Homeland Security First Responder Grants: Cash Management	 
Improvement Act Exemption and Cash Advance Funding Require	 
Additional DHS Oversight (22-DEC-06, GAO-07-68).		 
                                                                 
A key provision of the Cash Management Improvement Act (CMIA) of 
1990 (P.L. 101-453), as amended, requires the federal government 
and the states to minimize the time between transfer of federal  
funds and payments made by states for federal grant program	 
purposes. Concerns were expressed by representatives of local	 
government subgrantees that more flexibility was needed in the	 
receipt of federal funding for first responders. Congress	 
exempted certain first responder grants from this CMIA provision 
in the Department of Homeland Security's (DHS) fiscal years 2005 
and 2006 appropriations acts. Under the exemption, grantees can  
receive cash advance funding and hold such funds for extended	 
periods of time prior to payment. GAO was asked to (1) assess	 
whether this CMIA provision, prior to its exemption in fiscal	 
year 2005, had prevented DHS grant recipients from receiving	 
first responder grant funds when such funds were needed; and (2) 
identify any key fiscal and accountability implications of the	 
exemption.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-68						        
    ACCNO:   A64430						        
  TITLE:     Homeland Security First Responder Grants: Cash Management
Improvement Act Exemption and Cash Advance Funding Require	 
Additional DHS Oversight					 
     DATE:   12/22/2006 
  SUBJECT:   Advance funding					 
	     Cash management					 
	     Federal aid to states				 
	     Federal funds					 
	     Federal/state relations				 
	     First responders					 
	     Grant administration				 
	     Grant monitoring					 
	     Grants to states					 
	     Homeland security					 
	     Program evaluation 				 

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GAO-07-68

   

     * [1]Results in Brief
     * [2]Background
     * [3]Scope and Methodology
     * [4]We Found No Substantial Evidence That the CMIA Prevented Fir

          * [5]Most SAAs Contacted Did Not Cite the CMIA as a Delaying Fact
          * [6]National Associations Contacted Did Not Provide Evidence Sup
          * [7]HSAC Task Force Reports That Numerous Factors Have Contribut
          * [8]DHS Working to Determine Impact of the CMIA Exemption

     * [9]Proper Oversight of Cash Advance Funding and Related Interes

          * [10]Large Number of Grantees and Subgrantees and Differing Inter
          * [11]DHS Lacks Policies and Procedures to Meet Oversight Challeng
          * [12]Treasury Does Not Receive Information on Specific Cases of C
          * [13]Single Audits Are a Limited Tool for Oversight of First Resp
          * [14]Cash Advance Funding Can Be Allowed on a Case-by-Case Basis

     * [15]Conclusions
     * [16]Recommendations for Executive Action
     * [17]Agency Comments and Our Evaluation
     * [18]Appendix I: GAO Contacts and Staff Acknowledgments

          * [19]GAO Contacts
          * [20]Staff Acknowledgments

               * [21]Order by Mail or Phone

Report to the Committee on Homeland Security and Governmental Affairs,
U.S. Senate

United States Government Accountability Office

GAO

December 2006

HOMELAND SECURITY FIRST RESPONDER GRANTS

Cash Management Improvement Act Exemption and Cash Advance Funding Require
Additional DHS Oversight

GAO-07-68

Contents

Letter 1

Results in Brief 2
Background 6
Scope and Methodology 10
We Found No Substantial Evidence That the CMIA Prevented First Responders
from Receiving DHS Grant Funds When Such Funds Were Needed 11
Proper Oversight of Cash Advance Funding and Related Interest Liabilities
Is Critical for Accountability 16
Conclusions 21
Recommendations for Executive Action 22
Agency Comments and Our Evaluation 23
Appendix I GAO Contacts and Staff Acknowledgments 25

This is a work of the U.S. government and is not subject to copyright
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separately.

United States Government Accountability Office

Washington, DC 20548

December 22, 2006

The Honorable Susan M. Collins Chairman Committee on Homeland Security and
Governmental Affairs United States Senate

The Honorable Joseph I. Lieberman Ranking Minority Member Committee on
Homeland Security and Governmental Affairs United States Senate

In the years immediately following the attacks of September 11, 2001, the
federal government emphasized quickly disbursing federal grant funds to
"first responders"1 at the state and local levels to enhance their ability
to quickly address threats to our national security. Initially, certain
grants for first responders were made directly to local government
entities, bypassing the states' traditional pass-through role, which
includes certain oversight functions designed to promote accountability in
grants management. However, more recently, the Department of Homeland
Security (DHS) has awarded first responder grants to states to help
improve coordination among states, local governmental entities, and
nonprofit entities in planning, managing, and accounting for limited first
responder grant funding.

The Cash Management Improvement Act (CMIA) of 1990 (P.L. 101-453), as
amended, is intended to ensure greater efficiency, effectiveness, and
equity in the exchange of funds between the federal government and the
states. The CMIA requires, among other things, that federal agencies and
the states minimize the time that elapses between transfers of funds to
the states and payments for federal grant program purposes. In addition,
the CMIA requires that the federal government pay interest to the states
when it fails to disburse federal funds to them in a timely manner, and
that the states pay interest to the federal government when they fail to
timely spend federal funds.

1First responders are public safety personnel working in law enforcement,
emergency medical services, emergency management, fire services, public
works, government administration, health care, and public health. They are
responsible for preventing and responding to acts of terrorism.

Concerns were expressed by certain representatives of local governments
that additional actions needed to be taken to provide more flexibility in
making grant funds available to first responders. In fiscal years 2005 and
2006, Congress exempted certain DHS grant programs from the CMIA
requirement to minimize the time elapsing between transfers of funds by
the federal government and payments by the states. Thus, the CMIA
exemption allows state grantees to draw down and hold federal grant funds
for extended periods of time prior to payout for first responder
purposes.2 Importantly, such grantees are not exempt from the interest and
accountability requirements of the CMIA.

In view of the actions that have been taken by the federal government to
provide federal funding for first responders when such funding is needed,
you noted that there may be trade-offs between rapid disbursements of
federal grant funds and ensuring that such funds are spent in a manner
that is accountable and effective. Recognizing that we had previously
reported on such trade-offs and improvements needed for management of
first responder grant programs3 and had ongoing work on streamlining
overall federal grant management,4 you asked us to review the CMIA
exemption for certain DHS first responder grants. Based on discussions
with committee staff, we agreed to (1) assess whether the CMIA provision
that limits the extent to which grantees can hold federal funds before
payout, prior to its exemption for certain first responder grants in
fiscal year 2005, prevented first responders from receiving DHS grant
funds when such funds were needed; and (2) identify any key fiscal and
accountability implications of the exemption of certain first responder
grant programs from this CMIA provision.

Results in Brief

We found no substantial evidence that the CMIA provision that limits the
extent to which grantees can hold federal funds before payout, prior to
its exemption for certain first responder grants in fiscal year 2005,
prevented first responders from receiving DHS grant funds when such funds
were needed. The vast majority of the officials of State Administrative
Agencies (SAA)5 and national associations we contacted neither cited the
CMIA as a contributing factor to funding delays nor provided information
that demonstrated that the CMIA prevented state grantees or local
government and other subgrantees from receiving first responder grant
funding when such funding was needed.6 Rather, the officials generally
attributed delays in first responder operations to factors other than the
CMIA, such as vendor delays in delivering goods and services and problems
related to a lack of human resources to deal with the large influx of
grant awards after the September 11, 2001, terrorist attacks. The
information we obtained from these officials was consistent with the
findings of DHS's Homeland Security Advisory Council's (HSAC) Task Force
on State and Local Homeland Security Funding,7 which found that numerous
factors other than the CMIA had contributed to delays in funding for first
responders.

2 Payout means to debit the state's bank account in order to make a
payment for federal grant program purposes.

3GAO, Homeland Security: Management of First Responder Grant Programs Has
Improved, but Challenges Remain, [22]GAO-05-121 (Washington, D.C.: Feb. 2,
2005).

4Subsequent to your request, we issued the following report. GAO, Grants
Management: Grantees' Concerns with Efforts to Streamline and Simplify
Processes, [23]GAO-06-566 (Washington, D.C.: July 28, 2006).

According to DHS, as of March 2006, state grantees and local government
subgrantees had used the CMIA exemption and DHS's corresponding 120-day
cash advance funding provision, which DHS established to implement the
CMIA exemption, only to a minimal extent.8 As part of its continuing
efforts to strike a balance between minimizing the time it takes to
distribute grant funds to state and local first responders and ensuring
appropriate planning and accountability for the effective use of grant
funds, DHS's Office of Grant Operations (OGO) is working with SAAs and
local government entities to determine the extent to which the CMIA
exemption may be used and the impact extensive use could have on DHS.
According to a DHS official, extensive use of the CMIA exemption and DHS's
120-day cash advance funding provision could create management oversight
difficulties for DHS.

5The SAAs are responsible for administering first responder grants and
obligating funds to local government and other subgrantees.

6Examples of other subgrantees are defined urban areas for Urban Areas
Security Initiative (UASI) grants and Metropolitan Medical Response System
(MMRS) jurisdictions for MMRS grants. In addition, first responder grant
funding can include nongovernmental organizations, such as commercial
trucking companies for Trucking Security grants, and passenger
transportation services companies for Intercity Bus Security grants.

7DHS, Homeland Security Advisory Council, A Report from the Task Force on
State and Local Homeland Security Funding (Washington, D.C.: June 2004).
The HSAC Task Force was comprised of several governors, mayors, county
officials, tribal leaders, and other elected and appointed officials from
throughout the country brought together to examine the funding process and
provide recommendations to expedite the flow of homeland security funds.

8DHS, Congressional Report on the Status of Grant Expenditures, Part I,
Office for Domestic Preparedness, FY 99-02, A Report to the Committees on
Appropriations of the United States Senate and House of Representatives,
(March 2006).

Concerns about oversight difficulties associated with potential extensive
use of the CMIA exemption and DHS's 120-day cash advance funding provision
are warranted as the large number of state grantees and local government
and other subgrantees that are eligible for cash advance funding under
these provisions, combined with the differing interest requirements for
states, local governments, and nonprofit organizations, create potential
oversight challenges for DHS. According to DHS officials, DHS does not
have policies and procedures to track and report on specific cases of cash
advance funding to state grantees, including associated interest
liabilities. In addition, DHS would not be able to readily determine the
extent to which state grantees advance funds to local government and other
subgrantees and the interest liabilities that should accrue to the
subgrantees as a result of such advances. Moreover, specific cases of cash
advance funding for first responder grants are not subject to oversight by
the Department of the Treasury (Treasury) as part of its overall
management of the CMIA. Although states' single audits can be a tool for
oversight, such audits are not designed to replace program management's
oversight responsibilities, and we found that they may not cover all first
responder grants because of the relatively small size of the grants. 9

In view of the fact that DHS is determining the extent to which the CMIA
exemption will likely be used to fund first responder grants, it is
important to emphasize that cash advance funding on a case-by-case basis
can be allowed for the DHS first responder grants at issue by Treasury
regulations implementing the CMIA and other applicable regulations.
Providing cash advance funding on a case-by-case basis could enable DHS to
focus its oversight efforts on those specific state grantees and local
government and other subgrantees that demonstrate a need for such funding.
Importantly, regardless of whether cash advance funding is made available
under the CMIA exemption and DHS's 120-day cash advance funding provision,
or on a case-by-case basis, it is critical for DHS to provide proper
oversight of such funding, including associated interest liabilities due
to the federal government which should be accurately recorded and promptly
paid.10

9All nonfederal entities that expend $500,000 or more of federal awards in
a year are required to obtain an annual audit in accordance with the
Single Audit Act Amendments of 1996, 31 U.S.C. Chapter 75. Guidance for
such an audit is contained in the Office of Management and Budget's (OMB)
Circular No. A-133, Audits of States, Local Governments and Non-Profit
Organizations, and OMB's Circular No. A-133 Compliance Supplements.

To improve the oversight of cash advance funding and associated interest
liabilities for homeland security first responder grants, we make seven
recommendations to the Secretary of the Department of Homeland Security.
Specifically, we recommend that the Secretary direct the Executive
Director of the Office of Grants and Training to complete ongoing
monitoring efforts involving state grantees that receive DHS first
responder grant funding and use information obtained from such monitoring
to identify significant issues that have resulted in delays associated
with first responders' ability to receive and use DHS grant funds when
such funds were needed and assess the impact of the CMIA exemption on
first responders' use of grant funds as well as the potential impact on
DHS's ability to provide adequate oversight of such funds. In addition,
these efforts should be used to determine whether case-by-case cash
advance funding provides a reasonable alternative to the CMIA exemption
and DHS's 120-day cash advance funding. We further recommend that, based
on the results of its monitoring efforts, DHS take appropriate action to
improve first responders' ability to receive and use DHS grant funds when
needed and DHS's oversight of such funds. Also, to help ensure adequate
oversight of cash advance funding and associated interest liabilities for
first responder grants, we recommend that DHS (1) develop policies and
procedures to handle requests for cash advance funding, including the
ability for DHS to track specific cases of cash advance funding to state
grantees and the related interest liabilities; and (2) develop policies
and procedures to work with the SAA for any state that requests and
receives cash advance funding to ensure that adequate policies and
procedures are in place at the state grantee level to provide proper
oversight of advances made to subgrantees.

As discussed in the "Agency Comments and Our Evaluation" section at the
end of this report, we provided a draft of this report to DHS, Treasury,
and OMB for comment. DHS stated that it would take the recommendations
made in the draft report under advisement and would provide a detailed
response to appropriate congressional committees and OMB approximately 60
days after release of the report, consistent with the reporting
requirements of 31 U.S.C. Part 720. Treasury stated that it agreed with
our conclusion that the requirements of the CMIA did not prevent grantees
from receiving grant funds when needed, and provided technical comments
that have been addressed as appropriate in the report. OMB staff provided
a technical comment that we addressed in the report.

1031 U.S.C. S 6503(c)(2) provides that amounts received by the federal
government as payment of such interest shall be deposited in the Treasury
and credited as miscellaneous receipts.

Background

The CMIA is critically important to the federal government's efforts to
promote accountability in the use of federal grant funds. Currently
administered by Treasury's Financial Management Service (FMS), the CMIA is
the cornerstone of cash management policy for federal grants to the
states. Specifically, the CMIA requires the Secretary of the Treasury,
along with the states, to establish equitable funds transfer procedures so
that federal financial assistance is paid to states in a timely manner and
funds are not withdrawn from Treasury earlier than they are needed by the
states for grant program purposes. The act requires that states pay
interest to the federal government if they draw down funds in advance of
need and requires the federal government to pay interest to states if
federal program agencies do not make program payments in a timely manner.

According to Treasury regulations implementing the CMIA,11 funding
techniques for federal financial assistance to the states should be
efficient and minimize the exchange of interest between federal agencies
and the states. Various funding techniques can be agreed to between
Treasury and the states, including cash advance funding, whereby the
federal program agency transfers the actual amount of federal funds to a
state prior to the

1131 C.F.R. Part 205, Rules and Procedures for Efficient Federal-State
Funds Transfers.

day the state actually pays the funds out of its own account.12 The limit
on such cash advance funding is 3 business days prior to payout.13

Before the terrorist attacks of September 11, 2001, the Department of
Justice (Justice) managed several grants designed to enhance the
capability of state and local first responders to handle incidents
involving nuclear, biological, and chemical terrorism. Since 1999, these
programs have grown dramatically. In March 2003, responsibility for these
grant programs shifted to DHS, and they continued to grow. Initially, DHS
provided some of these grants directly to local government entities;
however, the requirements were changed so that grants were awarded first
to states and then passed through to local governments and other
subgrantees. Despite increased funding, many local governments--cities in
particular--complained that they were not receiving the funds that they
expected and could not disburse them as fast as they wanted.14

In response to complaints about delays in the disbursement of first
responder grants, on March 15, 2004, the Secretary of the Department of
Homeland Security established the HSAC Task Force on State and Local
Homeland Security Funding. The task force's objective was to examine the
homeland security grant funding process and provide recommendations to
expedite the flow of homeland security funds to those responsible for
preventing and responding to acts of terrorism. The task force
recommended, among other things, that Congress exempt certain DHS homeland
security grants for fiscal year 2005 from the CMIA in order to allow funds
to be provided to state and municipal entities up to 120 days in advance
of expenditure. The task force indicated that more flexibility was needed
in providing grant funding to first responders because, in some instances,
the 3-day time frame for receiving grant funds prior to making payments
was insufficient to prevent municipal jurisdictions from having to make
payments to vendors in advance of receiving the DHS grant funds. In other
cases, the municipal jurisdictions required cash on hand in their
municipal treasuries prior to commencing the procurement process.

12Treasury's implementing regulations for CMIA state that Treasury and a
state may negotiate the use of mutually agreed-upon funding techniques. In
addition to cash advance funding, techniques cited in the regulations
include: zero balance accounting, which means that a federal program
agency transfers the actual amount of federal funds to a state that are
paid out by the state each day; projected clearance, which means that a
federal program agency transfers to a state the projected amount of funds
that the state pays out each day determined by applying a clearance
pattern to the total amount the state will disburse; and reimbursable
funding, which means that a federal program agency transfers federal funds
to a state after the state has already paid out the funds for federal
assistance program purposes.

13The 3-business-day limit is not applicable to certain grant programs
that fall below Treasury's established financial thresholds for major
programs. Rather, for such programs, federal agencies and the states are
required to minimize the time elapsing between transfer of funds from the
federal government and payout by the states.

14According to DHS, as of March 2006, about $7 billion of the $12 billion
in first responder grants awarded during fiscal years 2002 to 2005 (or
about 58 percent) had been drawn down.

Subsequent to the task force's recommendations, Congress exempted for
fiscal year 2005 certain DHS first responder grant programs from the
provision of the CMIA that limits the extent to which grantees can hold
federal funds prior to payout by requiring federal agencies and states to
minimize the time elapsing between transfer of funds from Treasury and
payment by the states.15 In fiscal year 2006, this exemption was made
permanent.16 Importantly, the CMIA exemption only pertains to the
requirement to minimize the time elapsing between transfer of funds from
Treasury and payments for program purposes. The CMIA exemption did not
exempt certain first responder grant programs from the other provisions of
the CMIA which address interest payments and accountability.

To implement the CMIA exemption, DHS's Program Guidelines and Application
Kit for the Fiscal Year 2005 Homeland Security Grant Program (HSGP) and
guidance for certain other homeland security first responder grants state
that grantees and subgrantees will be permitted to draw down funds up to
120 days prior to expenditure or disbursement.17 For the majority of the
grant programs, the guidance requires all federal funding to go to state
grantees prior to being passed through to local government and other
subgrantees, and requires both grantees and subgrantees to place funds
received in an interest-bearing account. The guidance states that both
grantees and subgrantees must pay interest on funding advances in
accordance with federal regulations.18 In addition, according to the
guidance, state grantees are subject to the interest requirements of the
CMIA and its implementing regulations. The guidance states that interest
under the CMIA will accrue from the time federal funds are credited to a
state account until the time the state pays out the funds to a subgrantee
or otherwise for program purposes.

15Section 521 of DHS's Appropriations Act for fiscal year 2005 (P.L.
108-334) exempted the State Homeland Security Program (SHSP), the Law
Enforcement Terrorism Prevention Program (LETPP), UASI, the Rail and
Transit Security Program, the Port Security Program, the Intercity Bus
Security Program, and the Trucking Security Program from Section 6503(a)
of Title 31, United States Code, which requires federal agencies and
states to minimize the time between transfer of funds from Treasury and
payout by the states.

16Section 517 of DHS's Appropriations Act for fiscal year 2006 (P.L.
109-90) permanently exempts from Section 6503 (a) of Title 31, United
States Code, the programs that were exempted in fiscal year 2005 and adds
the Buffer Zone Protection Program (BZPP) to the CMIA exemption.

In January 2006, DHS's Preparedness Directorate issued its Financial
Management Guide.19 The guide is intended to be used as a financial policy
reference for all fiscal year 2006 and future first responder grants.
Consistent with DHS's fiscal year 2005 guidance for the HSGP and certain
other first responder programs, the guide states that grant recipients may
elect to draw down funds up to 120 days prior to expenditure or
disbursement and that state grantees are subject to the interest
requirements of the CMIA. The guide further states that all local units of
government must account for interest earned on federal grant funds and
remit such interest to appropriate federal agencies.20

17For fiscal year 2005, DHS consolidated various homeland security first
responder grants into a single application package called the Homeland
Security Grant Program, which included SHSP, UASI, and LETPP, as well as
the Emergency Management Performance Grants (EMPG), MMRS, and the Citizen
Corps Program (CCP). Separate application packages were established for
other first responder grant programs which allowed drawdown of funds up to
120 days prior to expenditure or disbursement, including the BZPP, the
Port Security Grant Program, and the Intercity Bus Security Program.

18The regulations cited in the guidance are 28 C.F.R. Part 66, Uniform
Administrative Requirements for Grants and Cooperative Agreements to State
and Local Governments; and 28 C.F.R. Part 70, Uniform Administrative
Requirements for Grants and Agreements (Including Subawards) with
Institutions of Higher Education, Hospitals, and Other Non-Profit
Organizations. These regulations state that grantees and subgrantees are
required to promptly remit interest earned on advances to the federal
government.

19DHS, Preparedness Directorate, Office of Grants and Training, Office of
Grant Operations, Financial Management Guide, (January 2006).

Scope and Methodology

To assess whether the CMIA provision that limits the extent to which
grantees can hold federal funds before payout, prior to its exemption for
certain DHS first responder grants in fiscal year 2005, had prevented
first responders from receiving DHS grant funds when such funds were
needed, we interviewed key officials from 13 SAAs.21 These SAAs involved
states from most geographic areas of the country and, when taken together,
were awarded about 40 percent of DHS's first responder grants that were
subject to the CMIA exemption in fiscal year 2005. In addition, we
interviewed key officials and obtained and analyzed pertinent documents
from nine national associations which represent state and local
governmental entities including the National Governors Association and the
U.S. Conference of Mayors.22 We also reviewed the key report issued by the
HSAC Task Force, A Report from the Task Force on State and Local Homeland
Security Funding, and reports issued by DHS's Inspector General.

To identify key fiscal and accountability implications associated with the
CMIA exemption for certain DHS first responder grant programs, we reviewed
the CMIA and Treasury's implementing regulations, the CMIA exemption for
certain first responder grants, DHS's program guidance for those grants,
and GAO's prior report covering the implementation of the CMIA. In
addition, we interviewed key officials and obtained and analyzed pertinent
documents from DHS, Treasury, OMB, and Justice, all of which are
responsible to varying degrees for administering or overseeing the
implementation of the CMIA or various aspects of DHS's first responder
grant programs. We also reviewed OMB Circular No. A-133, Audits of States,
Local Governments, and Non-Profit Organizations, and OMB's 2005 and 2006
Compliance Supplements, which comprise the current key guidance used by
auditors to conduct single audits covering federal grant programs. Our
work was performed in accordance with generally accepted government
auditing standards from August 2005 through July 2006.

20Local units of government include cities, towns, counties, and special
districts created by state law. For grants made through the Office of
Grants and Training, interest earned must be remitted to the Department of
Health and Human Services' (HHS) Division of Payment Management Services.
For Assistance to Firefighters Grants, interest earned should be remitted
to the Federal Emergency Management Agency--Accounting Services Division.

21We contacted the SAAs in California, Colorado, Illinois, Indiana, Maine,
Missouri, New Jersey, Pennsylvania, Rhode Island, Texas, Vermont,
Virginia, and Washington.

22We also contacted the National Association of County Officials; the
National Association of Development Organizations; the National
Association of Regional Councils; the National Association of State
Auditors, Comptrollers, and Treasurers; the National Emergency Managers
Association; the National League of Cities; and the Urban Institute.

In responding to a draft of our report, DHS stated that it would take the
recommendations made in the draft report under advisement and would
provide a detailed response to appropriate congressional committees and
OMB approximately 60 days after release of the report, consistent with the
reporting requirements of 31 U.S.C. Part 720. Treasury stated that it
agreed with our conclusion that the requirements of the CMIA did not
prevent grantees from receiving grant funds when needed. Both Treasury and
OMB staff provided technical comments that have been addressed as
appropriate in this report.

We Found No Substantial Evidence That the CMIA Prevented First Responders from
Receiving DHS Grant Funds When Such Funds Were Needed

We found no substantial evidence that the CMIA provision that limits the
extent to which grantees can hold federal funds before payout, prior to
its exemption for certain first responder grants in fiscal year 2005, had
prevented first responders from receiving DHS grant funds when such funds
were needed. Specifically, the majority of SAAs we contacted did not cite
the CMIA as a contributing factor to first responder funding delays, and
the National Governors Association, U.S. Conference of Mayors, and other
associations we contacted did not provide information that demonstrated
that the CMIA prevented local governments and other subgrantees from
receiving first responder grant funding when they needed it. In addition,
according to a report prepared by the HSAC Task Force, numerous factors,
only one of which was related to the CMIA, have been responsible for first
responder funding delays.

Importantly, as we reported in February 2005, a major challenge in
managing first responder grants is balancing two goals: minimizing the
time it takes to distribute grant funds to state and local first
responders, and ensuring appropriate planning and accountability for the
effective use of grant funds. DHS's approach to striking this balance has
been evolving from experience, congressional action, and feedback from
states and local governments.23 In March 2006, DHS reported that the CMIA
exemption had been used only to a minimal extent and, according to a DHS
official, DHS is meeting with SAAs and local governments to determine the
impacts, if any, of the CMIA exemption on first responder grant funding.

23 [24]GAO-05-121 .

Most SAAs Contacted Did Not Cite the CMIA as a Delaying Factor

Of the 13 SAAs we contacted to determine whether the CMIA had prevented
first responders from receiving DHS grant funds when such funds were
needed, officials from six of these agencies told us that their state
agency had experienced delays in getting first responder funds to
subgrantees; however, most characterized the delays as not serious. Only
one state agency official attributed the delays directly to the CMIA.
According to that official, under the funding technique for the CMIA that
was agreed to between the state and Treasury for fiscal year 2004, the
state was to be reimbursed by the federal government for eligible
grant-related expenditures. However, certain smaller subgrantees, such as
volunteer fire departments, did not have the financial resources to
purchase specialized equipment with their own funds and then wait for
reimbursement from the state. The official stated that, contrary to the
agreement with Treasury, the state began advancing federal funds to the
subgrantees to enable them to purchase the equipment.24

Generally, however, the SAA officials were more apt to tie delays in
operations related to first responders to factors other than the CMIA. For
example, officials of six of the SAAs noted that delays in the use of the
funds have been due directly to certain local governments not having the
manpower to deal with the large influx of grant funding that was
experienced in the wake of the terrorist attacks. In addition, officials
of six of the SAAs stated that state and local requirements related to
purchase authorizations caused delays in getting goods and services
delivered to first responders in a timely manner, and officials of six of
the SAAs cited vendor problems as causing such delays.

24Importantly, these state advances were discovered during the state's
single audit for fiscal year 2004. According to the state's single audit
report for state fiscal year 2004, the state did not have adequate
internal controls to ensure compliance with CMIA requirements for drawing
down cash for federal programs. The audit report cited internal control
weaknesses related to the state's Web-based cash management system;
instances in which funds were being drawn down inappropriately; and
various inconsistencies in the data used to compile interest liabilities
for major programs.

National Associations Contacted Did Not Provide Evidence Supporting a Need for
the CMIA Exemption

None of the officials from the nine national associations representing
state and local governments we contacted provided information that
demonstrated that the CMIA prevented first responders from receiving DHS
grant funds when such funds were needed. For example, an official from the
National Governors Association stated that the association did not take a
position on whether the CMIA impacted funding for first responders.
Rather, he stated that funding delays are often caused by local
procurement procedures and acquisition approval requirements of local
government subgrantees. The official cited one case where a local
government could not spend first responder funds for a major purchase
until the city council voted and approved the purchase. He emphasized that
such local approval requirements and processes can take several months.
The official also stated that funding delays have resulted from local
government subgrantees being unaware of DHS's requirement that all
equipment be included on DHS's approved equipment listings prior to
acquisition.25

In addition, according to an official from the U.S. Conference of Mayors,
which was a leading proponent of the CMIA exemption for first responder
grants, delays in first responder grant funding have resulted primarily
from the many, sometimes conflicting, state and local requirements that
local government subgrantees have to meet to receive grant funds. The
official stated that the conference supported an exemption from the CMIA
for first responder grants and that this support was driven primarily by
an expectation that relaxing the requirements for funds transfers between
the federal government and the states would lead to overall improvements
in addressing local first responder needs. However, the official said that
the conference does not have evidence that the requirements of the CMIA
have created specific funding delays for first responders, or that the
CMIA exemption has improved grant funding for first responders.26

25The HSGPs for fiscal years 2005 and 2006 authorized expenditures for
planning, organizational activities, equipment acquisition, training,
exercises, and management and administration. For each program contained
in the HSGP, an approved Web-based equipment listing was included.

HSAC Task Force Reports That Numerous Factors Have Contributed to First
Responder Funding Delays

In June 2004, the HSAC Task Force issued its report on state and local
homeland security funding. According to the report, there is no single
issue or level of government that has been responsible for delays in first
responder funding. The report stated that the reimbursement requirement of
the CMIA is problematic for many, particularly cash-strapped
municipalities; however, the report does not address how the CMIA
exemption will mitigate such problems at this level as the CMIA applies
only to funds transfers to the states.

Moreover, the report discusses numerous factors other than the CMIA that
contribute significantly to funding delays. Specifically, according to the
report, the need for state, county, municipal, and tribal entities to
rapidly procure and deploy homeland security-related equipment can
conflict with state and municipal buying regulations that encourage a
deliberate process of acquisition of budgeted necessities at the lowest
possible price. Furthermore, many state and local governments lack the
purchasing power to obtain the goods and services in a timely fashion. In
addition, the report stated that the lack of national standards guiding
the distribution, tracking, and oversight of homeland security-related
grant funds contributed to delays in disbursement. The report also
emphasized that state and local governments are often overwhelmed and
understaffed to deal with the complex grant system and have not put the
necessary infrastructure in place to deal with the increased workload
associated with first responder grant funding. Finally, the report cited
unavoidable equipment backlogs and vendor delays as causing delays in
first responder grant funding.

26We asked the conference official to provide information it used to
support the CMIA exemption. The official provided reports of surveys
completed by certain of its members covering first responder grant funding
problems, including funding delays. In reviewing the reports, we noted
that the primary concern expressed by the members on the surveys was that
states' pass-through processes and procedures caused delays in the receipt
and utilization of federal funds for first responders. The reports of the
surveys did not cite the transfer of funds from the federal government to
the states under CMIA as a delaying factor.

DHS Working to Determine Impact of the CMIA Exemption

In February 2005, we reported that DHS's approach to striking a balance
between, on one hand, minimizing the time it takes to distribute grant
funds to state and local first responders, and on the other hand, ensuring
that appropriate planning and accountability for the effective use of
grant funds has been evolving from experience, congressional action, and
feedback from states and local governments. We emphasized that, as DHS
continues to administer its first responder grant programs, it will be
important DHS to listen and respond fully to the concerns of states, local
governments, and other interested parties to ensure that there is adequate
collaboration and guidance for moving forward.27 In March 2006, DHS
reported that grantees and subgrantees have used the CMIA exemption and
DHS's 120-day cash advance funding provision only to a minimal extent.28
According to a DHS official, DHS's new OGO, which began operations in
October 2005, is in the process of meeting with SAAs and local governments
to discuss the CMIA exemption and cash advance funding. OGO has conducted
several regional financial management training conferences with SAAs and
local representatives and has attended other similar forums that bring
these same stakeholders together. In addition, OGO's Monitoring Program
Plan for fiscal year 2006 includes at least 20 states and territories, and
OGO plans to include the remaining states and territories in the near
future.

According to the DHS official, through its discussions and monitoring
efforts, OGO intends to determine whether the CMIA exemption actually
poses a problem or conversely creates an opportunity for first responders
in their ability to obtain and use grant funds when needed. In addition,
OGO is seeking to identify the significant issues behind the drawdown and
disbursement, or lack of such, of DHS grant funds. These issues may
involve legislative, procurement, programmatic, timeliness, and
jurisdictional concerns. Finally, OGO is attempting to assess the impact
the CMIA exemption could have on DHS if states were to use it extensively.
According to the official, if grantees and subgrantees began using the
CMIA exemption and DHS's 120-day cash advance funding provision, it would
present oversight difficulties for DHS.

27 [25]GAO-05-121 .

28DHS, Congressional Report on the Status of Grant Expenditures, Part I,
Office for Domestic Preparedness, FY 99-02, A Report to the Committees on
Appropriations of the United States Senate and House of Representatives,
(March 2006).

Proper Oversight of Cash Advance Funding and Related Interest Liabilities Is
Critical for Accountability

DHS's OGO's concern about the potential use of the CMIA exemption and
DHS's 120-day cash advance funding provision and the oversight
difficulties extensive use of these provisions could entail is warranted.
Specifically, the large number of state grantees and local government and
other subgrantees that are eligible for cash advance funding resulting
from the CMIA exemption and DHS's 120-day cash advance funding provision,
combined with the differing interest requirements for states, local
governments, and nonprofit organizations, could create potential oversight
challenges for DHS. Currently, DHS does not have policies and procedures
to meet the oversight challenges of tracking cash advance funding and
associated interest liabilities for first responder grants. Moreover,
Treasury, in its administration of the CMIA, does not receive information
pertaining to specific advances for such grants. While state single audits
can be an important oversight tool for cash advance funding, they are not
designed to replace program management's oversight responsibilities.
Further, those audits may not cover all first responder grants because of
the grants' relatively small dollar amounts, and single audit guidance
does not include all grants for which DHS's 120-day cash advance funding
applies.

In addition, it is important to emphasize that cash advance funding, which
is available on a case-by-case basis for first responder grants
independent of the CMIA exemption and DHS's 120-day cash advance funding
provision, would allow DHS to focus its oversight efforts on specific
grantees and subgrantees that can demonstrate a need for such funding.
Regardless of whether cash advance funding for first responder grants is
made available under the CMIA exemption and DHS's 120-day cash advance
funding provision or on a case-by-case basis, it is critical for DHS to
provide proper oversight of cash advance funding to help ensure that
associated interest liabilities due to the federal government are
accurately recorded by grantees and subgrantees and promptly paid.

Large Number of Grantees and Subgrantees and Differing Interest Requirements
Create Oversight Challenges

DHS is faced with potential oversight challenges regarding cash advance
funding for homeland security first responder grants resulting from the
large number of state grantees and local government and other subgrantees
and the fact that interest liabilities and payment responsibilities vary
for states, local governments, and nonprofit organizations. Specifically,
according to DHS, for fiscal years 2005 and 2006, the initial years for
which the CMIA exemption and DHS's 120-day cash advance funding provision
have been in effect, DHS has awarded in total about $5.5 billion of first
responder grants to the 50 states, the District of Columbia, and 5 U.S.
territories. Further, DHS required a minimum of 80 percent of certain
grants to be passed through by the states to numerous city, county, local
government, and other subgrantees. For example, for fiscal year 2005, at
least 80 percent of the funding for UASI grants was allocated to 50 urban
areas, and 124 distinct jurisdictions were to receive at least 80 percent
of the funding for MMRS grants. According to DHS's guidance, 120-day cash
advance funding for homeland security first responder grants was available
to all eligible state grantees and local government and other
subgrantees.29

Further, interest liabilities associated with cash advance funding depend
upon the size of the grant as well as whether the recipient is a state,
local government, or nonprofit organization. Specifically, state interest
liabilities and payment responsibilities are governed by Treasury's
implementing regulations for the CMIA.30 Under these regulations, interest
liabilities for relatively large grants that meet the requirements for
being classified as major programs31 are typically settled as part of
Treasury's annual interest exchange with the states and U.S. territories
using the interest rate set forth in the regulations.32 The interest
liabilities and payment responsibilities of local government and nonprofit
organizations are governed by regulations covering these entities.33 In
general, local government and nonprofit entities are required to make
periodic interest payments to HHS' Division of Payment Management
Services.

29Eligible beneficiaries for the HSGP include any state of the United
States; the District of Columbia; the Commonwealth of Puerto Rico; the
Virgin Islands; Guam; American Samoa; the Commonwealth of the Northern
Mariana Islands; any possession of the United States; and local
governments, which refers to any county, city, village, town, district,
borough, port authority, transit authority, intercity rail provider,
commuter rail system, freight rail provider, water district, regional
planning commission, council of government, Indian tribe with jurisdiction
over Indian country, authorized tribal organization, Alaska Native
village, independent authority, special district, or other political
subdivision of any state.

3031 C.F.R. Part 205.

3131 C.F.R. Part 205 sets forth the following thresholds for major federal
assistance programs. If the state's total amount of federal assistance for
all programs is between zero and $100 million, major programs would
include any program that exceeds 0.6 percent of the total amount of
federal assistance. If the state's total amount of federal assistance for
all programs is over $100 million but less than or equal to $10 billion,
major programs would include any program that exceeds 0.6 percent of the
total amount of federal assistance. If the state's total amount of federal
assistance for all programs is over $10 billion, major programs would
include any program that is at least 0.3 percent of the total amount of
federal assistance. However, in such cases, the minimum threshold for
inclusion as a major program is $60 million.

32The interest rate, which is provided by Treasury to each state, is the
annualized rate equal to the average equivalent yields of 13-week Treasury
Bills auctioned during a state's fiscal year.

3328 C.F.R. Part 66 and 28 C.F.R. Part 70, respectively.

DHS Lacks Policies and Procedures to Meet Oversight Challenges

According to DHS officials, policies and procedures do not exist to track
and report on specific cases of cash advance funding to state grantees
including associated interest liabilities. Moreover, the officials stated
that DHS would not be able to readily determine the extent to which state
grantees advance funds to local government and other subgrantees and the
interest liabilities that should accrue to the subgrantees as a result of
such advances.

According to DHS's Financial Management Guide, the state grantee is
responsible for all aspects of preparedness grant funding, including cash
management, accounting, and financial recordkeeping by the subgrantee. DHS
officials emphasized that DHS relies on the states for management and
oversight of grant funds, recognizing that the states rely, in part, on
the single audits of grantees and subgrantees to help ensure proper
accountability over cash advance funding including associated interest
liabilities.

Treasury Does Not Receive Information on Specific Cases of Cash Advance Funding
and Related Interest Liabilities

Treasury's FMS manages the CMIA program; however, its roles and
responsibilities in this capacity do not include obtaining information
regarding specific funding advances for homeland security first responder
grants made to states or the related state interest liabilities. Under
Treasury's implementing regulations for the CMIA, states and FMS must
enter into Treasury-State Agreements (TSA) that outline, by major program,
the funding technique, including cash advance funding if applicable, the
states will use to draw down funds from the federal government. Each year,
the states and U.S. territories submit reports to FMS indicating the
cumulative interest liabilities calculated for major grant programs
covered under their respective TSAs. Based on input from the federal
agencies and the states and territories, FMS makes a final determination
on each of the state and territory interest liability claims and then
calculates net interest liabilities using the interest rate defined in
Treasury's implementing regulations and conducts the annual interest
exchange with the states and territories.

According to Treasury officials, the vast majority of homeland security
first responder grants were not included in the TSAs for fiscal years 2005
and 2006. Generally, to be included in the TSA, a grant program should be
considered a major program by meeting the dollar thresholds which are set
forth in Treasury regulations. Importantly, for grants not included in the
TSAs, FMS does not receive any information about the grant, including
whether states received cash advance funding for the grant or whether
states incurred any associated interest liabilities. Moreover, according
to Treasury officials, FMS has no oversight responsibilities of cash
advances and associated interest liabilities involving local government
and other subgrantees, regardless of whether the specific grants are major
or nonmajor. The officials emphasized that FMS relies, primarily, on state
single audits to provide oversight for CMIA-related activities, including
interest liabilities associated with cash advance funding.

Single Audits Are a Limited Tool for Oversight of First Responder Grants

In our January 1996 report on the implementation of the CMIA, we concluded
that FMS's plans to emphasize the use of results of single audits as a
means of overseeing state activities and enforcing the CMIA requirements
should improve the act's effectiveness and help alleviate any concerns
about administrative burden.34 Similarly, single audits, if performed
adequately, can be a tool to enhance DHS's oversight of first responder
grant funding including cash advance funding and associated interest
liabilities. However, such audits are not designed to replace program
management's oversight responsibilities and may not cover all first
responder grants due to the grants' relatively small dollar amounts.

For single audits, auditors use OMB's Circular No. A-133 Compliance
Supplement, which provides an invaluable tool to both federal agencies and
the auditors in establishing the important provisions of federal grant
programs. The supplement enables federal agencies to effectively
communicate items that they believe are important to understanding the
legislative intent, as well as promoting successful program management. As
such, the supplement requires constant review and update.

DHS is responsible for working with OMB to ensure that audit guidance
contained in the supplement that is applicable to its programs is complete
and updated. For fiscal year 2005, the supplement included guidance
covering DHS's 120-day cash advance funding provision; however, the only
programs cited were SHSP and LETPP, even though the CMIA exemption and the
120-day cash advance funding provision applied to numerous other homeland
security first responder grants. OMB's most recent compliance supplement,
dated March 2006, expanded the guidance for the 120-day cash advance
funding provision to include HSGP grants awarded for fiscal years 2005 and
2006. However, the supplement still does not include all of the programs
for which the CMIA exemption and the 120-day cash advance funding
provision apply. Specifically, the supplement does not include, among
others, the Port Security Program, the Rail and Transit Security Program,
the Intercity Bus Security Program, or the Trucking Security Program.

34GAO, Financial Management: Implementation of the Cash Management
Improvement Act, [26]GAO/AIMD-96-4 (Washington, D.C.: January 1996).

According to an OMB representative, certain first responder grant programs
were not included in the compliance supplements because they were not, at
the time, considered major programs. However, DHS officials stated that
DHS recognizes the importance of alerting auditors to the CMIA exemption
and the 120-day cash advance funding provision for all of its first
responder grants. As such, these officials stated that DHS intends to
notify OMB that the 120-day cash advance funding provision used to
implement the CMIA exemption applies to all grant programs administered by
DHS's Office of Grants and Training so that such information can be
included in OMB's 2007 Compliance Supplement.

It is important to note that even with comprehensive guidance for
auditors, single audits are at best only a tool for program management
oversight of grant funding. Such audits are not intended to replace
program management's overall responsibility for establishing and
maintaining internal control to achieve the objectives of effective and
efficient grant operations, reliable grant reporting, and compliance with
applicable laws and regulations. Further, single audits may not always
cover all homeland security first responder grants received by the audited
entity, as only the larger and inherently riskier programs are typically
subject to review as part of the overall audit.35

35OMB Circular No. A-133, Audits of States, Local Governments, and
Non-Profit Organizations, which sets forth the uniform standards to be
used for the audit of such entities that expend federal awards, requires
auditors to use a risk-based approach in selecting which grants to include
in the audit. A key criterion for selection is the dollar amount expended
by the auditee for the grant relative to all of the auditee's grant
expenditures. Auditors are required to audit at least 50 percent of total
federal awards expended. However, if the auditee meets the criteria for a
low-risk auditee, the auditor is only required to audit federal awards
expended that, in the aggregate, encompass at least 25 percent of total
federal awards expended.

Cash Advance Funding Can Be Allowed on a Case-by-Case Basis for Certain First
Responder Grants

Treasury's regulations implementing the CMIA are intended to provide
Treasury and states flexibility and latitude in funding grant programs.
Specifically, according to Treasury, the CMIA requires states to time
their drawdown of federal funds in a way that minimizes the time between
receipt of the funds and payments for federal program purposes. For cash
advance funding, this is defined by regulation as not more than 3 business
days prior to the date of disbursement of the funds. However, according to
Treasury officials, if it can be demonstrated that there is a program need
for funds more than 3 days, or even 120 days, in advance of payment, a
funding arrangement that allows for such cash advance funding would not be
inconsistent with the CMIA and its implementing regulations. In other
words, the CMIA does not prohibit such flexibility to be provided on a
program by program, or case-by-case, basis.

Moreover, cash advance funding arrangements made by a state can be
extended to the state's subgrantees. Specifically, under the Uniform
Administrative Requirements for Grants and Cooperative Agreements to State
and Local Governments, grantees must monitor cash drawdowns by their
subgrantees to assure that they conform substantially to the same
standards of timing and amount as apply to advances to the grantees.36 As
such, cash advance funding arrangements made by the states for specific
programs that have a demonstrated need for cash advance funding in excess
of the 3-day rule, can apply to local government subgrantees on an
as-needed, or case-by-case, basis as determined by the state. Therefore,
under Treasury regulations implementing the CMIA and other applicable
regulations, cash advance funding for homeland security first responder
grants can be allowed on a case-by-case basis independent of the CMIA
exemption and DHS's 120-day cash advance funding provision.

Conclusions

We found no substantial evidence that the CMIA funds transfer
requirements, prior to the exemption for certain first responder grants in
fiscal year 2005, prevented first responders from receiving DHS grant
funds when such funds were needed. However, DHS's current efforts to
monitor state grantees should help to identify problems, if any,
associated with the CMIA and the CMIA exemption, as well as other issues
that impact grant administration and first responders' ability to receive
and use DHS grant funds when needed. Going forward, these efforts should
also enable DHS to determine the extent to which cash advance funding for
first responder grants will likely be needed. This is important because
DHS lacks the policies and procedures necessary to provide adequate
oversight of cash advance funding, regardless of whether the cash advance
funding is made widely available under the CMIA exemption and DHS's
corresponding 120-day cash advance funding provision, or on a case-by-case
basis as allowed under Treasury regulations implementing the CMIA. Such
oversight is critical to ensure that interest due to the federal
government associated with cash advance funding is accurately recorded and
promptly paid.

3628 C.F.R. S 66.20(b)(7).

Recommendations for Executive Action

We make seven recommendations to improve oversight of cash advance funding
and associated interest liabilities for homeland security first responder
grants. Specifically, we recommend that the Secretary of the Department of
Homeland Security direct the Executive Director of the Office of Grants
and Training to complete ongoing monitoring efforts involving state
grantees that receive DHS first responder grant funding and use
information obtained from such monitoring to

           o identify the significant issues that have resulted in delays in
           the drawdown and disbursement of DHS grant funds;
           o determine the impact of the CMIA exemption on first responders
           in their ability to obtain and use grant funds to meet program
           needs;
           o assess the impact the CMIA exemption and DHS's 120-day cash
           advance funding provision could have on DHS's ability to provide
           adequate oversight if state grantees and local government
           subgrantees were to use them extensively;
           o determine whether case-by-case cash advance funding provides a
           reasonable alternative to the CMIA exemption and DHS's 120-day
           cash advance funding provision; and
           o based on the results of the monitoring efforts, take appropriate
           actions, which could include making either legislative or
           operational recommendations, to improve first responders' ability
           to receive and use DHS grant funds when needed and DHS's oversight
           of such funds.

           In addition, we recommend that the Secretary of the Department of
           Homeland Security direct the Executive Director of the Office of
           Grants and Training to

           o develop policies and procedures to handle requests for cash
           advance funding, including the ability for DHS to track specific
           cases of cash advance funding to state grantees and the related
           interest liabilities; and
           o develop policies and procedures to work with the SAA for any
           state that requests and receives cash advance funding to ensure
           that adequate policies and procedures are in place at the state
           grantee level to provide proper oversight of advances made to
           subgrantees, including the accurate recording of interest accruals
           on the advances and prompt payment of such interest to the federal
           government.
			  
			  Agency Comments and Our Evaluation

           We provided a draft of this report to DHS, Treasury, and OMB for
           comment. DHS stated that it would take our recommendations under
           advisement. DHS also noted that it will provide a detailed
           response to appropriate congressional committees and OMB in
           accordance with applicable reporting requirements.

           Treasury provided technical comments that have been addressed as
           appropriate in this report. In providing such comments, Treasury
           stated that it agreed with our conclusion that the requirements of
           the CMIA did not prevent grantees from receiving grant funds when
           needed and noted that it believes the CMIA statute and regulations
           provide inherent flexibility to ensure that the program purposes
           are served while minimizing the time between the transfer of
           federal funds and the disbursement of funds by the state for
           federal grant program purposes. In addition, OMB staff provided a
           technical comment that has been addressed as appropriate in this
           report.

           We are sending copies of this report to other interested
           congressional committees, the Secretary of the Department of
           Homeland Security, the Secretary of the Department of the
           Treasury, the Director of the Office of Management and Budget, and
           the Attorney General. Copies will be made available to others upon
           request. This report will also be available at no charge on GAO's
           Web site at http://www.gao.gov .

           Please contact Stanley J. Czerwinski at (202) 512-6806 or
           [email protected] , or Gary T. Engel at (202) 512-3406 or
           [email protected] , if you have any questions. Contact points for
           our Offices of Congressional Relations and Public Affairs may be
           found on the last page of this report. Key contributors to this
           report are listed in appendix I.

           Stanley J. Czerwinski
			  Director
			  Strategic Issues

           Gary T. Engel
			  Director
			  Financial Management and Assurance
			  
			  Appendix I: GAO Contacts and Staff Acknowledgments
			  
			  GAO Contacts

           Stanley J. Czerwinski at (202) 512-6806 or [email protected]

           Gary T. Engel at (202) 512-3406 or [email protected]
			  
			  Staff Acknowledgments

           Faisal Amin, Jeffrey W. Dawson, Carlos E. Diz, Richard H.
           Donaldson, Ernie Hazera, Kenneth R. Rupar, and Linda K. Sanders
           made key contributions to this report.
			  
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www.gao.gov/cgi-bin/getrpt?GAO-07-68 .

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Highlights of GAO [39]-07-68 , a report to the Committee on Homeland
Security and Governmental Affairs, U.S. Senate

December 2006

HOMELAND SECURITY FIRST RESPONDER GRANTS

Cash Management Improvement Act Exemption and Cash Advance Funding Require
Additional DHS Oversight

[40]transparent illustrator graphic

A key provision of the Cash Management Improvement Act (CMIA) of 1990
(P.L. 101-453), as amended, requires the federal government and the states
to minimize the time between transfer of federal funds and payments made
by states for federal grant program purposes. Concerns were expressed by
representatives of local government subgrantees that more flexibility was
needed in the receipt of federal funding for first responders. Congress
exempted certain first responder grants from this CMIA provision in the
Department of Homeland Security's (DHS) fiscal years 2005 and 2006
appropriations acts. Under the exemption, grantees can receive cash
advance funding and hold such funds for extended periods of time prior to
payment. GAO was asked to (1) assess whether this CMIA provision, prior to
its exemption in fiscal year 2005, had prevented DHS grant recipients from
receiving first responder grant funds when such funds were needed; and (2)
identify any key fiscal and accountability implications of the exemption.

[41]What GAO Recommends

GAO makes 7 recommendations to improve DHS's oversight of cash advance
funding for first responder grants and associated interest liabilities.
DHS stated that it will take the recommendations under advisement.
Treasury and Office of Management and Budget (OMB) staff provided
technical comments GAO addressed as appropriate.

GAO found no substantial evidence that the CMIA provision that limits the
extent to which grantees can hold federal funds before making program
payments, prior to its exemption for certain first responder grants in
fiscal year 2005, prevented first responders from receiving DHS grant
funds when such funds were needed. The vast majority of the officials of
State Administrative Agencies (SAA) and national associations contacted
neither cited the CMIA as a contributing factor to funding delays nor
provided information that demonstrated that the CMIA prevented state
grantees or local government and other subgrantees from receiving first
responder grant funding when such funding was needed. Rather, the
officials generally attributed delays in first responder operations to
factors other than the CMIA, such as vendor delays in delivering goods and
services and problems related to a lack of human resources to deal with
the large influx of grant awards after the September 11, 2001, attacks.
The information GAO obtained from these officials was consistent with the
findings of DHS's Homeland Security Advisory Council's Task Force on State
and Local Homeland Security Funding, which found that numerous factors
other than the CMIA contributed to funding delays for first responders.

According to DHS, as of March 2006, state grantees and local government
subgrantees had used the CMIA exemption and DHS's corresponding 120-day
cash advance funding provision, which DHS established to implement the
CMIA exemption, only to a minimal extent. DHS's Office of Grant Operations
is working with SAAs and local government entities to determine the extent
to which the CMIA exemption may be used and the impact extensive use could
have on DHS. According to a DHS official, extensive use of the CMIA
exemption and DHS's 120-day cash advance funding provision could create
management oversight difficulties for DHS.

Concerns about oversight difficulties are warranted, as DHS currently
lacks the policies and procedures to track and report on specific cases of
cash advance funding. Such advances are not subject to Treasury's
oversight through its administration of the CMIA program. While states'
single audits can be a tool for oversight, such audits are not designed to
replace program management's oversight responsibilities, and GAO found
that they may not cover all first responder grants because of the
relatively small size of the grants. Importantly, case-by-case cash
advance funding can be allowed by Treasury regulations implementing the
CMIA and other applicable regulations. Such funding could enable DHS to
focus its oversight efforts on grantees and subgrantees that have a
demonstrated need for such funding. However, regardless of whether cash
advance funding is available under the CMIA exemption and DHS's
corresponding 120-day cash advance funding provision or on a case-by-case
basis, proper oversight is critical to ensure that interest due the
federal government resulting from cash advance funding is accurately
recorded and promptly paid.

References

Visible links
  22. http://www.gao.gov/cgi-bin/getrpt?GAO-05-121
  23. http://www.gao.gov/cgi-bin/getrpt?GAO-06-566EUR
  24. http://www.gao.gov/cgi-bin/getrpt?GAO-05-121
  25. http://www.gao.gov/cgi-bin/getrpt?GAO-05-121
  26. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-96-4
  39. http://www.gao.gov/cgi-bin/getrpt?GAO-07-68
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