Environmental Protection Agency: Progress Has Been Made in Grant 
Reforms, but Weaknesses Remain in Implementation and		 
Accountability (18-MAY-06, GAO-06-774T).			 
                                                                 
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.  
This testimony is based on GAO's May 2006 report, Grants	 
Management: EPA Has Made Progress in Grant Reforms but Needs to  
Address Weaknesses in Implementation and Accountability 	 
(GAO-06-625). GAO examined 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.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-774T					        
    ACCNO:   A54219						        
  TITLE:     Environmental Protection Agency: Progress Has Been Made  
in Grant Reforms, but Weaknesses Remain in Implementation and	 
Accountability							 
     DATE:   05/18/2006 
  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-06-774T

     

     * Background
     * EPA Has Strengthened the Award Process, but Lack of Key Docu
     * 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 Initiated Actions to Obtain Results from Grants, but
     * EPA Has Taken Steps to Manage Grants Staff and Resources Mor
          * Order by Mail or Phone

Testimony

Before the Subcommittee on Water Resources and Environment, Committee on
Transportation and Infrastructure, House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 10:00 a.m. EDT

Thursday, May 18, 2006

ENVIRONMENTAL PROTECTION AGENCY

Progress Has Been Made in Grant Reforms, but Weaknesses Remain in
Implementation and Accountability

Statement of John B. Stephenson, Director Natural Resources and the
Environment

GAO-06-774T

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss the work you requested on the
Environmental Protection Agency's (EPA) grant management reforms. My
testimony today focuses on the progress EPA has made in implementing its
grant management reforms and the problems that remain. This testimony is
based on the report being released today.1

As you know, 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. In fiscal year 2005, EPA took 6,728 grant actions
involving funds totaling about $4 billion.2 These awards were made through
93 programs to various types of recipients, with states receiving the
largest portion (about 75 percent) of the grant funds.3 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, in
2003, EPA issued its Grants Management Plan.4 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 had five goals that addressed major
concerns we had identified in our 2003 report on grants management.5 EPA
has also issued policies to implement the plan and other grant reforms.6
EPA is currently revising this plan to reflect accomplishments achieved
and to address remaining issues.

1GAO, Grants Management: EPA Has Made Progress in Grant Reforms but Needs
to Address Weaknesses in Implementation and Accountability, GAO-06-625
(Washington, D.C.: May 12, 2006).

2Grant actions involving funding include new awards, and increase and
decrease amendments.

3These awards were made to six main categories of recipients: states
(74.9%), local governments (9.8%), nonprofits (7.3%), universities (4%),
Native American tribes (3.5%), and other (0.6%).

4EPA, Grants Management Plan, 2003-2008. EPA-216-R-03-001 (Washington,
D.C.: April 2003). 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.

Our testimony today assesses 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. At EPA headquarters, we reviewed EPA documents from, and
interviewed officials of, the Office of Grants and Debarment and the
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). 7
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 because it is a discretionary
grant program and Nonpoint Source Management Program grants because it is
a type of formula-based grant program. 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 provide geographic dispersion. Our regional work offers
insights into regional grant activities in the two 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. This testimony is based on GAO's report for which audit
work was conducted from February 2005 through April 2006, in accordance
with generally accepted government auditing standards.

5GAO, Grants Management: EPA Needs to Strengthen Efforts to Address
Persistent Challenges, GAO-03-846 (Washington, D.C.: Aug. 29, 2003).

6For this testimony, grant reforms include EPA's Grants Management Plan,
policies issued just prior to and after the issuance of the plan, and
related efforts.

7OMB's PART is a diagnostic tool meant to provide a consistent approach to
evaluating federal programs.

In summary, 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. Specifically:

           o  Awarding grants. EPA has strengthened its award process by,
           among other things, expanding the use of competition to select the
           most qualified applicants and issuing new policies and guidance to
           improve the awarding of grants. Nevertheless, EPA has found that
           staff do not always fully document their assessments of grantees'
           cost proposals, and we also identified this problem in one region.
           Without documentation, EPA may be limited in its ability to be
           accountable for the reasonableness of a grantee's proposed costs.
           EPA is reexamining its cost review policy to address this problem.
           o  Monitoring grantees. EPA has made progress in reviewing the
           results of its in-depth monitoring to identify systemic problems,
           but long-standing issues remain in documenting ongoing monitoring
           and closing out grants. EPA and we 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. Lack of documentation occurred,
           in part, because managers did not fulfill their commitment to
           improve monitoring documentation. 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, however, EPA closed out only 37 percent of its
           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 we reviewed.
           o  Obtaining results from grants. 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 the criteria that 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, OMB's 2006 assessment indicates that EPA needs to
           continue its concerted efforts to achieve results from grants.
           o  Managing grants staff and resources. 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.

           EPA offers three types of grants. First, discretionary grants fund
           activities such as environmental research and training, and EPA
           has the discretion to independently determine the recipients and
           funding levels for these grants. In fiscal year 2005, EPA awarded
           about $644 million in discretionary grants. Second,
           nondiscretionary grants are awarded primarily to state and local
           governments and support projects often on the basis of formulas
           prescribed by law or agency regulation. In fiscal year 2005, EPA
           awarded about $2.4 billion in nondiscretionary grants. Finally,
           continuing environmental program grants contain both
           nondiscretionary and discretionary features. In fiscal year 2005,
           EPA awarded about $1 billion in grants for continuing
           environmental programs.

           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. 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 technical and programmatic aspects of grants in
           headquarters and regional program offices. Unlike grant
           specialists, however, project officers also have nongrant
           responsibilities, such as using their scientific and technical
           expertise.

           EPA has strengthened its award process by, among other things,
           expanding competition to select the most qualified applicants. In
           September 2002, EPA issued a policy that for the first time
           required competition for many discretionary grants.8 EPA issued a
           revised competition policy, effective January 2005.9 It enhanced
           competition by, among other things, reducing the threshold for
           competition from $75,000 to $15,000. EPA also issued a policy to
           require certain nonprofit organizations to document that they have
           administrative and financial systems to manage grants.

           As part of its Grants Management Plan, 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 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 2005.10 The 7 percent of eligible 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.

           While EPA has improved its award process, its internal reviews in
           program and regional offices have found that staff do not always
           fully document their reviews of grantees' cost proposals. For
           example, in 2004 and 2005, in six of the seven program and
           regional offices it reviewed, the Office of Grants and Debarment
           found either no documentation of cost reviews or insufficient
           documentation.11 Furthermore, we also found this problem in one of
           the three regions we visited. Region 5 has a checklist to ensure
           that staff members who are responsible for each aspect of the cost
           review have completed and documented their review before awarding
           a grant. For most of the 12 approved award files we reviewed, we
           found instances in which the resolution of the issues between the
           project officer and grant specialist was not documented. This
           documentation problem may hinder EPA's ability to ensure the
           reasonableness of its 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.

           EPA has improved some aspects of monitoring, but long-standing
           problems in documentation and grant closeouts continue.
           Specifically, (1) in-depth monitoring results can be analyzed
           nationwide, but staff do not always document corrective actions;
           (2) inadequate documentation of ongoing monitoring hinders
           accountability; and (3) EPA has reduced its closeout backlog, but
           grant closures are often delayed and sometimes improperly
           executed.

           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. In fact,
           the Office of Grants and Debarment 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.

           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. However, our analysis of
           EPA's internal 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. A lack of documentation raises questions about the
           adequacy of the project officers' and grant specialists' ongoing
           monitoring of grantee performance.

           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. 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. Similarly, in Region 5, which did not use a checklist,
           none of the six grant files requiring annual contact with the
           grantee had documentation showing that the contact had occurred.

           In the three regions, we also found that project officers' files
           did not always contain grantees' progress reports, which,
           according to EPA's project officer manual, are the project
           officer's primary mechanism for determining if the grantee is
           fulfilling its grant agreement obligations. Thirteen of the 32
           project officer grant files we reviewed were missing at least one
           or more required progress reports. When EPA staff do not obtain
           progress reports, they cannot monitor effectively, which may
           hinder accountability.

           The lack of documentation for ongoing monitoring occurs because of
           weaknesses at the staff, supervisory, and management level in the
           three regions we visited. Specifically:

           o  Grant specialists and project officers do not consistently
           document key monitoring efforts, or they rely on other staff with
           technical expertise to assist with ongoing monitoring who may not
           provide the documented results for inclusion in the grant file.
           This situation occurred in two of the three regions we visited.
           o  Supervisors do not always effectively review grant files for
           compliance with grant policies in the three regions we visited.
           o  Senior EPA managers in the regions do not always ensure that
           their commitments to improve monitoring documentation are being
           met. For example, two regions had committed to using checklists to
           document ongoing monitoring. However, more than half of the
           checklists we reviewed in these regions were missing, blank, or
           incomplete.

           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 grants database has a data field for recording
           ongoing monitoring, 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.

           EPA incorporated grant closeout into its monitoring policy and its
           Grants Management Plan.12 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. EPA's policy states
           that closeouts should occur within 180 days after the grant's
           project end date.

           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 two 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.13 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. As EPA reported, the
           agency 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. However, 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. 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. EPA is
           having significant difficulty in meeting the 180-day standard. In
           fact, for fiscal year 2005, EPA closed out only 37 percent of the
           grants within the 180 days. Table 1 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 1: 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: GAO analysis of 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.

           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. Moreover, the state employee who assumed
           responsibility for the grant also did not have a complete file.
           Consequently, it took the project officer nearly 5 months beyond
           the allotted 180 days to complete close out.

           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  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  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.
           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.

           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 formed a work group to review its monitoring and closeout
           policies and plans to revise these policies in 2006.

           EPA has taken steps to obtain environmental results from its
           grants, but its efforts are not complete. EPA included a
           performance measure in its Grants Management Plan for identifying
           expected environmental results from grants and 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. Until recently, EPA recognized-but had not addressed in
           its results policy-the known complexities of measuring
           environmental outcomes, such as demonstrating outcomes when there
           is a long lag time before results become apparent. While EPA has
           taken positive steps by issuing a results policy, OMB's evaluation
           of EPA grant programs in 2006 indicate that EPA must continue its
           concerted efforts to achieve results from its grants.
           Specifically, OMB found that 5 of 18 EPA grant programs in 2006
           are "ineffective" or "results not demonstrated," although there
           has been some improvement from 2004 through 2006.14 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 for other components, such as planning
           and management.

           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;
           and (4) holding managers and staff accountable for successfully
           fulfilling their grant responsibilities. Nevertheless, management
           attention to these four issues is still needed.

           Analyzing workload. Fulfilling an objective identified in the
           Grants Management Plan, in April 2005, an EPA contractor's
           analysis of project officers and grant specialists showed that EPA
           had an overall shortage of project officers and grant specialists,
           expressed in full-time equivalents.15 The contractor recommended
           that before EPA add staff, it take steps to improve the
           effectiveness and efficiency of its grants management operations.
           As a result, grant offices are preparing project officer workforce
           plans-due this year-that incorporate the workload analysis.

           Providing training. EPA has provided some training on grant
           policies; however, according to EPA staff, the amount of training
           has not been sufficient to keep pace with the issuance of new
           grant policies. Region 1 provided training for its project
           officers on the new awards process. However, only about 25 of the
           region's 200 project officers attended the optional 90-minute
           course, although they had three opportunities to do so.

           Assessing the reliability of the grants computer database. In
           1997, EPA began developing the Integrated Grants Management System
           to better manage its grants; 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
           EPA'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.16 EPA expects to complete this review in 2006.

           Holding managers and staff accountable. In 2005, EPA's Inspector
           General reported that EPA was not holding supervisors and project
           officers accountable for grants management.17 In response, EPA
           issued a plan in January 2006 to ensure that the agency's new
           performance appraisal system addresses grants management
           responsibilities. 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 to incorporate these measures into
           2007 performance agreements. 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.

           Mr. Chairman, about 3 years into its Grants Management Plan,
           2003-2008, EPA has made important strides in achieving its grant
           reforms, but it 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. In our report, we recommended that the
           Administrator of EPA take actions to strengthen ongoing
           monitoring, closing out grants, and obtaining results from grants,
           and the agency has agreed to implement our recommendations. At the
           same time, we believe that congressional oversight has contributed
           to EPA's progress to date and that continuing oversight is
           important to ensuring that EPA builds accountability into the
           agency's efforts to achieve results from its $4 billion annual
           investment in grants.

           Mr. Chairman, this concludes my prepared statement. I would be
           happy to respond to any questions that you or Members of the
           Subcommittee may have.

           For further information, please contact John B. Stephenson at
           (202) 512-3841. Individuals making key contributions to this
           testimony were Andrea Wamstad Brown, Bruce Skud, Rebecca Shea,
           Lisa Vojta, Carol Herrnstadt Shulman, Omari Norman, David Bobruff,
           Matthew J. Saradjian, and Jessica Nierenberg.

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                                   Background

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

8EPA, EPA Order 5700.5: Policy for Competition in Assistance Agreements,
(Sept. 12, 2002).

9EPA, EPA Order 5700.5A1: Policy for Competition of Assistance Agreements,
5700.5A1 (Jan. 11, 2005).

10In fiscal year 2005, EPA competed 1,414 new grants, or 93 percent of the
1,526 new grants eligible for competition.

11The site visits occurred in 2004 and 2005, and reports were issued
later.

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

Inadequate Documentation of Ongoing Monitoring Hinders Accountability

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

12EPA 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).

1331 U.S.C. S: 3512.


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

14These assessments, which were part of the President's fiscal year 2005
to 2007 budget submissions, were published in February 2004, 2005, and
2006, respectively.

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

15LMI Government Consulting, Management of Assistance Agreements at the
Environmental Protection Agency: Workload Analysis and Models, April 2005.

16GAO, 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).

17EPA 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).

(360713)

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Highlights of GAO-06-774T, a testimony before the Chairman, Subcommittee
on Water Resources and Environment, Committee on Transportation and
Infrastructure, House of Representatives

May 18, 2006

ENVIRONMENTAL PROTECTION AGENCY

Progress Has Been Made in Grant Reforms, but Weaknesses Remain 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.

This testimony is based on GAO's May 2006 report, Grants Management: EPA
Has Made Progress in Grant Reforms but Needs to Address Weaknesses in
Implementation and Accountability (GAO-06-625). GAO examined 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.

What GAO Recommends

GAO's recommendations in its May 2006 report were directed toward
strengthening ongoing monitoring, grant closeouts, and obtaining results
from grants. EPA has agreed to implement these recommendations.

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. However, 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 a 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. 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 its 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 that 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. The Office of
Management and Budget's 2006 assessment also 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.
*** End of document. ***