taken positive steps, OMB's evaluation of EPA grant programs in 2006
indicate that EPA must continue its concerted efforts to achieve results
from its grants.

Finally, EPA has taken steps to manage grants staff and resources more
effectively by analyzing workload, providing training, assessing the
reliability of data from the agency's grants computer database, and
holding managers and staff accountable for successfully fulfilling their
grant responsibilities. Nevertheless, management attention to these issues
is still needed because, among other things, EPA has not completed its
data reliability assessment of the database and has just begun to
implement its performance appraisal system for holding managers,
supervisors, and staff accountable for grants management.

EPA is currently revising its Grants Management Plan. In doing so, the
agency now has an opportunity to address the problems in documentation,
grants closeout, and environmental results presented in this report. We
are making recommendations in these areas.

                                   Background

EPA administers and oversees grants primarily through the Office of Grants
and Debarment in the Office of Administration and Resources Management, 10
program offices in headquarters, and program offices and grants management
offices in EPA's 10 regional offices.8 Figure 1 shows the key EPA offices
involved in grants activities for headquarters and regions, and figure 2
shows the states covered by the 10 regional offices.

Figure 1: EPA's Key Offices Involved in Grant Activities

8In addition, EPA's Office of the Chief Financial Officer conducts limited
grant activity.

Figure 2: States Covered by EPA's 10 Regional Offices

The Office of Grants and Debarment develops national grant policy and
guidance. This office also carries out certain types of administrative and
financial functions for the grants approved by program offices, such as
awarding headquarter grants and overseeing the financial management of
program office and regional grants. On the programmatic side, national
program managers are responsible for establishing and implementing
national policies for their grant programs, for setting funding
priorities, and for identifying specific environmental results from grant
programs. They are also responsible for technical and programmatic
oversight of headquarter grants. Regional grants management offices
provide administrative management for regional grants, while regional
program offices provide technical and programmatic oversight. Both
headquarters and regional program offices conduct grant competitions. EPA
has designated officials-referred to as senior resource officials-who are
typically deputy assistant administrators in program offices and assistant
regional administrators. These senior resource officials are in charge of
strengthening agencywide fiscal resource management while also ensuring
compliance with laws and regulations and are responsible for effective
grants management within their units.

As of September 30, 2005, 119 grant specialists in the Office of Grants
and Debarment, and the regional grants management offices, were largely
responsible for administrative and financial grant functions. Furthermore,
2,064 project officers were actively managing grants in headquarters and
regional program offices. These project officers are responsible for the
technical and programmatic management of grants. Unlike grant specialists,
however, project officers also have nongrant responsibilities, such as
using the scientific and technical expertise for which they were hired.

In fiscal year 2005, EPA took 6,728 grant actions involving funds totaling
about $4 billion.9 These awards were made to six main categories of
recipients, as shown in figure 3.

9Grant actions involving funding include new awards, and increase and
decrease amendments. The 6,728 grant actions involving funding were
composed of 3,583 new grants, 2,628 increase amendments, and 517 decrease
amendments. In addition, in fiscal year 2005, EPA awarded 3,042 no cost
extensions, which did not involve funding.

Figure 3: Percentage of EPA Grant Dollars Awarded by Recipient Type,
Fiscal Year 2005

Note: Percentages may not add up to 100 due to rounding.

EPA offers three types of grants-discretionary, nondiscretionary, and
continuing environmental grants:

           o  Discretionary grants fund a variety of activities, such as
           environmental research and training. EPA has the discretion to
           independently determine the recipients and funding levels for
           these grants. EPA has awarded these grants primarily to state and
           local governments, nonprofit organizations, universities, and
           Native American tribes. In fiscal year 2005, EPA awarded about
           $644 million in discretionary grants.

           o  Nondiscretionary grants are awarded primarily to state and
           local governments and support water infrastructure projects, such
           as the drinking water and clean water state revolving fund
           programs. For these grants, Congress directs awards to one or more
           classes of prospective recipients who meet specific eligibility
           criteria, or the grants are often awarded on the basis of formulas
           prescribed by law or agency regulation. In fiscal year 2005, EPA
           awarded about $2.4 billion in nondiscretionary grants.
           o  Continuing environmental program grants contain both
           nondiscretionary (formula) and discretionary features. These
           grants are nondiscretionary in the sense that (1) they are awarded
           noncompetitively to the same government units to support ongoing
           state, tribal, and local programs that do not change substantially
           over time, and (2) allotments of funds are initially made on the
           basis of factors contained in statute, regulation, or agency
           guidance. These grants are also discretionary in the sense that
           allotments are not entitlements, and EPA exercises judgment in
           determining what the final award amount should be. In fiscal year
           2005, EPA awarded about $1 billion in grants for continuing
           environmental programs.

           In this report, we focused on two EPA programs under the Clean
           Water Act:

           o  Wetland Program Development Grants (Wetland grants) Wetlands
           are areas where water covers the soil, or is present either at or
           near the surface of the soil throughout the year or for various
           portions of the year, including during the growing season.
           Wetlands, such as bogs, swamps, and marshes, support a number of
           valuable functions-controlling floods, improving water quality,
           and providing wildlife habitat, among other things. The wetland
           grants provide applicants with an opportunity to carry out
           projects to develop and refine comprehensive wetland programs. The
           authority for the program is under section 104(b) (3) of the Clean
           Water Act.10 Grant funding must be used to improve the wetlands
           program by conducting or promoting the acceleration of research
           and studies relating to the causes, effects, and other aspects of
           water pollution. Wetland grants provide states, tribes, local
           governments, interstate agencies, intertribal consortia,
           nonprofits, and nongovernmental organizations an opportunity to
           carry out wetland projects and programs. Wetland grants are
           discretionary grants.

           o  Nonpoint Source Management Program (Nonpoint source grants).
           Nonpoint source pollution is pollution that does not have a
           well-defined source but instead originates from a number of
           sources, such as acid mine drainage, agricultural runoff, and
           roads and highways. Under section 319(h) of the Clean Water Act,
           EPA makes grants to states, territories, and Indian tribes to
           support a wide variety of activities, including technical and
           financial assistance, education, training, technology transfer,
           demonstration projects, and monitoring.11 Nonpoint source grants
           are continuing environmental program grants.

           Grants from these two programs can be incorporated into the
           National Environmental Performance Partnership System, which was
           established in response to state needs for greater flexibility in
           using and managing their continuing grant funds.12 Under this
           system, states may enter Performance Partnership Agreements with
           EPA and into Performance Partnership Grants. The agreements set
           out jointly developed priorities and protection strategies,
           including innovative solutions for addressing water, air, and
           waste problems. The partnership grants allow states to combine
           continuing environmental program grant funds to implement those
           solutions. States can also enter into Performance Partnership
           Grants without a Performance Partnership Agreement. Under
           traditional continuing environmental program grants, states
           received funds to implement particular waste, air, water or other
           program-such funding can only be spent on activities that fall
           within the statutory and regulatory parameters of that program.
           Under Performance Partnership Grants, states can combine up to 21
           separate grant programs into one award, and move funds from one
           media, such as air, to another.

           Both the wetland and nonpoint source grants are under the auspices
           of EPA's Office of Water in headquarters, but grants under these
           programs are carried out by water program staff in regional
           offices. Moreover, in its national guidance, the Office of Water
           states that it is committed to accomplishing the goals that the
           Office of Grants and Debarment has identified in its Grants
           Management Plan. To do this, for example, the Office of Water
           provided regions with information on revised competition and
           environmental results policies.

           EPA has strengthened its award process by, among other things, (1)
           expanding the use of competition to select the most qualified
           applicants and (2) issuing new policies and guidance to improve
           the awarding of grants. However, EPA's internal reviews of program
           and regional offices have found weaknesses in documenting the
           review of grantees' cost proposals. We also found this weakness in
           one of the three regions we visited. This documentation weakness
           may hinder EPA's ability to ensure the reasonableness of its
           grantees' expenditure of federal funds. Because of the continuing
           problems with documenting cost reviews, EPA is reexamining its
           cost review policy for grants.

           To promote widespread competition for grants, in September 2002,
           EPA issued a policy that for the first time required competition
           for many discretionary grants.13 Before 2002, even though EPA had
           a competition policy, it did not compete grants extensively or
           provide widespread notification of upcoming grant opportunities.

           EPA's 2002 policy was designed to promote competition in awarding
           grants to the "maximum extent practicable" and to ensure that the
           competitive process was "fair and open." This policy represented a
           major cultural shift for EPA managers and staff, requiring EPA
           staff to take a more planned, rigorous approach to awarding
           grants. Specifically, the policy

           o  was binding on managers and staff throughout the agency;

           o  required EPA staff to determine evaluation criteria for grant
           solicitations and publish a grant announcement at least 60 days
           before the application deadline; and

           o  created the position of a senior-level competition advocate for
           grants. The advocate oversees the policy's implementation and
           compliance and evaluates its effectiveness.

           According to EPA's Inspector General, the 2002 policy was a
           "positive step" toward promoting competition, and competitions
           under the policy were generally fair and open.14

           Specifically, for the 38 grants that the Inspector General
           reviewed, EPA had (1) published an announcement soliciting
           proposals, (2) written procedures to ensure an objective and
           unbiased process for reviewing and evaluating applications, and
           (3) selected recipients according to reviewers' recommendations.

           In 2004, EPA's grants competition advocate reviewed the policy, as
           required, and reported, among other things, that steps should be
           taken to improve justifications for not competing certain grants
           by (1) increasing review and approval requirements for exceptions
           to competition and (2) clarifying the language in the policy to
           ensure appropriate use of exceptions. The advocate also found that
           the threshold for requiring competition for grants of $75,000 or
           more in the 2002 policy was too high.

           In response, EPA issued a revised competition policy, effective
           January 2005.15 It enhanced competition by, among other things,

           o  increasing review and approval requirements for justifying
           exceptions and clarifying the language to ensure appropriate use
           of these justifications;

           o  reducing the threshold for competition from $75,000 to $15,000;
           and

           o  strengthening requirements for documenting the competition
           process and results.

           In addition, EPA added (1) conflict-of-interest provisions to
           increase awareness of situations that could arise for applicants,
           reviewers, and others involved in competition matters; and (2)
           dispute procedures.

           In commenting on both the 2002 and 2005 policies, the Inspector
           General stated that the policies did not fully promote competition
           and recommended that EPA could further expand competition in the
           2005 policy by eliminating certain remaining exemptions and
           exceptions for which the Inspector General believed competition is
           practicable. EPA responded, however, that further expansion was
           not practicable for reasons of congressional intent, regulatory
           limitations, and program effectiveness.

           EPA's Grants Management Plan lays out goals, objectives,
           milestones, and performance measures with targets for promoting
           competition. For one of these objectives, EPA planned to improve
           the accuracy and specificity of information available to the
           public on the agency's grant opportunities in the federal
           government's Catalog of Federal Domestic Assistance-a listing of
           available grants and other federal funding opportunities
           (available at www.CFDA.gov ).16 However, as we reported in 2005,
           EPA was not consistently providing this information.17 Without
           such information, potential applicants might not apply, and EPA
           would not have the broadest applicant pool from which to select
           grantees. EPA officials were unaware of continuing problems with
           funding priorities and funding levels in the Catalog of Federal
           Domestic Assistance until we brought them to their attention
           during our review. In response to our recommendations, in April
           2005, EPA implemented revised guidance for providing complete and
           accurate information in the Catalog of Federal Domestic
           Assistance. For example, EPA now strongly encourages its offices
           to provide information on the funding priorities on an ongoing
           basis, instead of annually, so that the public has up-to-date
           information in the Catalog of Federal Domestic Assistance.

           For the competition goal, the agency developed a performance
           measure for increasing the percentage of new grants subject to the
           competition policy that are actually competed and set increasing
           targets for achieving this measure. According to EPA, about $249
           million of the approximately $3.1 billion it awarded in new grants
           in fiscal year 2005 were eligible for competition. EPA exempts
           certain grant categories from competition, including all
           nondiscretionary grants, certain discretionary grants, and most
           continuing environmental programs grants. EPA also established a
           separate measure for nonprofit grantees. The first performance
           measure is for all new eligible grants, including new grants to
           nonprofit recipients, and the second is only for new eligible
           grants to nonprofit recipients, as table 1 shows. EPA established
           a separate measure for competing grants to nonprofit organizations
           because it believes that selecting the most qualified nonprofit
           applicants through a competitive process could address concerns
           about the effectiveness of nonprofit grantees in managing grants.

1033 U.S.C. S: 1254(b)(3).

1133 U.S.C. S: 1329(h).

12Omnibus Consolidated Rescissions and Appropriations Act of 1996, Pub. L.
No. 104-134, 110 Stat. 1321, 1321-299.

  EPA Has Strengthened the Award Process, but Lack of Key Documentation Raises
                            Accountability Concerns

EPA Has Expanded the Use of Competition to Select the Most Qualified Applicants

13EPA, EPA Order 5700.5: Policy for Competition in Assistance Agreements,
(Sept. 12, 2002).

14EPA Office of Inspector General, EPA Needs to Compete More Assistance
Agreements, Report no. 2005-P-00014 (Washington, D.C.: Mar. 31, 2005).

15EPA, EPA Order 5700.5A1: Policy for Competition of Assistance
Agreements, 5700.5A1 (Jan. 11, 2005).

16The General Services Administration and OMB's Catalog of Federal
Domestic Assistance is a governmentwide compendium of federal programs,
projects, and activities that provide assistance or benefits to the
American public. Assistance includes, but is not limited to, financial
assistance such as grants and cooperative agreements. EPA uses other tools
for announcing some grant programs, such as the Federal Register, and
competitive funding opportunities are announced on www.grants.gov .

17GAO, 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.: Feb. 3, 2005).

Table 1: EPA's Performance Targets and Measures for Promoting Grants
Competition, All New Grants and Nonprofit Grants, Fiscal Years 2002-2005

                                                  New grants to nonprofit
                       All new grants                     grantees
                  Performance     Performance     Performance     Performance 
                       target         measure          target         measure 
               Percent of new        Reported  Percent of new        Reported 
                       grants  percent of new          grants  percent of new 
Fiscal year       competed grants competed        competed grants competed 
2002        Not applicable              27  Not applicable              24 
baseline                                                   
2003                    30              86              30              76 
2004                    60              91              55              85 
2005                    85              93              75              88 

Source: EPA documents.

As the table shows, EPA reports it now competes a higher percentage of
eligible grants, up from 27 percent in fiscal year 2002 to 93 percent in
fiscal year 2005, exceeding its targets for fiscal years 2003 through
2005.18 The 7 percent of new grants that EPA reported it did not
compete-which totaled about $10 million of the $249 million eligible for
competition in fiscal year 2005-resulted from exceptions to the policy.
EPA's competition policy provides for exceptions that meet criteria
specified in the policy, if supported by a written justification and
approved by an appropriate official. Even after taking the exceptions into
account, EPA exceeded the 85 percent target it set for new grants in 2005.
It has also exceeded its target for new grants to nonprofit recipients in
2005.

18In fiscal year 2005, EPA competed 1,414 new grants or 93 percent of the
1,526 new grants eligible for competition.

EPA Has Issued New Policies and Guidance to Improve Grant Awards

To improve the award of grants, EPA issued additional policies and
guidance. Specifically:

           o  In January 2005, EPA issued a policy to improve the description
           of the grant in its grants database so that the description would
           be understandable to the public.19 EPA now presents this
           information on the Office of Grants and Debarment's Web
           site-www.epa.gov/ogd-so that the public has improved access to
           grant information.

           o  In March 2005, EPA issued a policy establishing additional
           internal controls for awarding grants to nonprofit
           organizations.20 The policy addresses both the programmatic
           capability of a nonprofit applicant to carry out a project and its
           administrative capability to properly manage EPA grant
           funds-problems EPA and the Inspector General have identified.
           Under the policy, EPA assesses programmatic capability for both
           competitive and noncompetitive grants. The policy also requires
           the agency to conduct different types of administrative capability
           reviews based on the amount of the grant to the nonprofit
           organization. For grants of $200,000 or more, applicants must
           complete a questionnaire and provide documents to show that they
           have administrative and financial systems to manage grants. For
           grants below the $200,000 threshold, EPA staff must query the
           agency's grants database for any findings of problems in the
           applicant's administrative capability. If problems are identified
           in any of these reviews, the applicant must take corrective
           actions before receiving the grant. In 2005, EPA approved 75 of
           the 87 nonprofit organizations it reviewed; the remaining 12
           nonprofit organizations are taking steps to address problems
           identified.

           o  Also in March 2005, EPA issued a memorandum clarifying the
           criteria that must be documented to justify the use of a grant or
           a contract as the award mechanism.21 EPA issued this guidance in
           response to a recommendation in our 2004 report to better document
           the justification for using grants rather than contracts.22

           o  In April 2005, EPA issued a policy memorandum and interim
           guidance establishing a certification process that applies to
           certain discretionary grant programs (currently 58).23 The new
           policy and guidance instruct senior EPA officials-assistant
           administrators and regional administrators-to certify, among other
           things, that (1) certain grant awards and amendments identify
           environmental outcomes that further the goals and objectives in
           the agency's strategic plan and (2) there is no questionable
           pattern of repeat awards to the same grantee. For competitive
           announcements, these officials must certify that the (1) expected
           outcomes from the awards under the proposed competitive
           announcement are appropriate and in support of program goals and
           (2) proposed competitive announcement is written in a manner to
           promote competition to the maximum extent practicable.24 The
           Office of Grants and Debarment has assigned a grant specialist to
           conduct random spot checks of these certifications and provide
           assistance to program offices in implementing this new policy.

           While EPA has improved its award process, both EPA and we found
           weaknesses in the agency's documentation of its cost reviews
           before awarding grants. EPA policy requires both the grants
           management and program offices to conduct a cost review for every
           grant before awarding it to ensure that the grantee's proposed
           costs are necessary, reasonable, allowable, allocable, and
           adequately supported. These reviews are central to ensuring that
           EPA carries out its fiduciary responsibilities. However, in 2004
           and 2005, in six of the seven program and regional offices it
           reviewed, the Office of Grants and Debarment either found no
           documentation of cost reviews or found that documentation was not
           sufficient.25 As a result of these continuing documentation
           problems, EPA is reexamining its cost review policy for grants.

           We also found problems with cost review documentation in one of
           the three regions we visited-Region 5. This region has a checklist
           to ensure that staff members who are responsible for each aspect
           of the cost review had completed and documented their review
           before awarding a grant. The checklist requires approval from both
           the grant specialist and the project officer on certain items and
           requires supervisors to review the checklist to ensure that any
           concerns raised by the project officer or grant specialist were
           addressed.26 While a project officer and grant specialist could
           initially disagree on some aspects of the checklist, the regional
           office expects them to resolve their differences and document the
           final resolution on the checklist. However, for most of the 12
           approved award files we reviewed, we found instances in which the
           resolution of the issues was not documented. Specifically,

           o  the grant specialist and the project officer had both neglected
           to answer the same two questions on the cost review checklist, or

           o  the grant specialist and the project officer did not agree on
           the answers to multiple questions on the checklist and did not
           document any resolution of their disagreements.

           According to regional staff, these problems occurred because of
           workload and errors. Nevertheless, the lack of documentation for
           awarded grants raises concerns about the appropriateness of the
           award. More effective supervisory review might have resulted in a
           documented resolution of these differences.

           EPA has improved some aspects of monitoring, but long-standing
           problems in documentation and grant closeouts continue. EPA has
           made progress in using in-depth monitoring to identify grantee
           problems agencywide, but it does not always document whether
           corrective actions have been taken.27 Furthermore, for ongoing
           monitoring, the agency found, as we did in the regional offices,
           that in some cases agency staff do not consistently document their
           monitoring of grantees, which hinders accountability for effective
           grants management.28 Finally, we found that grant closeouts were
           often delayed and sometimes improperly carried out, which
           diminishes EPA's ability to ensure that grantees met the terms and
           conditions of their award and that grant funds were spent
           appropriately. EPA has formed a work group to review its
           monitoring and closeout polices and plans to revise these policies
           in 2006.

           EPA has made progress in conducting in-depth monitoring since it
           issued a new monitoring policy in December 2002, which it revised
           in 2004 and 2005.29 Under its monitoring policy, grants management
           offices and program offices in headquarters and the regions
           conduct in-depth monitoring either (1) at the grantee's location
           (on-site) or (2) at an EPA office or at another location
           (off-site)-referred to as desk reviews. EPA's policy for these
           reviews requires the following, among other things:

           o  Grants management offices must conduct in-depth administrative
           reviews, on a minimum of 10 percent of grantees annually, to
           evaluate the grantee's administrative and financial capacity. For
           on-site administrative reviews, EPA conducts "transaction
           testing"-that is, reviewing a grantee's accounting ledgers and
           underlying documentation for unallowable costs, such as lobbying
           and entertainment expenditures.

           o  Program offices must conduct programmatic reviews on a minimum
           of 10 percent of grantees annually to assess the grantees'
           activities in key areas, such as the progress the grantees are
           making in conducting the work and in meeting the grant's terms and
           conditions.

           In 2003, we reported that although the in-depth review is a useful
           tool for monitoring a grantee's progress, the agency lacked a way
           to systematically identify grantee problems agencywide because the
           information from its in-depth monitoring was gathered in a form
           that could not be readily analyzed.30 We also found that the
           policy did not incorporate a statistical approach to selecting
           grantees for review. Without a statistical approach, EPA could not
           evaluate whether 10 percent was appropriate, nor could it project
           the results of the reviews to all EPA grantees.

           We recommended that EPA take action to address these issues. EPA
           has since incorporated the data from its in-depth monitoring into
           a database, analyzed the information to identify key problems, and
           taken corrective actions to address systemic problems. By taking
           these actions, EPA has found, among other things, that grantees
           have not had documented policies and procedures for managing
           grants. Without these policies and procedures, grantees may not be
           able to operate their financial and administrative systems
           appropriately. As a result of this finding, EPA is conducting the
           preaward reviews discussed earlier to ensure that nonprofit
           grantees have required financial and administrative systems in
           place. EPA has also increased training to grantees.

           Since issuing its most recent revision to the monitoring policy in
           2005, EPA has initiated several practices that should further
           strengthen in-depth monitoring. In 2006, it began incorporating a
           statistical approach for selecting grantees for administrative
           in-depth reviews. In 2007, EPA plans to use a statistical approach
           to select grants for programmatic in-depth reviews. When the
           statistical approach is fully implemented, it should significantly
           reduce the percent of grantees reviewed, according to an agency
           official. Furthermore, the statistical approach will enable the
           agency to project results among various types of grantees. EPA
           also began incorporating transaction testing into administrative
           desk reviews in 2006 because it found that administrative desk
           reviews were not otherwise yielding adequate financial information
           about grantees.

           While EPA has improved its in-depth monitoring, the Office of
           Grants and Debarment has found that staff do not always take
           corrective actions, or document actions taken, to address findings
           identified during this monitoring. The office found that
           corrective actions were documented for only 55 percent of the 269
           problems identified through administrative and programmatic
           reviews. We reported similar results in August 2003. According to
           an Office of Grants and Debarment official, while some EPA staff
           took corrective actions, they did not document those actions in
           EPA's grantee computer database. Until this problem is addressed,
           the Office of Grants and Debarment will not be able to fully
           assess the extent to which corrective actions have or have not
           been taken to address identified grantee problems. Without these
           assessments, EPA cannot be assured that grantees are in full
           compliance with the terms and conditions of their grants.

           Ongoing monitoring is critical because, in contrast to in-depth
           monitoring, it is conducted on every grant at least once a year
           throughout the life of the grant, and the results are used to
           determine whether the grantee is on track to meeting the terms and
           conditions of its grant agreement. EPA's grant specialist and
           project officer manuals-used as training tools for EPA staff
           involved in grants-emphasize that staff should properly document
           grant monitoring activities to maintain an official agency record.
           Agency officials state that proper documentation of monitoring is
           necessary to ensure that third parties-such as other EPA staff who
           assume responsibility for the grant or a supervisor-can fully
           understand and review the actions that have occurred during the
           project period. Moreover, a lack of documentation raises questions
           about the adequacy of project officers' and grant specialists'
           ongoing monitoring of grantee performance. Despite the importance
           of documenting ongoing monitoring, the absence of documentation in
           grant files has been a long-standing problem that we reported on
           in 2003.

           To conduct ongoing monitoring, EPA policy requires the following:

           o  Grant specialists should ensure that administrative terms and
           conditions of the grants are met and review the financial status
           of the project. The grant specialist is to speak with the project
           officer and the grantee at least annually during the life of the
           grant.

           o  Project officers should ensure that programmatic award terms
           and conditions are being met, including ensuring that they have
           received progress reports from the grantee. Project officers are
           also to speak with the grant specialists and the grantee at least
           annually during the life of the grant.

           According to the monitoring policy, the grant specialists and
           project officers must document the results of their ongoing
           monitoring in their grant files.

           Despite this policy, the lack of documented ongoing monitoring
           remains a problem. EPA's recent internal reviews in program and
           regional offices demonstrate-as did our review in three regional
           offices-that EPA grant specialists and project officers still do
           not consistently document ongoing monitoring. In 2004 and 2005,
           the Office of Grants and Debarment found limited or incomplete
           documentation of ongoing monitoring in internal reviews it
           conducted in seven program and regional offices.31 In addition,
           self-assessments completed by 11 program and regional offices
           during this period identified the same lack of documentation. Our
           analysis of these reviews indicates that several offices
           experienced recurring problems in 2004 and 2005. For example, an
           August 2004 Office of Grants and Debarment internal review cited
           one regional office as having "very limited" documentation of
           ongoing monitoring; and in the following year, the regional
           office's self-assessment found the same documentation problem with
           project officer files.

           Because of these documentation problems, two of the three regional
           offices we visited have committed to using checklists to document
           their ongoing monitoring. Regions 1 and 9 had implemented such
           checklists at the time of our review. As table 2 shows, however,
           of the 40 project officer and grant specialist files we reviewed
           in Regions 1 and 9, more than half of the checklists were either
           missing, blank, or incomplete.

           Table 2: Use of Ongoing Monitoring Checklist in Region 1 and 9
           Grant Files for Two Programs

           Source: GAO analysis of EPA documents on selected wetland and
           nonpoint source grants awarded between January 1, 2004, through
           June 30, 2005. See app. I.

           aThese files should have contained checklists documenting ongoing
           monitoring.

           bChecklists may legitimately be left blank until 1 year has
           elapsed assuming no grant activity occurred that would warrant EPA
           staff to conduct monitoring.

           The water program office in Region 5 also developed a checklist
           for documenting ongoing monitoring but had not yet implemented it
           at the time of our review. Consequently, in Region 5, we examined
           other documentation of ongoing monitoring in the grant files and
           found similar omissions. None of the six files requiring annual
           contact with the grantee-three grant specialist files and three
           project officer files-had documentation showing that this contact
           had occurred.

           In the three regions, we also found that project officers' files
           did not always contain grantees' progress reports, which can be
           required quarterly, semiannually, or annually, as defined by an
           individual grant's terms and conditions. Thirteen of the 32
           project officer grant files we reviewed in these regions were
           missing at least one or more progress reports required by the
           grant's terms and conditions. According to EPA's project officer
           manual, progress reports are the project officer's primary
           mechanism for determining if the grantee is fulfilling its grant
           agreement obligations. In general, progress reports should contain
           information that compares grantee progress with the stated grant
           objectives, identify problems with meeting these objectives, and
           state the reasons for those problems. While the submission of
           progress reports is clearly the grantee's responsibility, it is
           also the project officer's responsibility to work with the
           grantees to ensure that they provide their progress reports in
           accordance with the terms of the grant. When EPA staff do not
           obtain progress reports, they cannot monitor effectively, which
           may hinder accountability.

           In the three regions we visited, the lack of documentation for
           ongoing monitoring occurs because of weaknesses at the staff,
           supervisory, and management level. First, grant specialists and
           project officers do not consistently document key monitoring
           efforts. For example, several staff stated that they had not
           printed out their e-mail correspondence with grantees or recorded
           those contacts in the official grant files. Other staff cited
           their workload as a reason for not documenting monitoring. Lack of
           documentation also occurs because grant specialists and project
           officers rely on other staff with technical expertise, known as
           "technical contacts," to assist with ongoing monitoring, and these
           technical contacts may not provide the documented results of their
           monitoring for inclusion in the grant file. We found this
           situation had occurred in two of the three regions we visited. For
           example, one administrative project officer-a project officer who
           maintains files but is not necessarily knowledgeable about the
           technical aspects of the project-had asked for key monitoring
           documentation from a technical contact, who did not provide it.
           The technical contact had the monitoring documents in his work
           area and said he would routinely provide them to the project
           officer in the future.

           Second, the lack of ongoing monitoring documentation may occur, in
           part, because supervisors do not always effectively review grant
           files for compliance with grant policies. According to staff we
           interviewed in the three regions, to their knowledge, their
           supervisors had not reviewed their files to assess compliance with
           the agency's monitoring policies, which could contribute to the
           lack of documentation. A regional project officer told us that he
           would have completed the ongoing monitoring checklist if his
           regional program supervisor had made it a priority. In another
           region, officials told us that some supervisors do review some
           files, but they do not have enough time to review every file.

           In contrast, supervisory review can contribute to complete
           documentation of ongoing monitoring. For example, Region 5 was
           cited as having "excellent" documentation for ongoing monitoring
           in an Office of Grants and Debarment 2003 internal review.
           According to the EPA supervisor in Region 5 at the time of the
           2003 review, she had notified staff that she would review their
           grant files to assess compliance with EPA policy for ongoing
           monitoring, among other things. She believes that her review
           contributed to the region's excellent rating.

           Third, senior EPA managers in the regions do not always ensure
           that their commitments to improve monitoring documentation are
           being met. For example, in the post-award monitoring plans
           submitted to the Office of Grants and Debarment for two of the EPA
           regions we visited, the plans stated that the regions would place
           a checklist in the grant specialist and project officer files
           documenting ongoing monitoring activities. Although the two
           regions developed the checklists, more than half of the checklists
           we reviewed were missing, blank, or incomplete. This occurred, in
           part, because senior managers did not ensure that the commitments
           they made were met in their post-award monitoring plans.

           Despite the importance of ongoing monitoring, EPA has not created
           a performance measure for documenting ongoing monitoring that
           would underscore its importance to managers and staff.
           Furthermore, EPA's Integrated Grants Management System has a field
           for recording information about ongoing monitoring that could
           enable the agency to systematically identify whether this
           monitoring is documented agencywide, but recording this
           information is optional. Establishing a performance measure and/or
           requiring the entry of information could enhance accountability
           for implementing the monitoring policy.

           As part of its grant reforms, EPA incorporated grant closeout into
           its monitoring policy and its Grants Management Plan.32 During
           closeout, EPA ensures that the grant recipient has met all
           financial requirements and provided final technical reports, and
           ensures that any unexpended balances are "deobligated" and
           returned to the agency. Delays in closing out the grant can
           unnecessarily tie up obligated but unexpended funds that could be
           used for other purposes. Furthermore, according to EPA's closeout
           policy, closeout becomes more difficult with the passage of time
           because persons responsible for managing various aspects of the
           project may resign, retire, or transfer; and memories of events
           are less clear.

           The monitoring policy states that the agency is committed to
           closing out grants within 180 days after the end of the grant's
           project period. Under its monitoring policy, EPA provides 180 days
           for closeout because (1) grantees-by regulation and policy-have up
           to 90 days after the grant project period to provide all financial
           and technical reports;33 and (2) by policy, agency staff-grant
           specialists and project officers-have 90 days to review grantee
           information and certify that financial and technical requirements
           have been met. Following certification, the grant specialist
           closes out the grant with a letter to the grantee stating that the
           agency closed out the grant. EPA's Grants Management Plan
           identified measures with targets that were developed to assess
           EPA's closeout performance.

           In reviewing EPA's management of grant closeouts, we found that
           EPA (1) has effectively reduced its historic backlog of grants due
           for closeout; (2) does not always close out grants in a timely
           way-within 180 days after the project period ends, as required by
           agency policy; and (3) does not always close out grants properly
           based on the regional files we reviewed.

           In the past, EPA had a substantial backlog of grants that it had
           not closed out. EPA reported that by 1995, the agency had amassed
           a backlog of over 18,000 completed grants that had not been closed
           out from the past 2 decades. In fact, EPA had identified closeout,
           among other things, as a material weakness-an accounting and
           internal control weakness that the EPA Administrator must report
           to the President and Congress.34 As we reported in 2003, however,
           EPA improved its closeout of backlogged grants, eliminating
           backlog as a material weakness. Specifically, for fiscal year
           2005, using its historic closeout performance measure, EPA
           reported that it had closed 97.8 percent of the 23,162 grants with
           project end dates between the beginning of fiscal year 1999 and
           the end of fiscal year 2003. EPA came close to its 99-percent
           target of closing out this backlog.

           EPA developed a second closeout performance measure-which we call
           the current closeout performance measure-to calculate the percent
           of grants with project end dates in the prior fiscal year that
           were closed out by the end of the current fiscal year (September
           30). For example, as table 3 shows, EPA closed out 79 percent of
           the grants with project end dates in fiscal year 2004 by the end
           of reporting fiscal year 2005 (September 30, 2005) but did not
           meet its performance target of 90 percent.

19EPA, Data Quality Standard for the Project Description Field in the
Integrated Grants Management System, GPI-04-05, (Jan. 27, 2005).

20EPA, EPA Order 5700.8: EPA Policy on Assessing Capabilities of
Non-Profit Applicants for Managing Assistance Awards, (Mar. 24, 2005).

21EPA Office of Grants and Debarment, Memorandum: Written Justifications
for Selecting Assistance Agreements, (Mar. 16, 2005). This memorandum was
written as a supplement to EPA Order 5700.1 Policy for Distinguishing
between Assistance and Acquisition (Mar. 22, 1994).

Lack of Cost Review Documentation Could Compromise Accountability

22GAO, Grants Management: EPA Needs to Better Document Its Decisions for
Choosing between Grants and Contracts, GAO-04-459 (Washington, D.C.: Mar.
31, 2004).

23EPA, Review and Announcement of Discretionary Grants, (Apr. 5, 2005) and
EPA, Interim Guidance for New Policy on the Review and Announcement of
Discretionary Grants, (Apr. 28, 2005).

24In response to the Government Performance and Results Act of 1993, EPA
has developed a strategic plan that is built around five goals to protect
human health and the environment: (1) clean air and global climate change,
(2) clean and safe water, (3) land preservation and restoration, (4)
healthy communities and ecosystems, and (5) compliance and environmental
stewardship. EPA, 2003-2008 Strategic Plan: Direction for the Future,
EPA-190R-03-003 (Washington, D.C.: Sept. 2003).

25The site visits occurred in 2004 and 2005, and reports were issued
later.

26In Region 5, the supervisors are "team leaders" who are responsible for
reviewing the cost review checklists, among other award documents; the
grants management officer also reviews the award documentation.

EPA Has Improved In-depth Monitoring to Identify Agencywide Problems, but
       Weaknesses Remain in Ongoing Monitoring and in Closing Out Grants

In-depth Monitoring Results Can Be Analyzed Nationwide to Identify Problems, but
Staff Do Not Always Document Whether Corrective Actions Have Been Taken

27The agency refers to in-depth monitoring as "advanced monitoring."

28The agency refers to ongoing monitoring as "baseline monitoring."

29In this report, we refer to EPA's policy that addresses monitoring as
"the monitoring policy." See EPA, EPA Order 5700.6: Policy on Compliance,
Review and Monitoring (Dec. 31, 2002). In January 2004, EPA revised the
monitoring policy. See EPA, EPA Order 5700.6 A1 Policy on Compliance,
Review and Monitoring (Jan. 8, 2004). Subsequently, EPA extended the
policy through December 31, 2006, so that EPA could consider changes. See
EPA, EPA Order 5700.6A1 CHG 1 (Sept. 28, 2005).

30 GAO-03-846 .

Inadequate Documentation of Ongoing Monitoring Hinders Accountability

31The internal reviews were those based on the dates of the site visits
which occurred in 2004 and 2005.

                                        Project officer                       
Checklist status                                file Grant specialist file
Missing or blank checklista                       14                     3 
Incomplete checklist                               0                     5 
Complete checklist or checklist not                                        
yet applicableb                                    6                    12
Total                                             20                    20 

EPA Has Reduced Its Closeout Backlog, but Grant Closures Are Often Delayed and
Sometimes Improperly Carried Out

32EPA has had a closeout policy in effect since 1992. See EPA, EPA
Closeout Policy for Grants and Cooperative Agreements, GPI-92-04 (Aug. 27,
1992).

3340 C.F.R. S: 31.50 (grants to state and local governments); 40 C.F.R. S:
30.71 (grants to nonprofit organizations). Each regulation grants EPA
authority to extend the deadline upon the grantee's request.

  EPA Has Effectively Reduced Its Historic Closeout Backlog

EPA Does Not Always Close Out Grants in a Timely Manner

3431 U.S.C. S: 3512.

Table 3: EPA's Current Closeout Performance Target Compared with Percent
EPA Reported as Meeting That Target, Reporting Fiscal Years 2003-2005

                                  Current closeout  Percent of grants meeting 
Reporting fiscal Project end performance target       the current closeout 
year                   dates          (percent)         performance target 
2003 (baseline)   10/01/2001                                               
                        through                    
                      9/30/2002                 90                         83
2004              10/01/2002                 90                         85 
                        through                    
                      9/30/2003                    
2005              10/01/2003                 90                         79 
                        through                    
                      9/30/2004                    
2006              10/01/2004                 90  Data will be available in 
                        through                                  October 2006 
                      9/30/2005                    

Source: EPA documents.

Note: The reporting fiscal year reflects grants that had project period
end dates from the prior year.

EPA's current closeout performance measure does not calculate whether EPA
closed the grant within 180 days. Rather, this measure only reports
whether EPA closed the grant by the end of the following fiscal year (the
fiscal year in which it reports on closeouts-the reporting year). The
measure, in fact, can allow for a much more generous closeout time, from
183 days beyond the 180 days to as much as 547 days (18 months) beyond the
180 days-because EPA does not report the performance measure until
September 30, the end of the current fiscal year, as shown by hypothetical
examples in table 4.

Table 4: Minimum and Maximum Times Allowed under EPA's Current Closeout
Performance Measure

Time allowed                                                Number of days 
under policy                 Closeout due                  elapsed between 
beyond 180 days    Project date (180 days  Reporting date the closeout due 
for grant       period end  allowed after for performance     date and the 
closeouts             date  project ends)         measure   reporting date 
Minimum time     Sept. 30,  Mar. 31, 2005  Sept. 30, 2005   183 (6 months) 
                         2004                                
Maximum time       Oct. 1,   Apr. 1, 2004  Sept. 30, 2005  547 (18 months) 
                         2003                                

Source: GAO.

Note: EPA routinely waits about 1 month after the end of the fiscal
year-in this case, until October 2005-to allow sufficient time for
end-of-fiscal year data to be entered into its system.

EPA's current performance measure for closing out grants is a valuable
tool for determining if grants were ultimately closed out. However, we
believe that this performance measure-taken alone-is not a sufficient way
to measure closeout because it does not reflect the 180-day standard
specified in EPA policy.

To determine the percentage of grants that were closed within 180 days, we
examined EPA's analysis of closeout time frames for regional offices,
headquarter offices, and agencywide. As table 5 shows, EPA is having
significant difficulty in meeting the 180-day standard.

Table 5: Percent of Grants Closed Out Agencywide and for Program and
Regional Offices, by Length of Time to Closeout, Fiscal 2005 Reporting
Year

                          Percent of grants closed out
                                                 Regional offices
Length of time                                                             
to closeout for                                                        
projects ending                                                        
in fiscal year             Program                                     
2004            Agencywide offices   1   2   3   4   5   6   7   8   9  10
On time (0-180                                                             
days)                   37      35  30  26  51  43  16  49  44  45  32  52
Late (181-270                                                              
days)                   19      15  26   9  26  31   9  15  29  28  21  18
Significantly                                                              
late (271+                                                             
days)                   25      34  40  14  21  17  14  21  18  27  26  20
Not closed              19      16   4  51   2   9  61  14   9   1  21  10 
Total                  100     100 100 100 100 100 100 100 100 100 100 100 

Source: GAO analysis of EPA information from EPA's Grant Information and
Control System database, as of December 31, 2005.

Note: Totals may not add up to 100 due to rounding.

As the table shows, agencywide, only 37 percent of grants with project end
dates in fiscal year 2004 were closed out within 180 days, 25 percent were
significantly late-at least 3 months beyond the 180-day standard, and 19
percent were not closed.

Table 6 shows that EPA's current performance measure is masking the fact
that the agency is having significant difficulty in closing out grants
within 180 days.

Table 6: Comparison of EPA's Performance against the Current Closeout
Measure and the 180-Day Standard, Fiscal 2005 Reporting Year

                   Percent of grants meeting the current measure and 180-day
                                            standard   
                          Current closeout performance                        
Unit                                        measure       180-day standard
Agencywide                                       79                     37 
Program offices                                  81                     35 
Region 1                                         96                     30 
Region 2                                         49                     26 
Region 3                                         97                     51 
Region 4                                         91                     43 
Region 5                                         37                     16 
Region 6                                         85                     49 
Region 7                                         90                     44 
Region 8                                         99                     45 
Region 9                                         76                     32 
Region 10                                        89                     52 

Source: EPA data.

Notes: For the current closeout performance measure, GAO's analysis of
information from EPA's Grant Information and Control System database, as
of November 30, 2005; for the 180-day standard, GAO's analysis of
information from EPA's Grant Information and Control System database, as
of December 31, 2005.

In guidance on preparing the annual post-award monitoring plans, the
Office of Grants and Debarment has indicated that agency offices should
use the agency's current closeout performance measure-90 percent of the
grants with project end dates in the prior fiscal year-as the closeout
goal.35 In effect, as a regional grants management office manager stated,
the performance measure, not the 180-day standard, is the target EPA is
working toward for closing out grants.

At the regional level, our analysis of closeout data for the wetland and
nonpoint source grant programs indicates that grants were closed out late
because of (1) grantee delays and/or (2) internal delays within the
agency. We reviewed 34 closed grants in three regions. First, as table 7
shows, grantees often submit their final financial and technical reports
after the 90 days that they are allowed.36

35EPA, Office of Grants and Debarment, Grants Administration Division,
Guidance for Preparation of 2005 Post-Award Management Plans (Nov. 8,
2004).

Table 7: Length of Time It Took Grantees to Deliver Final Financial and
Technical Reports for Two Grant Programs in Regions 1, 5, and 9

Days for grantees to deliver final reports                Number of grants 
1-90 days (on time)                                                      9 
91-180 days                                                             10 
181-270 days                                                             6 
271-450 days                                                             4 
451 + days                                                               1 
Report missing from file or date of receipt could not be                 4 
determined                                                
Total                                                                   34 

Source: GAO analysis of EPA documents on selected wetland and nonpoint
source grants for grants closed out between January 1, 2004, and June 30,
2005.

Note: Technical reports and financial reports are submitted separately.
Our analysis is based on the date of the last report submitted.

According to regional staff, different types of grantees may be submitting
their reports late for different reasons. Specifically:

           o  States do not always provide their final technical and
           financial closeout reports on time. The states may not be on time
           because, for example, they (1) are understaffed; (2) are awaiting
           the completion of work conducted by sub-grantees or
           subcontractors-which can be legitimately delayed because of
           weather conditions that affect the project's progress; or (3)
           consider closeout a lower priority than applying for new grants.
           Furthermore, states do not believe there will be any consequences
           if they submit final reports late because their grants are for
           continuing environmental programs.

           o  Tribes may submit their final reports late because of high
           turnover among tribal staff and limited organizational capacity,
           and because tribal councils, which meet intermittently, must
           approve the reports.

           While grantees are responsible for providing final reports within
           90 days, EPA staff are responsible for working with the grantees
           to ensure that the reports are received on time. Under EPA's 1992
           closeout policy, grant specialists must notify grantees 90 days
           before the project end date that final reports will be due 90 days
           thereafter. However, we found that regional staff do not always
           send out these letters. For example, Region 5 adopted the practice
           of reminding grantees 45 days before the project end date because
           the grants management office believes that the 90 days is too long
           in advance to be effective. However, several Region 5 grant
           specialists stated that their workload is also preventing them
           from sending out the 45-day letter to grantees.

           According to EPA's closeout policy, if a grantee is late with the
           final financial or technical report, the region should send
           reminder letters that escalate in tone as time progresses. In
           Region 1, for example, if the grantee does not submit its
           materials within 90 days, the grants management office sends a
           letter asking that the grantee contact its grant specialist to
           discuss the reasons for the overdue reports; if the region does
           not receive the reports within 120 days after the project has
           ended, the grants management office sends a certified letter that
           more strongly calls for the submission of these required reports.

           When these letters do not result in grantee compliance, regional
           staff and managers told us that they have no realistic option for
           taking strong action against states that are late-such as
           withholding money-because these grantees have continuing grants
           for environmental programs.

           Second, late closeouts result from a variety of internal agency
           delays. As shown in table 8, of those files that had information
           that we could use to determine the dates the reports were
           submitted, regional staff closed out about half within the 90 days
           provided for in EPA guidance. For 9 of the 30 files that had this
           report information, it took the project officers or the grant
           specialists over 180 days to close out the grant after receiving
           the final reports from the grantees.

           Table 8: Length of Time Elapsed for Grants Management Offices to
           Close Out Grants after Grantee Provides Final Reports for Two
           Grant Programs, Regions 1, 5, and 9

           Source: GAO analysis of EPA documents on selected wetland and
           nonpoint source grants for grants closed out between January 1,
           2004, and June 30, 2005.

           For grant closeouts, generally, regional staff often cited
           workload as a factor contributing to delays in agency closeout.
           Delays also occurred because of peak workload periods during the
           year, such as the fourth quarter of the fiscal year, when regions
           generally give priority to awarding new grants. Officials in the
           three regions we visited also told us that they have transferred
           or will transfer the administrative and financial functions of
           grants closeout to EPA's Las Vegas Finance Center, which should
           reduce the grant specialists' workload, allowing them to focus on
           other aspects of grants management.

           Regional practices also may have contributed to delays in two of
           the three regions we reviewed. Region 5 had two practices that
           contributed to delays in closing out grants. First, the region
           uses technical contacts to assist with monitoring the wetland and
           nonpoint source grant programs, including closeouts. The project
           officer first reviews the grantee's final reports to ensure they
           are complete and then asks the technical contact to comment on
           specific points and certify in writing that technical requirements
           have been met. The project officer then certifies in writing to
           the grant specialist that the grantee has met programmatic terms
           and conditions and, from that perspective, the grant can be closed
           out. Regional staff stated that in certain cases the added step of
           getting signoff by the technical contact resulted in closeout
           delays because the technical contact did not always review the
           grantee's final reports in a timely way.

           Second, to address its closeout problem, the region's grants
           management office attempted an administrative change to expedite
           closeout-having a single grant specialist manage closeout. When
           this approach did not prove effective, the region returned to its
           practice of having the original grant specialists responsible for
           closing out grants. According to regional staff, the transition to
           and from this process exacerbated delays in grant closeouts. The
           original grant specialists had other grant work and waited until
           that work was completed before closing out the grants that were
           returned to them. Region 5 had the lowest percentage of grants
           closing out within 180 days for all its programs among EPA's 10
           regions (16 percent for fiscal year 2005 as shown in table 5).

           Region 9 had delayed closures for continuing nondiscretionary
           grants, in part, because of a practice, discontinued in November
           2004, of routinely carrying over unspent funds from these grants.
           That is, the region would not close out a grant until it had
           awarded a new grant. The unspent funds from the old grant would
           then be processed as an amendment to the new grant, in order to
           allow grantees to keep their unspent funds. For example, one state
           nonpoint source grant was closed 278 days beyond the 180 days
           because the project officer had asked the grant specialist to
           carry over $426,000 in unspent funds to the following year's
           grant.

           Overall, a combination of grantee lateness and internal
           inefficiencies contributed to late closeouts. For example:

           o  In Region 5, it took 795 days-615 days beyond the 180-day
           standard-to close out a 2-year wetland grant for $56,778. The
           grantee submitted the final financial status report 114 days late
           because a key grant contact had died. However, it took the region
           an additional 591 days after the grantee provided the final
           reports to close out the grant. According to the grant specialist,
           closeout was delayed, in part, because of internal administrative
           delays and because the grant was "lost" under a stack of other
           closeout files.

           o  In Region 1, closure of a nonpoint source grant that provided
           $796,532 over 10 years was delayed primarily because of a lack of
           documentation. According to the project officer who inherited the
           file from a retiring employee, the file had unusually poor
           documentation, with no assurance that the grant's terms and
           conditions had been met. Moreover, the state employee who assumed
           responsibility for the grant could not locate all the reports
           detailing how the grant money had been used. Consequently, it took
           the project officer nearly 5 months beyond the allotted 180 days
           to review available information, ascertain that grant activities
           had been completed, and close out the grant.

           According to some of the project officers and grant specialists
           staff with whom we spoke, the 180 days allowed for closeout in
           EPA's policy is a reasonable amount of time. Moreover, some staff
           said that if more days were allowed, EPA might take longer. As
           noted in the closeout policy, as more time passes and the original
           grant specialists and project officers move on, it becomes more
           difficult to close out a grant. Finally, one regional official
           pointed out that if the deadline for closeout were extended, then
           unexpended funds would go unused for longer periods of time, which
           would tie up funds that could have been used for other purposes.

           We note, however, that EPA still has a 1992 closeout policy that
           is not consistent with its current monitoring policy.
           Specifically, although both the 1992 closeout policy and the
           monitoring policy state that closeout should occur within 180 days
           after the end of the project period, the 1992 policy also states
           that closeout should occur within 180 days after receipt of all
           required reports and other deliverables. This aspect of the 1992
           policy could be construed to mean that EPA has up to 270 days to
           close out grants since grantees have up to 90 days to submit their
           reports. Office of Grants and Debarment officials stated that EPA
           has formed a work group to review its monitoring and closeout
           polices. As part of its review, the office plans to examine this
           inconsistency and the reasonableness of the 180-day closeout
           requirement. It expects to revise these policies in 2006.

           Adding to the agency's closeout problems, 8 of the 34 closed
           grants we reviewed in the regions were not closed out properly.
           Specifically:

           o  Region 1 grant specialists had not adequately reviewed the
           indirect cost rate grantees submitted as part of their final
           financial status report which, in turn, led to improper closeout
           in 5 of the 10 files we reviewed. Reviewing the files' final
           financial report checklist, we found instances in which the
           question on the checklist that addresses indirect cost rates had
           been left blank or had been answered incorrectly. This problem
           occurred, in part, because the grant specialists did not
           adequately review the work of student interns who initially
           reviewed the financial status reports and completed the
           checklists. These "noncore" employees were used to help reduce the
           grant specialists' workload and the grant specialists were
           expected to review their work before they signed off on the
           checklist.

           o  In Region 5, one grant specialist's file was missing the final
           financial status report, which is a key report that describes how
           the grantee spent the grant funds and whether any unspent funds
           remain that need to be deobligated.

           o  In Region 9, Lobbying and Litigation Certification Forms-whose
           purpose is to ensure that federal dollars are not spent for
           lobbying or litigation activities-were missing from two grant
           files. After waiting some time, the grant specialist decided to
           close out the grants without the forms. The grant specialist
           manual states that grant specialists are responsible for notifying
           the grants management office if the grantee has not complied with
           this certification requirement.

           EPA's guidance states that inadequate file documentation, among
           other things, (1) violates the file management requirement that
           all significant actions must be documented, (2) provides an
           incomplete historical record of a grant project, (3) prevents
           staff from substantiating facts if a dispute arises, and (4)
           creates the appearance of poor grant administration and
           oversight.37 Furthermore, the guidance specifically states that
           the file should include evidence of closeout, including the final
           report or product.

           In Region 1, we also identified an accountability concern when
           grants were closed out by administrative project officers. An
           administrative project officer for a Performance Partnership Grant
           had not always received written approval from the technical
           contacts, who evaluated grantee documents before the
           administrative project officer certified that the grantee had met
           all the terms and conditions of the grant. According to a regional
           official, technical contacts at times tell the project officer
           that they have reviewed technical documents but do not provide
           written approval. Although the administrative project officer
           certified that grantees met their programmatic obligations, the
           administrative project officer was "uncomfortable" doing so
           without written approval from technical contacts that they had
           reviewed final documents.

           As with monitoring, without effective supervisory review of the
           grant and project officer files, grants may be improperly closed
           out. With more effective supervision, grants would be more likely
           to be properly closed out.

           EPA has taken steps to obtain environmental results from its
           grants, but its efforts are not complete. First, EPA included a
           performance measure in its Grants Management Plan for identifying
           expected environmental results in grant workplans. In 2004, EPA
           was far from meeting its performance target. Although EPA does not
           yet have final data for 2005, EPA officials told us that their
           preliminary data indicate they are closer to meeting this
           performance target. Second, EPA issued an environmental results
           policy, effective in January 2005 that for the first time requires
           EPA staff to ensure that grants specify well-defined environmental
           outcomes.38 However, EPA's current performance measure does not
           take into account the new criteria for identifying and measuring
           results from grants established by the policy. EPA acknowledges
           that it has not yet fully identified better ways to integrate the
           agency systems for reporting on the results of grants. While EPA
           has taken these positive steps, OMB's evaluations of EPA grant
           programs in 2006 indicate that EPA must continue its concerted
           efforts to achieve results from its grants.

           The Grants Management Plan established a performance measure for
           identifying environmental outcomes from grants: the percent of
           grant workplans that discusses how grantees plan to measure and
           report on environmental outcomes.39 In 2004, EPA was far from
           meeting its performance target. Although EPA does not yet have
           final data for 2005, an EPA official told us that their
           preliminary data indicate that the agency is closer to meeting
           this performance target of 80 percent for 2005.40

           Table 9: Extent to Which EPA Met Its Target for the Percent of
           Grant Workplans with Environmental Outcomes, 2003-2005

           Source: EPA documents.

           EPA also issued an environmental results policy in 2004, which was
           effective in January 2005, or about 2 years later than proposed in
           the Grants Management Plan. The policy is promising in that-for
           the first time-it requires EPA staff to ensure that grant
           workplans specify well-defined environmental outputs (activities)
           and environmental outcomes (results), which enables EPA to hold
           grantees accountable for achieving them. However, planning for
           grants to achieve environmental results, and measuring results, is
           a difficult, complex challenge. As we have reported, while it is
           important to measure the results of environmental activities
           rather than just the activities themselves, agencies face
           difficulties in doing this.41 Environmental outputs are inherently
           easier to develop and report on than environmental outcomes.

           The policy is also promising because, among other things, it (1)
           is binding on managers and staff throughout the agency; (2)
           emphasizes environmental results throughout the grant life
           cycle-awards, monitoring, and reporting; and (3) requires that
           grants be aligned with the agency's strategic goals and linked to
           environmental results.

           To align grants with the agency's strategic goals and link the
           grants to results, the policy requires for the first time that EPA
           program offices ensure that (1) each grant funding package
           includes a description of the EPA strategic goals and objectives
           the grant is intended to address and (2) the offices provide
           assurance that the grant workplan contains well-defined outputs
           and, to the "maximum extent practicable," well-defined outcome
           measures. Outcomes may be environmental, behavioral,
           health-related, or programmatic in nature, and must be
           quantitative. EPA included the provision to "the maximum extent
           practicable" in the policy because it recognized that some types
           of grants do not directly result in environmental outcomes. For
           example, EPA might fund a research grant to improve the science of
           pollution control, but the grant would not directly result in an
           environmental or public health benefit. In June 2005, the EPA
           Inspector General found that the agency's results policy was
           generally consistent with leading nongovernmental organizations
           that fund environmental projects and that emphasize grants
           performance measurements.42

           EPA's performance measure and the new results policy are positive
           steps, but the agency's efforts to address results are not yet
           complete. Although EPA has issued an environmental results policy,
           its current performance measure does not take into account the new
           criteria for identifying and measuring results. EPA has identified
           the following seven criteria that grant agreements should meet and
           is using these seven criteria as the basis for assessing the
           implementation of the policy.43 That is, the agreements should

           o  include a description of how the grant is linked to EPA's
           Strategic Plan,

           o  specify at least one EPA goal and its related objective that
           the project addresses,

           o  identify the appropriate program results code-a code applied to
           new grant awards that aligns the grant with EPA's strategic goals
           and objectives,

           o  include an assurance that the program office has reviewed the
           workplan and that the workplan includes well-defined outputs and
           outcomes,

           o  include a requirement for performance reports from recipients,

           o  include well-defined outputs in the workplans, and

           o  include well-defined outcomes in the workplans.

           According to an Office of Grants and Debarment official, the
           results policy calls for outcomes that are not only well defined
           but that also include quantitative measures. However, recognizing
           the difficulty and complexity posed by applying such measures, the
           official said, for the purposes of assessment, EPA modified its
           criteria to include well-defined outcomes with or without
           quantitative measures.

           Since EPA has adopted new criteria for assessing environmental
           results from grants based on its environmental results policy, its
           current performance measure-the percentage of grant workplans that
           discuss how grantees plan to measure and report on environmental
           outcomes-may not be sufficient to assess the implementation of the
           policy. EPA's current performance measure does not take into
           account the new criteria for identifying and measuring results
           from grants established by the policy. Establishing a new
           performance measure and target to reflect the new policy would
           enhance EPA's ability to assess the agency's effectiveness in
           implementing the policy.

           In addition, EPA continues to face difficulties in ensuring that
           its grants are achieving public health and environmental results.
           Specifically, EPA acknowledges that it has not yet fully
           identified better ways to integrate the agency systems for
           reporting on the results of grants. EPA does not have a systematic
           way of collecting information about the results of its grants
           agencywide. As stated in the results policy, the Office of Grants
           and Debarment convened a workgroup to (1) examine existing EPA
           systems for collecting results from grant programs, (2) identify
           better ways to integrate these systems, and (3) potentially amend
           the policy to reflect its findings. The workgroup has begun an
           inventory of existing EPA systems. Until recently, EPA
           recognized-but had not addressed in its results policy-the known
           complexities of measuring environmental outcomes: (1)
           demonstrating outcomes when there is a long lag time before
           results become apparent and (2) linking program activities with
           environmental results because of multiple conditions that
           influence environmental results. In April 2006, the Office of
           Grants and Debarment provided an online training course for
           project officers on environmental results with guidance on how to
           address these measurement complexities.

           Furthermore, OMB has found that EPA has problems in demonstrating
           results from its grants. Using its Program Assessment Rating Tool
           (PART), OMB annually evaluates federal programs in four critical
           areas of performance: program purpose and design, planning,
           management, and results, each scored from 0 to 100.44 OMB combines
           these scores to create an overall rating: effective, moderately
           effective, adequate, and ineffective. In addition, programs that
           do not have acceptable performance measures or have not yet
           collected performance data generally receive a rating of "results
           not demonstrated." As table 10 shows, the PART ratings have found
           that some of EPA's programs are "ineffective" or "results not
           demonstrated," although there has been some improvement from 2004
           through 2006.45

           Table 10: Combined OMB PART Ratings of EPA Grant Programs,
           2004-2006

           Source: OMB documents.

           Despite this progress, a closer examination of the ratings for
           2006 indicated that, with one exception, the scores for the
           results component were lower than the scores given to other
           components. (See table 11).

36The financial and technical reports are key, but not the only, documents
required to closeout a grant. Other documents may include the (1) Lobbying
and Litigation Certification Form and (2) Minority Business
Enterprise/Women Business Enterprise report.

Days from receipt of final report from grantee to                          
closeout                                                  Number of grants
1-90 days                                                               14 
91-180 days                                                              7 
181-270 days                                                             3 
271-450 days                                                             2 
451 + days                                                               4 
Report missing from file or date of receipt could not be                 4 
determined                                                
Total                                                                   34 

  Grants Were Not Always Closed Out Properly

37EPA, Grants Management Fact Sheet for Agency Leaders: Number 10:
Assistance Agreement File Documentation (May 1, 1998).

EPA Has Initiated Actions to Obtain Results from Grants, but Its Efforts Are Not
                                    Complete

EPA Has Developed a Performance Measure and Issued a New Policy for Specifying
Environmental Results

38EPA, EPA Order 5700.7: Environmental Results under EPA Assistance
Agreements (Nov. 30, 2004).

39The Grants Management Plan's performance measure sets a target for the
percentage of grant workplans, decision memorandum, and terms of
conditions that will include a discussion of how grantees plan to measure
and report on environmental outcomes. However, an Office of Grants and
Debarment official told us that, in practice, the grant workplan is
assessed because it is the primary indicator of compliance with the
policy.

40EPA's assessment of the implementation of this performance measure had
not been completed by the end of our review.

                                      Performance measure
                                              Percent of grant workplans with 
Calendar year   Percent target                      environmental outcomes 
2003 (baseline) Not applicable                                          31 
2004                        70                                          45 
2005                        80                           Not yet available 

41 GAO-03-846 .

Efforts to Obtain Results from Grants Are Not Yet Complete

42EPA, Office of Inspector General, EPA's Efforts to Demonstrate Grant
Results Mirror Nongovernmental Organizations' Practices, Report No.
2005-P-00016 (June 2, 2005).

43EPA plans to complete its first review of the implementation of the new
environmental results policy based on these seven criteria in 2006.

                  Number of grant programs by combined rating           
                                                                Results       
Year Moderatelyeffective Adequate Ineffective        notdemonstrated Total
2004                   0        2           0                      8    10 
2005                   0        9           2                      5    16 
2006                   1       12           3                      2    18 

44Although we are using OMB information, we have identified concerns about
OMB's PART. See GAO, Performance Budgeting: OMB's Performance Rating Tool
Presents Opportunities and Challenges for Evaluating Program Performance,
GAO-04-550T (Washington, D.C.: Mar. 11, 2004). OMB's reviews can occur
about a year before they are reported as part of the President's budget.

45These assessments, which were part of the President's fiscal year 2005
to 2007 budget submissions, were published in February 2004, 2005, and
2006, respectively.

Table 11: OMB PART Scores for All Components of the Combined Rating,
Fiscal Year 2006

                                          Component scores (0 to 100)
                                  Program purpose                             
Grant program                       and design Planning Management Results
Air Quality Grants and                      60       44         77      13 
Permitting                                                         
Alaska Native Villages                     100       50         11       7 
Brownfields Revitalization                 100       50         90      17 
Clean Water State Revolving                100       50         78      26 
Fund                                                               
Drinking Water State Revolving             100       63         89      33 
Fund                                                               
Endocrine Disruptors                        80       70         91      26 
Environmental Education                     60       75         90      13 
Lead-Based Paint Risk                      100       78         77      72 
Reduction Program                                                  
Leaking Underground Storage                100       75        100      42 
Tank Cleanup Program                                               
Nonpoint Source Pollution                   80       88        100      40 
Control Grants                                                     
Ocean, Coastal, and Estuary                100       44         85      27 
Protection                                                         
Pesticide Enforcement Grant                100       63         89       8 
Program                                                            
Pesticide Field Programs                    80       13         44      13 
Public Water System                        100       75         78      17 
Supervision Grant Program                                          
Tribal General Assistance                  100       50         78      25 
Program                                                            
U.S.-Mexico Border Water                   100       63         89      20 
Infrastructure                                                     
Underground Injection Control              100       75         89      17 
Grant Program                                                      
Water Pollution Control Grants              60       75         89      40 

Source: OMB document.

While EPA has taken positive steps, OMB's 2006 assessment indicates that
EPA must continue its concerted efforts to achieve results from its
grants.

 EPA Has Taken Steps to Manage Grants Staff and Resources More Effectively but
                     Still Faces Major Management Problems

EPA has taken steps to manage grants staff and resources more effectively
in four key areas: (1) analyzing workload; (2) providing training on grant
policies; (3) assessing the reliability of the agency's grants management
computer database-the Integrated Grants Management System; and (4) holding
managers and staff accountable for successfully fulfilling their grant
responsibilities. Because much remains to be accomplished, management
attention to these issues is still needed.

EPA Is Examining Grants Staff Workload

As we reported in 2003 and found again in this review, regional grants
managers and staff are concerned that staff do not have sufficient time to
devote to effective grants management. They pointed out that the new
policies increased the time needed to implement each step of the grants
process, such as the more planned, rigorous approach now required for
competing grants. However, one regional official pointed out that this
increased workload has not been offset with an increase in resources or
the elimination of other activities.

Fulfilling an objective identified in the Grants Management Plan, in April
2005, an EPA contractor completed a workload analysis of project officers
and grant specialists.46 The analysis showed that EPA had an overall
shortage of project officers and grant specialists, expressed in full-time
equivalents. However, the contractor recommended that before EPA adds
staff, it take steps to improve the effectiveness and efficiency of its
grants management operations. For example, the contractor recommended that
EPA review its grant activities and assign "noncore" activities where
possible to auxiliary federal or nonfederal staff to improve operations,
freeing EPA staff to conduct their core work. It defined noncore
activities to typically include those that are related to grant closeouts.

The Office of Grants and Debarment asked the grant offices to prepare
project officer workforce plans-due in 2006-that incorporate the workload
analysis to promote "accountable" grants management.

EPA Has Provided Some Training on Grant Policies

As outlined in the Grants Management Plan, EPA has developed a long-term
grants management training plan.47 Under the plan, EPA continues to
certify project officers for grant activities by requiring them to take a
3-day project officer course before they are allowed to conduct grant
management activities, and thereafter take a refresher course to maintain
their certification.

To address the grant reforms, the agency provided additional training. For
example, EPA held a grants management conference in 2004, attended by 465
EPA staff, which included workshops on new policies. In 2005, the Office
of Grants and Debarment conducted agencywide training on the new
competition policy. It also conducted training on the environmental
results policy.

46LMI Government Consulting, Management of Assistance Agreements at the
Environmental Protection Agency: Workload Analysis and Models, April 2005.

47EPA, Office of Grants and Debarment, Long-term Grants Management
Training Plan, 2004-2008, EPA-216-R-04-001 (Washington, D.C.: Aug. 2004).

However, according to EPA staff, the amount of training has not been
sufficient to keep pace with the issuance of new grant policies. For
example:

           o  A 2006 self-assessment conducted by one program office found
           that project officers and managers expressed frustration that both
           the pace and complexity of new policy requirements left project
           officers vulnerable because they were not properly trained in the
           policies.

           o  A 2005 Region 9 self-assessment found that the region's project
           officers did not believe that they had received sufficient
           guidance from their programs in headquarters.

           o  A Region 1 official stated that the rapid pace of new policies
           and brief lead time between issuance and the effective date made
           it too difficult for the regions to adequately train staff on all
           the new policies related to grants management. Nevertheless,
           Region 1 developed a training course for its project officers on
           the award process to address new grant reform policies issued in
           2005. However, only about 25 of the region's 200 project officers
           attended the optional 90-minute course, although there were three
           opportunities to do so.

           Regional officials also noted that the grant reforms are changing
           the skill mix required of both project officers and grant
           specialists. According to a Region 5 official, the grant
           specialist was once a clerical position, but additional
           responsibilities required under the new grants policies indicates
           that a business degree or financial background would be helpful.
           Region 9 officials told us that traditionally project officers had
           technical and scientific skills. However, the grant reforms had
           increased the need for interaction with grantees, which required
           more skills in oral communications, organization, and analysis. An
           Office of Grants and Debarment official explained the agency is
           weighing what should be considered as the right skill mix for
           agency staff involved in grant activities.

           In 1997, EPA began developing the Integrated Grants Management
           System to better manage its grants, and EPA now also uses this
           database to inform the public and the Congress about its $4
           billion investment in grants. Data quality problems in this
           database could impair the agency's ability to effectively manage
           grants and provide accurate information. In 2005, we recommended
           that EPA conduct a comprehensive data quality review of its
           Integrated Grants Management System.48 EPA undertook a review,
           which it expects to be completed in 2006.

           EPA's Grants Management Plan included an objective of establishing
           clear lines of accountability for grants management, including
           performance standards that address grants management
           responsibilities for project officers. As we reported in 2003,
           project officers did not have uniform performance standards;
           instead, each supervisor set standards for each project officer,
           and these standards may or may not have included grants management
           responsibilities.

           Later in 2003, EPA's Assistant Administrator for the Office of
           Administration and Resources Management asked all senior resource
           officials to review the current performance standards of all
           employees below the senior executive service who had grants
           management responsibilities.49 This review was to ensure that the
           complexity and extent of these employees' grants management duties
           were reflected in their performance standards and position
           descriptions. The Assistant Administrator asked senior resource
           officials to ensure that such standards were in place. The Office
           of Grants and Debarment is assessing the extent to which the
           guidance was implemented; the assessment is to be completed in May
           2006.

           As we reported in 2003, the Office of Grants and Debarment faces
           some difficulties in holding managers and staff accountable for
           effective grants management. The office does not directly oversee
           many of the managers and staff who perform grants management
           duties, particularly the approximately 2,100 project officers in
           headquarter and regional program offices. This division of
           responsibilities makes it more difficult to hold these staff
           accountable for grants management.

           In 2005, EPA's Inspector General reported that EPA was not holding
           supervisors and project officers accountable for grants
           management.50 Specifically:

           o  EPA does not have a process to measure an individual project
           officer's performance in carrying out grants management duties. In
           practice, supervisors relied on project officers to inform them of
           grants management weaknesses.

           o  EPA managers and supervisors are not discussing project officer
           grants management responsibilities during end-of-year evaluations.
           Managers were not discussing project officers' grants management
           responsibilities during year-end evaluations; and, if grant issues
           were addressed, the discussion focused on the grant recipient's
           performance, rather than on the project officer's performance.
           Supervisors provided various reasons for rating project officers
           without discussing grants management responsibilities, stating,
           for example, that the year-end evaluation should focus on problems
           or issues with grantee performance, and project officers'
           responsibilities should be discussed at staff meetings or at other
           times through the year.

           o  EPA managers had not conveyed weaknesses from the agency's
           internal reviews and self-assessments to project officers. EPA
           managers did not communicate weaknesses identified in internal
           reviews, such as a lack of documentation of cost reviews and
           ongoing monitoring, and supervisors were not aware of these
           identified weaknesses.

           Our review is consistent with the Inspector General's findings. As
           previously discussed, EPA grants staff told us that their
           supervisors were not reviewing their grant files to determine
           compliance with grant monitoring policies. It is possible that the
           awarding, monitoring, and closeout problems we found would have
           been mitigated by effective supervisory review.

           In response to the Inspector General's concerns, EPA issued a plan
           in January 2006 to ensure that the agency's new performance
           appraisal system-Performance Appraisal and Recognition
           System-addresses grants management responsibilities. The new
           system requires that (1) appraisals of project officers and
           supervisors/managers include a discussion of grants management
           performance; (2) performance agreements and associated mid-year
           and end-of-year performance discussions focus on key areas of
           preaward reviews of nonprofit grantees, competition, post-award
           monitoring, and environmental results; and (3) performance
           discussions take into account the results of internal reviews,
           such as those conducted by the Office of Grants and Debarment,
           self-assessments, and performance measure reviews. For the 2007
           performance appraisal process, EPA plans to establish a workgroup
           to develop final performance measures to assess the grants
           management performance of project officers and supervisors and
           plans to incorporate these measures into 2007 performance
           agreements.

           More broadly, to address the growing demands of the grant reforms
           and enhance accountability, the Office of Grants and Debarment
           formed a senior-level grants management council that cuts across
           the organization by including representatives from program
           offices, such as the Office of Water, and regional offices. The
           council is to help develop and implement new policies agencywide.
           Similarly, the regional offices we visited have formed grants
           management councils to coordinate and implement grant reforms with
           the region's grants management office and various program
           offices.51

           Despite the efforts of these various national- and regional-level
           offices, managers, and councils to identify problems and undertake
           corrective actions, some grants management problems still persist.
           For example, although some of the regions we visited had
           implemented checklists as internal controls to ensure the
           documentation of ongoing monitoring, the regions did not ensure
           they were actually completed. Closeout problems that were
           identified by EPA's current performance measure have not been
           effectively addressed.

           About 3 years into its Grants Management Plan, 2003-2008, EPA has
           made important strides in achieving its grant reforms,
           particularly in competing a higher percentage of grants and trying
           to identify results from its grants. However, EPA has not resolved
           its long-standing problems in documenting ongoing monitoring and
           closing out grants. As it revises its management plan, EPA has an
           opportunity to tackle these continuing problems.

           Without adequate documentation of ongoing monitoring, EPA cannot
           be fully assured that grantees are on track to fulfilling the
           terms and conditions of their grants. Furthermore, the agency's
           lack of documentation indicates weaknesses at all levels: staff do
           not always document their monitoring; supervisors do not always
           effectively review grant files; and managers are not always
           meeting their commitments to address known problems with lack of
           documentation. Despite the importance of ongoing monitoring, EPA
           has not created a performance measure and target for documenting
           monitoring, which should elevate the importance of ongoing
           monitoring to the agency. EPA is also not taking full advantage of
           its grants management database, which has a data field for
           documenting ongoing monitoring. That is, EPA does not require
           project officers and grant specialists to enter monitoring
           documentation information into its database. With the information
           in the database, EPA would be better able to determine that staff
           are meeting documentation requirements. Use of performance
           measures and targets for ongoing monitoring as well as the
           database could enhance accountability.

           EPA's current performance measure and target for closing out
           grants is a valuable tool for determining if grants were
           ultimately closed out, but it is not a tool for determining
           whether grants were closed out within the 180-days now specified
           in EPA's monitoring policy. EPA needs an accompanying measure that
           accurately reports whether grants are closed out within the 180
           days or other standard EPA may establish. EPA's current measure
           and target mask the fact that, agencywide, almost two-thirds of
           grants are not closed out within 180 days. A specific performance
           measure and target will enable EPA to oversee and manage the
           timeliness of grant closeout. We recognize that grantees' late
           submission of required reports is a common problem that
           contributes to the lack of timeliness in closing out grants.
           Because fixing this problem on a case-by-case basis is difficult,
           the agency needs an overarching strategy to address it.

           Furthermore, in the three regions we visited, we found instances
           in which appropriate documentation was missing from the closeout
           files. While we do not know the extent of this problem agencywide,
           these problems could indicate a major weakness that EPA may need
           to address. In responding to a draft of this report, EPA
           acknowledged that it does have a problem in closing out grants
           properly. Finally, we note that inconsistencies in EPA's
           monitoring and closeout policies may hinder EPA's ability to close
           out grants in a timely fashion.

           While EPA has made strides in trying to identify and obtain
           results from its grants by issuing an environmental results
           policy, it has not yet established a performance measure and
           target that reflect the policy's direction.

           Finally, the lack of effective supervision may have contributed to
           the problems we identified. EPA has issued a plan in January 2006
           to ensure that the agency's new performance system addresses
           grants management responsibilities. It is too early to tell
           whether this plan will effectively hold managers and staff
           accountable for grants management.

           As EPA revises its Grants Management Plan, the agency has an
           opportunity to strengthen the management of its grants. We
           recommend that the Administrator of EPA direct the Office of
           Grants and Debarment to take action in the following three areas:

           Ongoing monitoring.

           o  Develop a performance measure and a performance target for
           ongoing monitoring, and

           o  Consider requiring project officers and grant specialists to
           document ongoing monitoring in the agency's grants database so
           that the managers can monitor compliance agencywide.

           Grant closeout.

           o  Establish a standard for the timely closeout of grants and
           ensure that EPA's monitoring and other policies are consistent
           with that standard.

           o  Develop a performance measure and target for the grant closeout
           standard.

           o  Develop a strategy for addressing grantees' late submission of
           required final documentation.

           o  Issue revised policies and procedures to ensure proper closeout
           of grants.

           Environmental results.

           o  Develop a performance measure and target that better reflects
           the new environmental results policy.

           We provided a draft of this report to EPA for review and comment.
           We received oral comments from EPA officials, including the
           Director of the Office of Grants and Debarment. Overall, EPA
           officials agreed with our recommendations, and they stated that
           the agency has begun to take steps to implement them and will
           incorporate them into the agency's and Grants Management Plan,
           policies, and procedures. In addition, EPA officials provided some
           clarifying language for our recommendations, which we incorporated
           as appropriate. Furthermore, EPA officials acknowledged that
           proper closeout of grants is an agencywide problem that needs to
           be addressed. Based on this acknowledgement, we strengthened our
           recommendation to state that EPA needs to issue revised policies
           and procedures to better ensure the proper closeout of grants,
           rather than determine the extent of improper closeouts at the
           agency. EPA agreed. Finally, EPA provided additional information
           about the agency's efforts to address the complexities of
           measuring environmental results and other clarifying comments,
           which we incorporated into this report, as appropriate.

           As agreed with your office, unless you publicly announce the
           contents of this report earlier, we plan no further distribution
           until 6 days from the report date. At that time, we will send
           copies of this report to the congressional committees with
           jurisdiction over EPA and its activities; the Administrator, EPA;
           and the Director, Office of Management and Budget. We will also
           make copies available to others upon request. In addition, the
           report will be available at no charge on the GAO Web site at
           http://www.gao.gov .

           If you have any questions about this report, please contact me at
           (202) 512-3841. Key contributors to this report are listed in
           appendix II. Contact points for our Offices of Congressional
           Relations and Public Affairs may be found on the last page of this
           report.

           Sincerely yours,

           John B. Stephenson Director, Natural Resources and Environment

           John B. Stephenson Director, Natural Resources and Environment

           This appendix details the methods we used to assess the progress
           the Environmental Protection Agency (EPA) has made in implementing
           its grant reforms.

           To assess EPA's progress, we reviewed information from both
           headquarters and the regions. At headquarters, we reviewed EPA's
           Grants Management Plan, 2003-2008 and EPA policies that address
           awarding, monitoring, and  obtaining results from grants. We also
           reviewed reports on EPA's grants management, including prior GAO
           reports; EPA's Inspector General reports; the Office of Management
           and Budget's Program Assessment Rating Tool; EPA's internal
           management reviews, including comprehensive grants management
           reviews, post-award monitoring plans, grants management
           self-assessments from 2003 to 2005; an April 2005 workload
           analysis conducted by LMI, a government consultant; and a closeout
           analysis prepared for GAO by the Office of Grants and Debarment.
           We also interviewed officials in the Office of Grants and
           Debarment and at the Office of Water.

           In addition, we reviewed EPA performance metric information. These
           metrics are based on data from the agency's Integrated Grants
           Management System, which is currently undergoing a data quality
           review, and the Grant Information and Control System, which has
           not undergone a data quality review. Given EPA's ongoing data
           quality review of the Integrated Grants Management System-and
           because we present EPA's performance metric data as documentary
           evidence and do not use it as the sole support for findings,
           conclusions, or recommendations-we did a limited reliability
           review of the two systems. Our assessment included (1) information
           from GAO's prior data reliability assessment work on the two
           systems and (2) interviews with an Office of Grants and Debarment
           official about the data systems and data elements. We determined
           that the performance information we used is sufficiently reliable
           for our purposes.

           To assess the progress and problems EPA has experienced from a
           regional perspective, we selected EPA Office of Water programs
           under the Clean Water Act, at the Subcommittee's request. We
           selected Wetland Program Development Grants (wetland grants)
           because it is a discretionary grant program-that is, EPA decides
           who receives the award and its amount, and the program is subject
           to competition. We selected Nonpoint Source Management Program
           grants (nonpoint source grants) because it is type of
           formula-based grant program-grants that are often awarded on the
           basis of formulas prescribed by law or agency regulation.1 We
           reviewed EPA's progress at the regional level by selecting grants
           in 3 of EPA's 10 regional offices: Region 1 (Boston), Region 5
           (Chicago), and Region 9 (San Francisco). We selected these regions
           because collectively they represent a significant share of grant
           funding for the two programs we reviewed, geographic dispersion,
           and a significant share of Performance Partnership Grants among
           the regional offices.

           To ensure coverage of the grant life cycle-from awarding to
           closing out grants, we conducted a case study review of a
           nonprobability sample of these two programs. Specifically, we
           asked EPA Regions 1, 5, and 9 to provide lists of wetlands and
           nonpoint source grants awarded between January 1, 2004, and June
           30, 2005, and those grants officially closed during this period.
           We targeted recently awarded and recently closed grants because
           the grant reforms began in 2002. To complete the case study, we
           reviewed two files per grant-the project officer file and the
           grant specialist file-using a detailed data collection instrument.
           All data entered in the data collection instrument was verified by
           a second party to ensure the accuracy and validity of each entry.
           Additionally, we conducted semistructured interviews with project
           officers and the grant specialists in order to understand the
           files. Overall, we reviewed the files for 32 active grants and 34
           closed grants; and we interviewed administrative project officers,
           project officers, and technical contacts, and grant specialists
           about those files. We also interviewed senior resource officials
           and grants management office managers in the three regions we
           visited.

           We were limited in the number of grants we could review because
           the case study approach required multiple, detailed file reviews
           and interviews for each grant. Consequently, we selected a
           nonprobability sample of active and closed grants in the wetland
           and nonpoint source programs to review in each of the three
           regions. For active grants in our nonprobability sample, we sorted
           the grants by recipient type, project officer, and grant
           specialist to provide a distribution, and then randomly selected
           grants for review. For closed grants, we sorted the grants
           similarly, but we also selected grants based on the length of time
           it took to close out the grant. Because the case study design is
           nonprobabilistic, the findings are not generalizable to all grants
           in all regions. However, the case study design provides insights
           into regional grant activities for the two Clean Water Act
           programs in three regions, and it offers an in-depth perspective
           on some of the successes and continuing problems EPA faces in
           implementing its grants management reforms. Table 12 shows the
           population of wetland and nonpoint program grants in Regions 1, 5,
           and 9, and the number of those grants we reviewed.

           Table 12: Number of Active and Closed Wetland and Nonpoint Source
           Grants from January 1, 2004, through June 30, 2005, in the
           Universe and the Number of Grants GAO Reviewed in Three Regions

           Source: GAO.

           aWe requested 11 files, but EPA Region 1 was unable to locate 1 of
           the files.

           We experienced some limitations in conducting our review. For
           example, we were not able to assess the implementation of some EPA
           policies at the regional level because they had been issued too
           recently to assess during our file review time frame. We also
           found evidence in two of the three regions we visited that staff
           had added materials to their files after we had requested the
           files and before our review, despite the fact that we had taken
           precautions to avoid this situation. That is, we had asked the
           regions to inform staff not to add documents to files once they
           were requested, and we limited the time frame between our request
           for specific files and our review of the files. When we determined
           that these additions had occurred, we took mitigating steps to
           "restore" the grant files to their original state. Specifically,
           we checked the dates of documents to detect any widespread
           updating of files, asked all project officers and grant
           specialists we interviewed who were assigned to the grants in our
           sample whether they added anything to the file in preparation for
           the GAO visit, asked managers to tell their staff to point out
           materials added to the file, and, in one region, shortened the
           time between file request and our visit. To adjust for the
           alterations, we used a special code in our data collection
           instrument to denote "additions," and later subtracted the
           information in our analysis. The file alteration mitigation
           strategies and the analysis adjustments afford us confidence in
           the accuracy and validity of our file review results.

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

           John B. Stephenson, (202) 512-3841

           In addition to the contact named above, Andrea Wamstad Brown,
           Assistant Director; Bruce Skud, Analyst-in-charge; Rebecca Shea;
           Lisa Vojta; Carol Herrnstadt Shulman; Omari Norman; David Bobruff;
           Matthew J. Saradjian; and Jessica Nierenberg made key
           contributions to this report.

           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.

           Grants Management: EPA Continues to Have Problems Linking Grants
           to Environmental Results. GAO-04-983T . Washington, D.C.: July 20,
           2004.

           Grants Management: EPA Needs to Better Document Its Decisions for
           Choosing between Grants and Contracts. GAO-04-459 . Washington,
           D.C.: March 31, 2004.

           Grants Management: EPA Needs to Strengthen Efforts to Address
           Management Challenges. GAO-04-510T . Washington, D.C.: March 3,
           2004.

           Grants Management: EPA Actions Taken against Nonprofit Grant
           Recipients in 2002. GAO-04-383R . Washington, D.C.: January 30,
           2004.

           Grants Management: EPA Needs to Strengthen Oversight and Enhance
           Accountability to Address Persistent Challenges. GAO-04-122T .
           Washington, D.C.: October 1, 2003.

           Grants Management: EPA Needs to Strengthen Efforts to Address
           Persistent Challenges. GAO-03-846 . Washington, D.C.: August, 29,
           2003.

           Environmental Protection Agency: Problems Persist in Effectively
           Managing Grants. GAO-03-628T . Washington, D.C.: June 11, 2003.

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

           Results-Oriented Cultures: Creating a Clear Linkage between
           Individual Performance and Organizational Success. GAO-03-488 .
           Washington, D.C.: March 14, 2003.

           Major Management Challenges and Risks: Environmental Protection
           Agency. GAO-03-112 . Washington, D.C.: January 2003.

           Results-Oriented Cultures: Using Balanced Expectations to Manage
           Senior Executive Performance. GAO-02-966 . Washington, D.C.:
           September 27, 2002.

           Environmental Protection: Grants Awarded for Continuing
           Environmental Programs and Projects. GAO-01-860R . Washington,
           D.C.: June 29, 2001.

           Environmental Protection: EPA's Oversight of Nonprofit Grantees'
           Costs Is Limited. GAO-01-366 . Washington, D.C.: April 6, 2001.

           Environmental Protection: Information on EPA Project Grants and
           Use of Waiver Authority. GAO-01-359 . Washington, D.C.: March 9,
           2001.

           Environmental Research: STAR Grants Focus on Agency Priorities,
           but Management Enhancements Are Possible. GAO/RCED-00-170 .
           Washington, D.C.: September 11, 2000.

           Environmental Protection: Grants for International Activities and
           Smart Growth. GAO/RCED-00-145R . Washington, D.C.: May 31, 2000.

           Environmental Protection: Collaborative EPA-State Effort Needed to
           Improve Performance Partnership System. GAO/T-RCED-00-163 .
           Washington, D.C.: May 2, 2000.

           Managing for Results: EPA Faces Challenges in Developing
           Results-Oriented Performance Goals and Measures. GAO/RCED-00-77 .
           Washington, D.C.: April 28, 2000.

           Environmental Protection: Factors Contributing to Lengthy Award
           Times for EPA Grants. GAO/RCED-99-204 . Washington, D.C.: July 14,
           1999.

           Environmental Protection: Collaborative EPA-State Effort Needed to
           Improve New Performance Partnership System. GAO/RCED-99-171 .
           Washington, D.C.: June 21, 1999.

           Environmental Protection: EPA's Progress in Closing Completed
           Grants and Contracts. GAO/RCED-99-27 . Washington, D.C.: November
           20, 1998.

           Dollar Amounts of EPA's Grants and Agreements. GAO/RCED-96-178R .
           Washington, D.C.: May 29, 1996.

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EPA Has Developed a Grants Database but Has Not Completed a Data Quality Review

EPA Has Taken Steps to Enhance Staff and Management Accountability, but Concerns
Remain

48 GAO-05-149R .

49According to the memorandum, the Office of Administration and Resources
Management had determined that senior executive services standards
adequately addressed grants management responsibilities.

50EPA Office of Inspector General, EPA Managers Did Not Hold Supervisors
and Project Officers Accountable for Grants Management, Report No.
2005-P-00027 (Washington, D.C.: Sept. 27, 2005).

51To further assist regional grants staff in understanding new policies,
Regions 1 and 9 appointed a project officer and water program manager,
respectively, to serve as regional office experts on grant policies.

                                  Conclusions

                                Recommendations

                        Agency Comments and Our Response

Appendix I: Scope and Methodology

1EPA has two types of formula-based programs, nondiscretionary and
continuing environmental programs, which is a hybrid of nondiscretionary
and discretionary grant programs. The nonpoint source grant program is a
continuing environmental program.

Active grants                Region 1 Region 5 Region 9 Total 
Number of grants in universe       13       18       33    64 
Number of grants reviewed         10a       12       10    32 
Closed grants                                           
Number of grants in universe       26       16       60   102 
Number of grants reviewed          10       13       11    34 

Appendix II: GAO Contact and Staff Acknowledgments

                                  GAO Contact

                             Staff Acknowledgments

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Highlights of GAO-06-625 , a report to the Chairman, Subcommittee on Water
Resources and Environment, Committee on Transportation and Infrastructure,
House of Representatives

May 2006

GRANTS MANAGEMENT

EPA Has Made Progress in Grant Reforms but Needs to Address Weaknesses in
Implementation and Accountability

The Environmental Protection Agency (EPA) has faced challenges for many
years in managing its grants, which constitute over one-half of the
agency's budget, or about $4 billion annually. EPA awards grants through
93 programs to such recipients as state and local governments, tribes,
universities, and nonprofit organizations. In response to concerns about
its ability to manage grants effectively, EPA issued its 5-year Grants
Management Plan in 2003, with performance measures and targets.

GAO was asked to assess EPA's progress in implementing its grant reforms
in four key areas: (1) awarding grants, (2) monitoring grantees, (3)
obtaining results from grants, and (4) managing grant staff and resources.
To conduct this work, GAO, among other things, examined the implementation
of the reforms at the regional level for two Clean Water Act programs in 3
of EPA's 10 regional offices.

What GAO Recommends

GAO's recommendations are primarily directed toward establishing new
performance measures and targets for ongoing monitoring, closeouts, and
environmental results.

In commenting on a draft of this report, EPA stated that it generally
agreed with GAO's recommendations and will incorporate them into its
Grants Management Plan, policies, and procedures.

EPA has made important strides in achieving the grant reforms laid out in
its 2003 Grants Management Plan, but weaknesses in implementation and
accountability continue to hamper effective grants management in four
areas. First, EPA has strengthened its award process by, among other
things, (1) expanding the use of competition to select the most qualified
applicants and (2) issuing new policies and guidance to improve the
awarding of grants. Despite this progress, EPA's reviews found that staff
do not always fully document their assessments of grantees' cost
proposals; GAO also identified this problem in one region. Lack of
documentation may hinder EPA's ability to be accountable for the
reasonableness of the grantee's proposed costs. EPA is reexamining its
cost review policy to address this problem.

Second, EPA has made progress in reviewing its in-depth monitoring results
to identify systemic problems, but long-standing issues remain in
documenting ongoing monitoring and closing out grants. EPA and GAO found
that staff do not always document ongoing monitoring, which is critical
for determining if a grantee is on track in meeting its agreement. Without
documentation, questions arise about the adequacy of EPA's monitoring of
grantee performance. This lack of documentation occurred, in part, because
managers have not fulfilled their commitment to improve monitoring
documentation. In addition, grant closeouts are needed to ensure that
grantees have met all financial requirements, provided their final
reports, and returned any unexpended balances. For fiscal year 2005, EPA
closed out only 37 percent of grants within 180 days after the grant
project ended, as required by its policy. EPA also did not always close
out grants properly in the regional files GAO reviewed.

Third, EPA has initiated actions to obtain environmental results from its
grants, but these efforts are not complete. For example, EPA's 2005
environmental results policy establishes criteria grants should meet to
obtain results. However, EPA has not established a performance measure
that addresses these criteria. Furthermore, EPA has not yet identified
better ways to integrate its grant reporting systems. Finally, the Office
of Management and Budget's 2006 assessment indicates that EPA needs to
continue its concerted efforts to achieve results from grants.

Finally, EPA has taken steps to manage grant staff and resources more
effectively by analyzing workload, providing training, assessing the
reliability of its grants management computer database, and holding
managers and staff accountable for successfully fulfilling their grant
responsibilities. Management attention is still needed because, among
other things, EPA has just begun to implement its performance appraisal
system for holding managers and staff accountable for grants management.
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