NIH Research: Improvements Needed in Monitoring Extramural Grants (Letter
Report, 05/31/2000, GAO/HEHS/AIMD-00-139).

Pursuant to a congressional request, GAO provided information on how the
National Institutes of Health (NIH) monitors the use of extramural grant
funds, focusing on: (1) how NIH monitors the scientific progress of
extramural research; (2) whether NIH has controls to ensure the
effective financial management of extramural research grants; and (3)
how NIH used the increased funds from its fiscal year (FY) 1999
appropriations to support extramural research.

GAO noted that: (1) assessing scientific progress and ensuring effective
financial management are critical elements in managing NIH's extramural
grant programs; (2) NIH has developed policies and procedures to carry
out these important functions, but GAO found that its system of internal
controls could be strengthened; (3) institutes and grantees have
flexibility in implementing NIH's policies and procedures for
administering grants; (4) although the processes for assessing
scientific progress varied at the six institutes GAO reviewed, each
contained similar key aspects; (5) these included annual reviews of the
scientific progress and budgetary aspects of the research as well as
assessments of compliance with administrative requirements; (6) however,
GAO found that some grant files lacked documentation of these reviews;
(7) as a result, NIH lacked important information on scientific progress
and inventions developed in a grant's last year as well as on
unobligated funds that could be recovered for rebudgeting within the
federal government; (8) regarding controls over financial management,
GAO identified areas in the oversight and monitoring of grantees that
could be strengthened; (9) regarding NIH's use of FY 1999
appropriations, NIH allocated about the same percentage of funds to
extramural research as it did in FY 1998; (10) appropriations allocated
for extramural research grants accounted for about $1.4 billion of the
nearly $2 billion increase in NIH's appropriations, or 70 percent; (11)
about 41 percent of the increase for extramural grants was used to
expand by 978 the number of competitive grants and to increase the
average amount awarded for each competitive grant by 15 percent over FY
1998 levels; and (12) the remaining funds were used to provide outyear
commitments to more than 20,000 ongoing grants, support for extramural
research centers, and other extramural research activities.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS/AIMD-00-139
     TITLE:  NIH Research: Improvements Needed in Monitoring Extramural
	     Grants
      DATE:  05/31/2000
   SUBJECT:  Research grants
	     Research and development
	     Grant monitoring
	     Financial management systems
	     Internal controls
	     Health research programs
	     Audits

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GAO/HEHS/AIMD-00-139

Appendix I: Scope and Methodology

30

Appendix II: Unaudited Fiscal Year 1999 and 2000 NIH
Appropriations

33

Appendix III: Comments From the Department of Health and Human Services

34

Appendix IV: GAO Contacts and Staff Acknowledgments

41

42

Table 1: Unaudited Fiscal Year 1998-99 NIH Appropriations 22

Table 2: Unaudited Fiscal Year 1998-99 Changes in Funding for NIH Extramural
Research Grants 24

CAS central accounting system

HHS Department of Health and Human Services

IMPAC II information for management, planning, and coordination

IPA independent public accountant

NIH National Institutes of Health

OER Office of Extramural Research

OFM Office of Financial Management

OIG Office of Inspector General

OMB Office of Management and Budget

PHS Public Health Service

PMS payment management system

Health, Education, and
Human Services Division

B-282900

May 31, 2000

The Honorable Tom Bliley
Chairman, Committee on Commerce
House of Representatives

The Honorable Fred Upton
Chairman, Subcommittee on Oversight
and Investigations
Committee on Commerce
House of Representatives

In each of the past 2 years, the Congress has increased the appropriations
for the National Institutes of Health (NIH) by 15 percent. This has put the
Congress on track for doubling NIH's appropriations from fiscal year 1998
levels by fiscal year 2003 as urged by some congressional leaders. NIH, an
operating division of the Department of Health and Human Services (HHS), is
made up of 25 institutes and centers with a combined fiscal year 2000
appropriation of $17.8 billion--the largest of all federal agencies engaged
in nondefense research.1 Its appropriations account for nearly 40 percent of
all federal nondefense research and development dollars.

More than 80 percent of the appropriations, about $13 billion in fiscal year
1999, go toward extramural research that supports scientists in more than
2,000 institutions--universities, medical schools, hospitals, small
businesses, and research institutions--throughout the country and abroad.
Principal investigators, who are scientists at these institutions, compete
for extramural NIH grants. While project periods under these grants average
4 years in duration, the institutes and centers provide funding for only a
single year at a time. The continuation of funding each year after the first
is primarily contingent upon the awarding entity's determination that the
scientific progress of the research is satisfactory.

Given the level of funding disbursed and the importance of the research it
supports, the oversight and monitoring of NIH grantees are critical. In
accordance with Office of Management and Budget (OMB) guidance, NIH places
the primary responsibility for ensuring compliance with federal requirements
on the grantees.2 Recipients of NIH extramural grant funds are asked to
certify to NIH that they comply with federal requirements related to the
funding. These certifications cover a wide range of topics, including having
procedures for investigating allegations of scientific misconduct, ensuring
that recipients of a grant are not delinquent in their payment of federal
debt, and ensuring that research meets federal requirements for protecting
the rights and welfare of human and animal subjects.

Because of your concern about oversight and monitoring, you asked us to
report on three areas related to NIH's use of extramural grant funds: (1)
how NIH monitors the scientific progress of extramural research, (2) whether
NIH has controls to ensure the effective financial management of extramural
research grants, and (3) how NIH used the increased funds from its fiscal
year 1999 appropriations to support extramural research.

To assess how NIH monitors scientific progress, we reviewed its policy on
administering research grants, interviewed NIH officials, and randomly
selected and reviewed 116 research project grants and program project grants
that were active in fiscal year 1997 at six institutes.3 By selecting grants
active in fiscal year 1997, we were able to ensure that our sample included
grants with at least one assessment of scientific progress and grants where
the project period was completed. To assess NIH's financial management of
extramural grants, we selected a statistical sample of 78 grants that were
active in fiscal year 1999. The 1999 sample, awarded by 15 institutes,
allowed us to examine the financial controls currently in place. To
determine NIH's use of its increased appropriations, we compared the NIH
fiscal year 1998 appropriations that NIH allocated to extramural research
grants with its fiscal year 1999 allocations. We conducted our work between
May 1999 and April 2000 in accordance with generally accepted government
auditing standards. (See appendix I for details on our scope and
methodology.)

Assessing scientific progress and ensuring effective financial management
are critical elements in managing NIH's extramural grant programs. NIH has
developed policies and procedures to carry out these important functions,
but we found that its system of internal controls could be strengthened.
Institutes and grantees have flexibility in implementing NIH's policies and
procedures for administering grants. Although the processes for assessing
scientific progress varied at the six institutes we reviewed, each contained
similar key aspects. These included annual reviews of the scientific
progress and budgetary aspects of the research as well as assessments of
compliance with administrative requirements. However, we found that some
grant files lacked documentation of these reviews. In addition, some
institutes lacked written procedures for documenting the reviews.
Furthermore, some files in five of the six institutes lacked required
reports for appropriately closing completed grants. As a result, NIH lacked
important information on scientific progress and inventions developed in a
grant's last year as well as on unobligated funds that could be recovered
for rebudgeting within the federal government.

Regarding controls over financial management, we identified areas in the
oversight and monitoring of grantees that could be strengthened. For
example, NIH did not always receive and use single audit reports as OMB
required.4 A single audit is an organizationwide audit of a grantee that
focuses on internal controls and compliance with laws and regulations over
federal grant funds. The reports resulting from these audits are a key tool
for financial management oversight. However, NIH awarded grant funds to
several grantees that had not submitted single audit reports. While NIH
generally maintained adequate documentation for the financial monitoring of
its grantees, we identified other areas in internal controls that could be
strengthened. For example, we found discrepancies between grant award
amounts reported in key NIH systems, which increases the risk of
inaccuracies and improper authorization of grant funds. In its fiscal year
1999 audit report on internal controls, the independent public accountant
(IPA) responsible for the financial audit of NIH identified a material
weakness in the analysis and development of financial statements that
included a weakness related to the financial management of grants. Resolving
these issues would provide NIH and HHS assurance that grant funds are being
awarded to eligible recipients only, that these funds are properly used, and
that funds available for future use are accurately accounted for and
reported.

Regarding NIH's use of fiscal year 1999 appropriations, NIH allocated about
the same percentage of funds to extramural research as it did in fiscal year
1998. Appropriations allocated for extramural research grants accounted for
about $1.4 billion of the nearly $2 billion increase in NIH's
appropriations, or 70 percent. About 41 percent of the increase for
extramural grants was used to expand by 978 the number of competitive grants
and to increase the average amount awarded for each competitive grant by 15
percent over fiscal year 1998 levels. The remaining funds were used to
provide outyear commitments to more than 20,000 ongoing grants, support for
extramural research centers, and other extramural research activities.

HHS generally agreed with our recommendations for improving internal
controls over extramural grants. It did not concur with our recommendation
to perform an analysis of the status of fiscal year 1998 single audit
reports, maintaining that to further collapse the time for identifying
delinquent single audit reports would not be worthwhile. However, HHS has
misinterpreted the intent of our recommendation. We believe it would be
worthwhile to begin analyzing the reports without waiting until all have
been submitted.

NIH, the nation's leader in conducting and sponsoring biomedical research,
is made up of 25 institutes and centers. Most of them have separate
appropriations and are charged with specific missions. Their missions
generally focus on a given disease, like cancer or arthritis; a particular
organ, like the heart or eye; or a stage of development, like childhood or
old age. Fiscal year 2000 appropriations range from the $43 million for the
Fogarty International Center for Advanced Study in the Health Sciences to
the $3.3 billion for the National Cancer Institute. (See appendix II for
fiscal year 2000 appropriations.)

NIH institutes and centers accomplish their missions chiefly through
intramural and extramural research. Intramural research, accounting for $1.6
billion in fiscal year 1999, entails government scientists conducting
research in the institutes' and centers' own laboratories and clinics.
Extramural research entails scientists conducting research in research
institutions, and it amounted to about $13 billion in fiscal year 1999.
Principal investigators compete for extramural grants. After the first year
of funding, they must submit noncompetitive continuation grant applications
for continued funding. These applications include annual progress reports,
budget information, and invention statements. While grantees are responsible
for managing the day-to-day grant activities in accordance with NIH
requirements, an institute or center awarding a grant has overall
responsibility for the grant and for deciding whether to continue funding
it. At the end of a grant's multiyear project period, principal
investigators may apply for renewal of funding through the competitive
process. Upon completion of research and termination of funding, grantees
are required to submit a final financial status report, a statement
identifying inventions developed under the grant, and a final report on
scientific progress.

NIH's management is responsible for ensuring that adequate systems of
internal controls are developed and implemented for the proper oversight and
monitoring of research institutions. An adequate system of internal
controls, as defined by the Comptroller General's Standards for Internal
Control in the Federal Government, which is issued pursuant to the Federal
Managers' Financial Integrity Act of 1982, should provide reasonable
assurance that an agency is effectively and efficiently using resources,
producing reliable reports, and complying with applicable laws and
regulations. The standards also state that internal control monitoring
should assess the quality of performance over time and ensure that the
findings of audits and other reviews are promptly resolved. Accordingly,
cost-effective internal controls should be designed to provide reasonable
assurance regarding the prevention or prompt detection of unauthorized
acquisition, use, or disposition of federal funds.

Generally, activities such as site visits and reviews of progress and
financial reports that grantees file are controls that federal officials use
to oversee and monitor grant programs. An additional key control for the
oversight and monitoring of NIH grants available to NIH management is the
single audit. A single audit is an organizationwide audit of a grantee that
focuses on internal controls and the recipients' compliance with laws and
regulations governing the funds received from federal grants. OMB's June
1997 Circular A-133 established policies to guide the implementation of the
Single Audit Act Amendments of 1996 and provided an administrative
foundation for uniform audit requirements for nonfederal entities that
administer federal awards. These audit requirements apply to nonfederal
entities that spend $300,000 or more in federal awards.

Under the general direction of NIH, institutes monitor the scientific
progress of the extramural grants they award. In the six institutes we
reviewed, program staff, who are scientists with expertise in the fields of
research sponsored by their institutes, assessed the scientific progress of
research annually primarily by reviewing documents such as progress reports
the grantees submitted. They also said they monitor scientific progress
throughout the year through such means as reviewing publications. In
addition, grants management staff contributed to monitoring scientific
progress by reviewing budget information submitted by grantees to determine
whether the pace of expenditures is consistent with the expected progress of
the research.

Through its Office of Extramural Research (OER), NIH gives institutes
general guidance for monitoring the scientific progress of extramural
grants. Building upon the Public Health Service's (PHS) Grants Policy
Statement, first issued in 1965, OER developed the NIH Grants Policy
Statement for monitoring extramural grants in 1998. The policy incorporates
statutory requirements and OMB and HHS requirements. It also provides
guidance for the institutes' monitoring of scientific progress and other
aspects of grantee performance. Institutes and grantees have flexibility in
implementing the guidance.

OER requires an institute to determine that the principal investigator has
made satisfactory scientific progress before providing subsequent funding on
an ongoing grant. OER also requires that institutes review grantee reports
of scientific progress annually. These reports are to contain specific
research aims, results of studies the principal investigator conducted, a
statement of the potential significance of findings to the scientific field
and their potential effect on health, and a list of related publications by
the principal investigator, including manuscripts submitted or accepted for
publication.

Beginning in 1995, OER required new program staff to attend 7 days of basic
training in order to give the staff a uniform base of information and
knowledge for monitoring research grants. The training includes information
on NIH, the extramural program and grant process, responsibilities of
program staff, relationships between grants and contracts management staff,
and relevant regulations, policies, and procedures. Experienced program
staff are required to attend two training activities annually to maintain
current knowledge of extramural policies and procedures. Program and grants
management staff we spoke with also emphasized the importance of working
closely with and being mentored by more experienced staff. Mentoring
assignments could last up to 2 years for the more complex grants.

to Monitor Scientific Progress

The six institutes we visited generally followed NIH policy in monitoring
the scientific progress of the extramural grants that the institutes
awarded.5 Program staff in these institutes determined whether progress was
satisfactory by comparing the accomplishments in the principal
investigator's annual progress report with the stated aims and objectives of
the research proposal. They also reviewed the annual progress report to see
whether there were any changes in the scope and objectives of the research
and whether the principal investigator encountered any problems while doing
the research. Program staff also considered the number and quality of
investigator-authored publications as another indication of scientific
progress.

In addition to reviewing grantee annual progress reports as required by
policy, program staff told us they monitored scientific progress throughout
the year. For example, program staff reviewed published papers and
unpublished manuscripts that the principal investigator submitted to them
and that were related to research performed under the grant. They also
frequently communicated with principal investigators. This interaction was
facilitated by attendance at scientific conferences and professional
meetings. One program officer said that because of frequent contact with
principal investigators, she was generally alerted to problems in their
research before receiving annual progress reports.

Program staff explained that they were able to anticipate some problems
affecting scientific progress because during the initial competitive award
process, external reviewers documented issues that could interfere with
accomplishing the principal investigator's research aims. For example, if
these reviewers considered a particular research strategy to be risky and
thought the principal investigator might encounter difficulties in
accomplishing the specific aims and objectives, this concern would be
expressed in the reviewers' summary statement. Summary statements are
included in the grant files and are thus available to the program staff for
monitoring purposes.

The number of progress reports each staff member reviewed varied among
institutes and even within a single institute. Among the institutes we
visited, the average number of progress reports reviewed annually by each
program staff varied from a high of 125 at one institute to a low of 40 at
another. Although the number of grants reviewed varied among staff members,
the workload, based on the type or complexity of grants, was about the same,
according to NIH officials. Staff whose portfolios included more complex
grants, such as program project grants and clinical trials, reviewed a
smaller number of progress reports than staff whose portfolios included less
complex research project grants.

Because there is no separate job series for staff responsible for monitoring
scientific progress, precise staffing figures for this function are not
readily available. However, at the end of fiscal year 1999, NIH had 1,088
full-time-equivalent employees in the job series that includes program staff
and their supervisors. The six institutes we visited employed 370 of these
staff, ranging from 21 full-time-equivalent employees in one institute to
160 in another. For the six institutes, this staffing level was about a 16
percent increase from fiscal year 1997 levels.

Monitoring Scientific Progress

Grants management staff, who are responsible for the financial management of
grants and for ensuring grantee compliance with statutes, regulations, and
guidelines, also contributed to the monitoring of scientific progress at the
six institutes we reviewed. They did this by examining required budgetary
information submitted by grantees. For example, grants management staff
assessed this information for large unobligated balances to determine
whether the pace of expenditures corresponded with the anticipated progress
of the research. Large unobligated balances could result from the failure to
purchase necessary equipment or hire key personnel as planned. In clinical
research, the slow recruitment of human subjects can also lead to large
unobligated balances. In reviewing three such files, we found two in which
the institutes reduced funds and required interim progress reports.6 At four
of the institutes we reviewed, grants management staff also verified that
program staff had assessed the principal investigator's scientific progress.

The specific budget information available to grants management staff varied,
depending on whether the grant was a research project grant or a program
project grant. For research project grants, the grants management staff
assessed information annually on changes in financial support for key
personnel, significant rebudgeting of funds, changes in the level of effort
of key personnel, and estimates of expected and large unobligated balances.7
For program project grants, the staff had access to all this information as
well as detailed budget information, a budget justification, and an annual
report on expenditures.

Each of the six institutes we visited required program staff to document
their assessment of scientific progress by completing a checklist. The
institutes' checklists varied in detail, but all had a section devoted to
the same purpose: assessing scientific progress. For example, one institute
used a checklist that, in addition to a box to check indicating adequate
scientific progress, included items on the involvement of human subjects or
vertebrate animals in the research, the need for biohazard protections,
changes in research scope and objectives, scientific overlap with other
research, substantial changes in foreign involvement, additional questions
if the grant is a cooperative agreement, and space for nearly a full page of
narrative comments. Other institutes required much less detail in
documenting their assessment.

Of the 116 grants we reviewed, 98 files contained evidence that the program
staff had assessed scientific progress for each year that the research was
funded. For the remaining 18 files, in one or more years that the research
was funded, there was no documentation to indicate whether scientific
progress had been assessed. About 6 percent of the time there was no
evidence whether scientific progress was assessed.8

We noted wide variation in the level of documentation of scientific progress
on checklists among and within the institutes. Some program staff checked
the appropriate box on the progress report review checklist to indicate
satisfactory progress. Others also wrote one or two paragraphs, and still
others wrote up to two pages. We were told that the additional written
documentation was used to highlight the results of the research. Although
individual institutes may require more written documentation, an OER
official said that he expected narrative comments on the checklists only
when problems with scientific progress had surfaced. However, in its
comments for management consideration, the IPA responsible for the financial
audit of NIH noted that many of the institutes and centers did not have
written procedures on how they prepare checklists, progress review forms,
and grants management worksheets. When standard forms were used in the
process, the information captured was consistent.

While most files indicated that scientific progress was assessed in
conjunction with annual decisions on continuation funding, we found much
less documentation to support ongoing monitoring. Although program staff
told us they monitored grants throughout the year, they generally did not
document their efforts in the grant files.

Grants

Grants management staff are responsible for ensuring that a grantee submit a
complete closeout package within 90 days after the end of the grant's
multiyear project period. Closeout documents are to include a final
financial status report, a final scientific progress report, and a final
statement on inventions developed under the grant. A final financial status
report is needed to ensure proper accounting for the use of grant funds. A
final scientific progress report provides a summary of progress toward the
achievement of the specified aims, a list of significant results, and a list
of publications for the grant. A final invention statement provides
information on all inventions that were conceived or first used under the
grant, even if previously reported.

In our review of the six institutes, we found that grantees did not always
comply with closeout requirements. For example, at one institute we visited,
grantees of 628 of the 736 grants were delinquent in providing complete
closeout packages in fiscal year 1998. NIH staff in several institutes told
us that ensuring grantee compliance with closeout requirements was not a
high priority, especially in relation to monitoring active grants. Among
grants we reviewed, about 20 percent were no longer funded in late 1999. We
found that a little less than half of those--11 grants from five
institutes--did not submit all the required reports. Three of the 11 were
more than 2 years overdue.

Five of the grants did not include final financial status reports. Four of
these were research project grants and one was a program project grant. As a
result, NIH lacked information on how much of the grant funds had not been
spent and therefore should have been recovered for rebudgeting within the
federal government. The absence of final financial status reports for the
research project grants meant that NIH lacked financial information from
these projects for the entire duration of the grants. For program project
grants, however, financial status reports are submitted annually.
Consequently, the absence of the final financial status report for the
program project grant meant that financial information was missing only for
the final grant year.

In addition, of the 11 grants, 10 did not include the final progress report
and 9 did not include the final invention statement in their files. Progress
reports from previous award years of a grant would have been submitted as
part of the annual noncompetitive application, so that the absence of this
information means that NIH did not know what progress was made in the final
year of the grant. Similarly, the absence of a final invention statement
means that NIH did not know of inventions developed in the final year of the
grant.

By law, a grantee that wants to retain title and profit from inventions it
created under federally funded research projects must disclose inventions,
acknowledge the government's royalty-free right to the inventions, and
record the government's interest on any patent filed on the invention.
Grantees are required under the Bayh-Dole Act and Executive Order 12591 to
report inventions created under federally sponsored projects within 60

days of the date the inventor reports them to the grantee.9 However, in
1994, the HHS Office of Inspector General (OIG) reported that NIH had no
system for determining whether documents were submitted in a timely fashion.
OIG concluded that NIH did not have procedures to detect grantee
noncompliance with requirements related to inventions developed using
federal funds, including requirements of the Bayh-Dole Act, and recommended
that NIH use a database to track grantees for timely compliance.10

As a result, NIH developed I-Edison, an interactive database for tracking
inventions developed with federal funds. Grantees can submit invention
reports to I-Edison electronically, but they are not required to do so.
Instead, they may submit paper documentation to NIH. Regardless, NIH's
policy is to have this information in the grant file. According to officials
in OER, the absence of the final invention statement in the grant file does
not necessarily mean that NIH did not know of any inventions that occurred
on the projects. NIH officials said that ensuring that final invention
statements and other closeout documents appeared in grant files has not been
a high priority for institutes, despite NIH's policy. Instead, institutes
have placed a higher priority on monitoring compliance from grantees with
active research grants.

On February 16, 2000, OER issued final guidance to institutes on procedures
for obtaining closeout documents and imposing sanctions on grantees if such
documents are not received. Sanctions can include withholding funds for a
specific grant or for an entire grantee institution.

Strengthened

We identified areas in internal controls related to the oversight and
monitoring of grant recipients that need to be strengthened. For example,
NIH did not always receive single audit reports from recipients in
accordance with OMB's reporting requirements and did not effectively use the
results of single audit reports for deciding on grantees' eligibility for
grant funds and determining financial management systems' capabilities. In
its fiscal year 1999 financial audit report on internal controls, the IPA
identified a material weakness in the analysis and development of financial
statements that included a weakness related to the financial management of
grants. We also identified discrepancies between the data in the information
for management, planning, and coordination (IMPAC II) system, the central
accounting system (CAS), and the payment management system (PMS) that affect
the accuracy of grant award amounts.11 In some instances, the "paylist,"
which identifies grant applications that were selected for funding, was not
always properly authorized. These deficiencies could result in NIH's
erroneously awarding grants to ineligible grant recipients and in funds
being used for improper purposes.

Grantees

NIH did not always receive single audit reports from grant recipients in
accordance with OMB's reporting requirements, and it did not effectively use
the results of single audit reports to oversee and monitor program
recipients. One of the objectives of the Single Audit Act is to ensure that
federal departments and agencies rely on and use audit work performed
pursuant to the act. Federal agencies are required to ensure that audits are
performed on a timely basis and to monitor the reports to ensure that
findings are identified and resolved. The Comptroller General's Standards
for Internal Control in the Federal Government states that monitoring
internal controls should include policies and procedures for ensuring that
the findings of audits and other reviews are promptly resolved. To comply
with the standards, NIH should (1) promptly evaluate findings from audits
and other reviews, including those showing deficiencies and recommendations
reported by auditors and others who evaluate agencies' operations; (2)
determine proper actions in response to findings and recommendations from
audits and reviews; and (3) complete, within established time periods, all
actions that correct or otherwise resolve the matters brought to its
attention. As discussed in our June 1994 report, the Single Audit Act of
1984 encouraged recipients of federal funds to review and revise their
financial management practices.12 This resulted in state and local
governments' institutionalizing fundamental reforms, such as (1)
strengthening internal controls, (2) installing new accounting systems or
enhancing old ones, (3) improving systems for tracking federal funds, and
(4) resolving audit findings. Single audit reports contain meaningful
information on entities' financial status and management of federal funds
and can indicate where the entities have additional problems that need
further audit or investigation. Entities' financial statements can contain
information indicating problems of concern to the federal government, such
as possible overcharges or a failure to reimburse the federal government.

In audit reports covering fiscal years 1996 and 1997, the IPA responsible
for the financial audit of NIH reported that NIH did not have an adequate
system to ensure that all single audit reports were received. In reports
covering fiscal years 1998 and 1999, this issue was reported as a comment
for management's consideration. The IPA recommended that HHS and its
operating divisions, including NIH, develop a system to track the submission
of single audit reports by grantees and identify those that are delinquent
or noncompliant with the Single Audit Act. The IPA also recommended that
procedures be developed for early identification, reporting, and followup of
grantees that are delinquent in the submission of the reports.

HHS, which establishes guidance for its operating divisions, has
acknowledged that improved oversight in filing single audit reports is
needed. In response to the IPA's recommendation, HHS established a process
to identify and follow up with grantees that had not submitted an audit
report when required. Under this process, HHS and NIH identified reports
that had not been submitted for fiscal years 1995, 1996, and 1997. As of
December 1999, 2 of the grantees had not submitted single audit reports for
fiscal year 1995 and 29 had not submitted the reports for fiscal year 1996.
For fiscal year 1997, 351 of 915 NIH grantees that should have submitted a
single audit report had not done so as of February 2000. HHS had not
completed the followup and resolution of these delinquent reports. In
addition, as of January 2000, about 6 months after the fiscal year 1998
single audit reports should have been received, HHS had not begun analysis
of these reports. Based on information from HHS' single audit reports
database, about 40 percent of these reports would have been due by July
1999. However, HHS and its operating divisions had not identified the
recipients that were delinquent in submitting the reports.

Although NIH's top 100 recipients, which account for more than 75 percent of
its grant funds, have submitted single audit reports for fiscal year 1997,
proper oversight of the remaining 25 percent is still needed. NIH has
continued to award current funds to some of the grantees that had not
submitted single audit reports. For example, in fiscal year 1999, NIH
awarded funds to 15 of the 31 grantees that had not submitted fiscal year
1995 and 1996 single audit reports. Together, the grants related to the 15
grantees amounted to about $73 million as of December 1999.13 Lack of timely
receipt and effective use of the results of single audit reports hinders
NIH's ability to determine whether grantees were eligible to receive grant
funds or properly accounted for these funds.

In a single audit, auditors review internal controls of an entity's
financial management systems. Thus, timely receipt and analysis of single
audit reports can assist NIH in assessing the financial management
capabilities of its grantees' systems. However, NIH did not routinely review
single audit reports to assess the grantees' financial management systems'
capabilities. According to NIH grant policy, grants management staff may
review the financial and business management systems of its grantees to
determine the adequacy of the systems to support the expenditure of and
accountability for NIH funds. At 11 of the 15 institutes we visited,
financial management systems were not reviewed for all grantees but, rather,
were reviewed case by case, depending on whether the grantee had received a
grant in previous years from NIH or was considered a high-risk grantee, such
as a small business. If NIH does not use the results of single audit reports
to assess the adequacy of the grantees' systems to expend and account for
NIH funds, it could be awarding grants to recipients with inadequate
financial management systems that could result in the mismanagement of grant
funds.

As mentioned earlier, HHS has acknowledged that improved oversight in filing
single audit reports is needed. In accordance with OMB's guidance, HHS
required its operating divisions, including NIH, to apply sanctions to
grantees considered delinquent for submission of a single audit report. The
HHS operating division providing the majority of financial assistance should
apply the sanctions to recipients found to be delinquent in submission of
their single audit report. These sanctions include (1) withholding further
grant payments on current funds, (2) withholding additional support for the
grant, (3) withholding a percentage of federal awards until the audit is
satisfactorily completed, and (4) suspending federal awards until the audit
is conducted or terminating the federal award. Because these sanctions had
not been fully implemented at the time of our review, we were not able to
assess them.

Strengthening

From our review of 78 grant files, we found that NIH generally maintained
adequate documentation for the financial monitoring of its grants. This
documentation included a signed grant application, approved Notice of Grant
Award, financial status reports, where applicable, and progress reports.14
For example, for 76 of the 78 grants we reviewed, we found that the dollar
amount of the award and the document number--the common identifier of
grants--could be tracked and verified through three key financial management
systems. However, in one instance, we found that the amount reported in
IMPAC II did not agree with the amount in PMS. Grant award data in IMPAC II,
CAS, and PMS should agree.15 We also found that a grant award amount was
incorrectly posted to the wrong grantee in PMS. While NIH officials could
not document what caused this error, they told us that the principal
investigator moved from the university to a federal agency in the fourth
year of the grant. The related grant award data in IMPAC II and CAS
reflected the federal agency as the new recipient of the funds. However, PMS
continued to reflect the university as the grantee. As a result, funds
appropriated for year four of the grant were incorrectly made available in
PMS for the university's use. At the time of our review, the university had
not drawn down these funds. However, this error could have resulted in an
improper payment of grant funds. In another instance, the award amount on
the Notice of Grant Award did not agree with the amount in IMPAC II, CAS, or
PMS. The amount on the Notice of Grant Award was $195,000, compared with the
$69,000 reported in the three key systems. As a result, the correct award
amount was not available to the grantee. NIH officials could not explain how
this error occurred and were not aware of either of these errors until we
brought them to their attention.

The Comptroller General's Standards for Internal Control in the Federal
Government states that ongoing monitoring activities should include
comparisons and reconciliations to identify inaccuracies or exceptions that
alert management to any internal problems. The IPA's internal control report
covering fiscal year 1999 reported a material weakness in controls over the
analysis and development of financial statements. The IPA reported that in
the review of NIH's synchronization report, deficiencies in the
reconciliation of data between CAS and PMS were not resolved in a timely
manner.16 A significant number of the discrepancies between the two systems
were more than a year old and included such items as incorrect posting of
expenditures in CAS, duplicate posting of grant obligations in CAS, or
duplicate transmittals of payment authority to PMS. In one instance, the IPA
noted that a document that had a $200,000 authorization in PMS could not be
supported by data contained in CAS or IMPAC II. Timely resolution of these
items reduces the risk of overpayment to grantees and could help ensure the
accuracy of funds available for grantees' future use.

In addition, we found areas in which internal controls over award
authorization needed strengthening. For example, the "paylist," which is a
list of competing grant applications selected for funding, was not always
properly approved by authorized officials. The Comptroller General's
Standards for Internal Control in the Federal Government states that
transactions and other significant events should be authorized and executed
only by persons acting within the scope of their authority. According to the
standards, this is the principal means of ensuring that only valid
transactions to exchange, transfer, use, or commit resources and other
events are initiated or entered into. Authorizations should be clearly
communicated to managers and employees. When an application is submitted, it
is initially reviewed for scientific merit and budget reasonableness.
Following the initial review, a second-level review is performed by Advisory
Council members who should have knowledge of the institute's programmatic
areas, familiarity with the institute's priorities and procedures, and
knowledge of the institute's mission. Immediately following the second-level
review, the institute's director is provided a "ranking list" or "paylist"
of competing applications to review for payment. The approved grant
applications are ranked in percentile or priority score order from most
meritorious to least, and an amount is recommended. After review and
discussion with the institute's division director, the institute's program
director indicates on the ranking list the applications that have been
selected for funding. According to NIH officials, the institute's Associate
Director of the Division of Extramural Activities and the Chief Grants
Management Officer should sign the paylist as the authorization to issue the
Notice of Grant Award to prevent incorrect and unauthorized grant awards.

However, we found that the paylist at one of the institutes was signed by
only one NIH official and another paylist at a different institute was
unsigned and maintained on the Intranet, an internal network. While we found
only one instance in which the paylist was not signed, 38 grants on this
list amounted to about $10 million.17 Lack of proper authorization of grant
award documents increases the risk of inaccuracies and improper
authorizations of grant funds awarded to grantees.

On another matter, in reviewing NIH's instructions for completing grant
applications, we noted an inconsistency between NIH's Grants Policy
Statement and PHS' instructions. Grant applicants must make a certification
on their grant application that covers various topics, including
nondelinquency of federal debt as defined by the agency. According to OMB
Memorandum M-87-32, "Certification of Nondelinquency by Applicants for
Federal Assistance," the certification is seen as an important step toward
ensuring that recipients of federal grant funds are not delinquent on
federal debt.

NIH's policy statement and PHS' instructions each refer to the Federal Debt
Collection Procedures Act, which provides that a debtor is ineligible to
receive a federal grant that is financed directly or indirectly by the
United States if there is a judgment lien against the debtor's property for
a debt to the United States (28 U.S.C. 3201 (e)). NIH's and PHS' position is
that a debtor with such a lien may not receive grant funds either directly
as a grant award or indirectly as payment for participating in an NIH grant
awarded to someone else. Consistent with that position, NIH's policy
statement and PHS' instructions clearly provide that costs charged to awards
that provide funds to individuals who are in violation of the act will be
disallowed.

NIH's policy statement and PHS' instructions, however, are not similarly
consistent on the scope of the certification regarding nondelinquency of
federal debt. The PHS instructions make clear that the certification applies
only to the applicant organization. The PHS instructions state that in
accordance with OMB Memorandum M-87-32, the applicant organization must
certify that it is not delinquent on the repayment of any federal debt
before a grant award can be made. The PHS instructions also state that the
certification "applies to the applicant organization, not to the person
signing the application as the authorized representative nor to the
principal investigator." In contrast, the NIH policy statement provides that
before a grant can be awarded, the applicant organization must certify that
the applicant organization is not delinquent in repaying any federal debt
and "any person to be paid from grant funds" is also not delinquent in
repaying such debt. During our review, we discussed the apparent
inconsistency with NIH officials. As we were completing our review, NIH
received a legal opinion from its Office of General Counsel that concluded
that an inconsistency exists and that in interpreting the certification on
the grant application, the PHS instructions take precedence over the NIH
policy statement. The legal opinion provided options to NIH on changing its
Grants Policy Statement in light of the inconsistency.

In fiscal year 1999, the Congress increased NIH appropriations nearly $2
billion over fiscal year 1998 levels. The proportion of funds that the
Congress appropriated to each NIH component remained about the same. (See
table 1.)

                                                                  Percent
                            1998    Percent    1999    Percent     change
                                   of total           of total
                                                                  1998-99
 National Cancer Institute$2,528a  18.5%     $2,892a  18.5%     14.4%
 National Heart, Lung, and
 Blood Institute          1,571    11.5      1,775    11.4      13.0
 National Institute of
 Allergy and Infectious   1,359    9.9       1,571    10.0      15.6
 Diseases
 National Institute of
 General Medical Sciences 1,062    7.8       1,203    7.7       13.3
 National Institute of
 Diabetes and Digestive   900      6.6       1,021    6.5       13.4
 and Kidney Diseases
 National Institute of
 Neurological Disorders   775      5.7       897      5.7       15.8
 and Stroke
 National Institute of
 Mental Health            743      5.4       854      5.5       14.9
 National Institute of
 Child Health and Human   675      4.9       752      4.8       11.5
 Development
 National Institute on
 Drug Abuse               541      4.0       617      3.9       14.0
 National Institute on
 Aging                    520      3.8       600      3.8       15.3
 National Center for
 Research Resources       452      3.3       561      3.6       24.0
 National Eye Institute   355      2.6       396      2.5       11.3
 National Institute of
 Environmental Health     341      2.5       388      2.5       13.6
 Sciences
 National Institute of
 Arthritis and
 Musculoskeletal and Skin 273      2.0       306      2.0       12.1
 Diseases
 National Institute on
 Alcohol Abuse and        226      1.7       259      1.7       14.7
 Alcoholism
 National Human Genome
 Research Institute       223      1.6       284      1.8       27.4
 National Institute of
 Dental and Craniofacial  214      1.6       238      1.5       11.2
 Research
 National Institute on
 Deafness and Other       201      1.5       231      1.5       14.7
 Communication Disorders
 National Library of
 Medicine                 161      1.2       182      1.2       13.2
 National Institute of
 Nursing Research         64       0.5       70       0.4       9.9
 National Center for
 Complementary and        20       0.1       51       0.3       158.5
 Alternative Medicineb
 John E. Fogarty
 International Center for
 Advanced Study in the    28       0.2       35       0.2       24.7
 Health Sciences
 Office of the Directorb  221      1.6       256      1.6       15.7
 Buildings and facilities 207      1.5       197      1.3       -4.4
 Total                    $13,659  100.0%    $15,633  100.0%    14.5%

Note: Totals may not add because of rounding. NIH consists of 25 institutes
and centers. In fiscal year 2000, NIH received 24 appropriations--for 22
institutes and centers, the Office of the Director, and buildings and
facilities. The three centers not listed in this table--the Warren Grant
Magnuson Clinical Center, the Center for Scientific Review, and the Center
for Information Technology--received no separate appropriation.

aDollars in millions.

bNational Center for Complementary and Alternative Medicine received its
first direct appropriation in fiscal year 2000. This table presents the
amounts allocated to its predecessor, the Office of Alternative Medicine,
from the Office of Director appropriation. The Office of Director amounts
have been adjusted accordingly.

Source: HHS, NIH, Fiscal Year 2000 Justification of Estimates for
Appropriations Committees , Vol. 1 (Washington, D.C.: 1999), p. 26, and
Fiscal Year 2001 Justification of Estimates for Appropriations Committees ,
Vol. 1 (Washington, D.C.: 2000), p. 36.

NIH allocated about 70 percent, or nearly $1.4 billion, of the fiscal year
1999 increase to extramural research grants. The proportion of extramural
funding allocated to project grants, research center grants, and other
research grants for fiscal year 1999 remained about the same as it was in
fiscal year 1998.

About 41 percent of the nearly $1.4 billion increase was used to expand the
number of competitive project grants awarded. (See table 2.) As a result,
978 more grants were funded than in fiscal year 1998, bringing the total
number of competitive grants awarded to 8,565 grants in fiscal year 1999. At
the same time, the average amount awarded for competitive project grants
increased by 15 percent from an average of about $255,900 in fiscal year
1998 to about $293,600 in fiscal year 1999. This 15 percent increase
resulted in part from NIH's attempt to award amounts closer to those
recommended by external reviewers. Previously, some institutes we visited
had been making across-the-board reductions to the recommended amounts,
ranging from 5 to 25 percent, in order to fund more grants. NIH officials
told us that they did not augment funding for the approximately 20,000
ongoing grants awarded in previous years except as previously committed.
These increases accounted for about 27 percent of the extramural research
increase. Research centers' grants and other research grants received 29
percent, about $390 million of the nearly $1.4 billion increase in funding
for extramural research grants. Research centers' grants included
infrastructure support for clinical research, biotechnology, and comparative
medicine. Other research grants included funds for research career
development, cooperative clinical research, and biomedical research support.
The remaining 3 percent, about $50 million, went for small business research
technology transfer.

                                   Fundinga
  Extramural research grants                    Increasea  Percent increase
                                 1998    1999
 Project grants
 Competitive grants             $1,941 $2,515   $574       41.4%
 Noncompetitive grants          5,617  5,988    371        26.8
 SBIR and STTRb                 269    315      46         3.3
 Subtotal                       $7,827 $8,818   $991       71.5%
 Research center grants
 Specialized and comprehensive
 centers                        844    1,002    158        11.4
 Clinical research              170    202      32         2.3
 Biotechnology                  58     71       13         0.9
 Comparative medicine           64     76       12         0.9
 Centers in minority
 institutions                   32     34       2          0.1
 Subtotal                       $1,168 $1,385   $217       15.7%
 Other research grants
 Research careers               226    271      45         3.2
 Cancer education               14     17       3          0.2
 Cooperative clinical research  197    246      49         3.5
 Biomedical research support    26     38       12         0.9
 Minority biomedical research
 support                        54     66       12         0.9
 Other                          115    171      56         4.0
 Subtotal                       $632   $809     $177       12.8%
 Total                          $9,627 $11,012  $1,385     100.0%

Note: Excludes about $2 billion in fiscal year 1999 extramural research
funding for Training, Research and Development Contracts, construction, a
portion of the funding for Cancer Prevention and Control, and the National
Library of Medicine. Totals may not add because of rounding.

aDollars in millions.

bSBIR = Small Business Innovation Research. STTR = Small Business Technology
Transfer.

Source: HHS, NIH, Fiscal Year 2000 Justification of Estimates for
Appropriations Committees, Vol. 1 (Washington, D.C.: 1999), p. 30, and
Fiscal Year 2001 Justification of Estimates for Appropriations Committees,
Vol. 1 (Washington, D.C.: 2000), p. 40.

Monitoring the scientific progress and financial management of research
grants is important because these activities help ensure that the NIH
extramural research program, the largest component of NIH's budget, is
soundly managed. Implementing appropriate internal controls is a key factor
in ensuring the accountability of federal funds. Although NIH has developed
processes to ensure the proper oversight of its extramural research program,
its system of internal controls is not always followed or documented.
Internal control problems related to scientific progress include
inconsistencies in documenting assessments of progress before awarding
continued funding and in ensuring the timely closeout of completed grants.
Internal control problems related to financial management include weaknesses
in ensuring that single audits are conducted, submitted on a timely basis,
and used in considering grant awards. Furthermore, another internal control
problem involves the accuracy of grant data maintained in key financial
systems. As a result, scientific monitoring and financial management
functions need to be improved.

To improve internal controls, we recommend that the Secretary of HHS direct
the Assistant Secretary for Management and Budget to refine and implement
the procedures that have been developed to identify, report, and follow up
on grantees that are delinquent in submitting single audit reports by
ensuring the (1) completion of the followup and resolution of delinquent
reports from fiscal years 1995, 1996, and 1997; (2) performance of the
analysis to determine the status of the fiscal year 1998 single audit
reports; and (3) reinforcement of the use of sanctions against delinquent
grantees.

To improve internal controls at NIH, we recommend that the Secretary of HHS
direct the Acting Director of NIH to

ï¿½ require that the institutes document their assessments of grantees'
scientific progress before awarding continued funding by ensuring that
progress report review forms are properly filled out and problems with
scientific progress are documented;

ï¿½ ensure that institutes properly close out completed grant files in a
timely manner;

ï¿½ follow up and resolve delinquent single audit reports on a timely basis
after HHS has identified delinquent grantees and, in particular, complete
the followup and resolution of delinquent reports for fiscal years 1995,
1996, and 1997;

ï¿½ establish and implement a process to ensure that single audit reports are
reviewed to identify significant problems related to NIH's grants and use
this process as a management tool for ensuring that significant problems are
resolved and considered in the oversight and monitoring of grant recipients;
and

ï¿½ ensure the accuracy of grant data in the three key financial management
systems, IMPAC II, CAS, and PMS, by (1) resolving discrepancies resulting
from the reconciliation between CAS and PMS on a timely basis and (2)
performing periodic detailed reviews of transactions, specifically the grant
award amount, within IMPAC II, CAS, and PMS.

In written comments (reprinted in appendix III) on a draft of this report,
HHS generally agreed with our recommendations for improving internal
controls over extramural grants. It did not concur with our recommendation
to perform an analysis of the status of fiscal year 1998 single audit
reports. In its comments, HHS reaffirmed its commitment to an effective
grants monitoring process.

HHS concurred with our recommendation that the Assistant Secretary for
Management and Budget complete the followup and resolution of delinquent
reports from fiscal years 1995, 1996, and 1997. It noted that HHS instituted
a system 3 years ago for identifying grantees and the federal dollars at
risk and has consistently pursued the identification and collection of
outstanding audit reports. In addition, HHS noted that the financial audits
by independent public accounting firms for HHS and NIH no longer cite an
internal control weakness in this area. While the single audit issue was not
reported in the IPA's internal control report in fiscal year 1999, it was
cited as an internal control weakness for management's consideration in
fiscal years 1998 and 1999.

HHS did not concur with our recommendation that it perform an analysis to
determine the status of the fiscal year 1998 single audit reports, stating
that to further collapse the time for identifying delinquent audits would
not be worthwhile. However, we did not recommend that HHS further collapse
the time for identifying delinquent audits; our recommendation was that HHS
perform the analysis to determine the status of the fiscal year 1998 single
audit reports. To the extent that single audit reports are not analyzed
until all reports for a particular fiscal year are due, the risk increases
that grants will be awarded to ineligible grantees or to grantees that have
not submitted prior years' single audit reports.

HHS concurred with our recommendation to reinforce the use of sanctions
against delinquent grantees. HHS said that it will use sanctions where
appropriate.

HHS concurred with our recommendation that NIH document assessments of
grantees' scientific progress. It noted that NIH has reinforced its policy
that requires documentation and plans to develop a standard checklist for
all awarding units to use for these assessments and stated that NIH expects
a written narrative when progress is not acceptable. These actions should
help ensure that scientific progress is documented. Without a completed
checklist, it is not possible to know whether scientific progress was
assessed. A narrative addition to the checklist is an appropriate and needed
way to document problems.

HHS also concurred with our recommendation that NIH ensure adequate
documentation of closeouts of completed grants. It said that existing policy
provides clear guidance to grantees for submitting final reports. HHS
acknowledged that closeout activity has not been a priority for the
institutes. HHS stated that it would need to apply sanctions to grantees to
foster their compliance and that doing so would be difficult and resource
intensive. However, as we note in the report, in February 2000 OER issued
guidance to the institutes recommending steps--including sanctions--for the
institutes to take to ensure grantee compliance. We believe that NIH should
appropriately implement requirements regarding closeout documentation.
Although HHS concurred with this recommendation, it did not specify any
actions to implement it.

HHS concurred in principle with our recommendation that NIH follow up and
resolve delinquent single audit reports in a timely manner after HHS has
identified delinquent grantees and, in particular, complete the followup and
resolution of delinquent reports for fiscal years 1995, 1996, and 1997. HHS
noted that some of the data cited in our draft report as related to single
audits were either out of date or not correct. NIH provided the information
and it was correct as of December 1999. We have included data HHS provided
that were current as of May 2000.

HHS concurred in principle with our recommendation that NIH establish and
implement a process to ensure that single audit reports are reviewed to
identify significant problems related to its grants and use this process as
a management tool for ensuring that significant problems are resolved and
considered in the oversight and monitoring of grant recipients. It noted
that NIH's Special Reviews Branch of the Division of Financial Advisory
Services of the Office of Contracts Management is responsible for resolving
single audit findings and for maintaining all audit reports that have been
forwarded to NIH for audit resolution for use by NIH staff. In addition, HHS
noted that NIH established a work group in November 1998 to determine
whether all required single audit reports had been received and to follow up
with recipients that were delinquent in submitting the reports and impose
sanctions where appropriate. We support these efforts. However, HHS did not
specify how it will use the results of single audit reports as a management
tool for overseeing and monitoring grant recipients.

HHS concurred with our recommendation that NIH ensure the accuracy of grant
data in the three key financial management systems, IMPAC II, CAS, and PMS.
It noted that NIH has devoted more staff to improve the timeliness and
accuracy of the reconciliation between CAS and PMS. In addition, to improve
the quality of the reconciliation process, NIH has plans to implement a new
NIH business system.

Finally, HHS stated that in general NIH provides appropriate oversight and
monitoring in accordance with federal requirements. As we note in this
report, NIH has developed policies and procedures to assess scientific
progress and provide financial management for its grants. However, we found
that these policies and procedures were not consistently implemented by the
institutes. Our recommendations are intended to help ensure that NIH's
internal control processes are effectively carried out, thereby helping to
ensure that its objectives are accomplished.

HHS also provided technical comments, which we incorporated, where
appropriate.

As we agreed with your offices, unless you publicly announce the report's
contents earlier, we plan no further distribution of it until 30 days from
the date of this letter. We will then send copies to other interested
congressional committees; the Honorable Donna Shalala, Secretary of the
Department of Health and Human Services; Dr. Ruth Kirschstein, Acting
Director of the National Institutes of Health; the Honorable Jacob J. Lew,
Director of the Office of Management and Budget; and others who are
interested. We will also make copies available to others on request. If you
or your staff have any questions or need additional information, please

call Janet Heinrich at (202) 512-7119 or Gloria L. Jarmon at (202) 512-4476.
GAO contacts and staff acknowledgments are listed in appendix IV.

Janet Heinrich
Associate Director, Health Financing and Public Health Issues
Health, Education, and Human Services Division

Gloria L. Jarmon
Director, Health, Education, and Human Services
Accounting and Financial Management Issues
Accounting and Information Management Division

Scope and Methodology

We identified the process the National Institutes of Health (NIH) uses to
monitor scientific progress in extramural grants, its financial management
of these grants, and its use of additional funding in fiscal year 1999. We
did not examine its competitive process for making awards, but we did
examine its oversight of research that it has already decided to support. In
this appendix, we give details on the methodology we used in examining each
aspect of your request.

To ascertain how NIH monitors scientific progress in extramural grants, we
obtained and reviewed NIH grant administration policy and interviewed NIH
staff at the Office of Extramural Programs and the Office of Policy for
Extramural Research Administration. In addition, we examined a sample of
files from extramural grants that were active in fiscal year 1997.

We first stratified the NIH institutes into large, medium, and small
institutes, based on their estimated number of active grants. Specifically,
we defined large institutes as those that monitored more than 2,000 grants,
medium institutes as those that monitored between 1,000 and 2,000 grants,
and small institutes as those that monitored fewer than 1,000 grants in
1997. We then selected two institutes from each group, ensuring that each
institute supported a diverse mix of research, including basic, applied,
clinical, and population-based research. We visited the National Cancer
Institute and the National Heart, Lung, and Blood Institute, each of which
monitors more than 2,000 such grants annually; the National Institute of
Neurological Disorders and Stroke and the National Institute of Child Health
and Human Development, each of which monitors 1,000 to 2,000 grants; and the
National Institute on Alcohol Abuse and Alcoholism and the National
Institute of Dental and Craniofacial Research, each of which monitors fewer
than 1,000 grants.

Using a list of active grants that NIH provided us, we selected a random
sample of 15 research project grants from each of these six institutes. We
also randomly selected 5 program project grants from 5 of the 6 institutes.
In the remaining institute, only a single program project grant was active
in fiscal year 1997, which we reviewed. We focused on research project
grants and program project grants because they constituted about 87 percent
of the extramural research funding for research grants. Other types of
extramural funding included awards for small businesses, research and
development contracts, cooperative agreements, training grants, and
fellowships.

We reviewed each sample file to ascertain the extent of institutes'
monitoring of scientific progress. This included (1) obtaining an overall
grant history; (2) reviewing evidence that institutes had reviewed the
adequacy of scientific progress, changes in research scope and objectives,
and significant budgetary information; (3) identifying evidence that
institutes had approved the grants for continued funding; and (4) where
appropriate, determining whether the files included documents required in
closing out the grants.

To ensure that each grant would have at least one annual progress report
reviewed by NIH for noncompetitive continuation funding, we selected grants
that were active in fiscal year 1997. Since funding for some grants that
were active in fiscal year 1997 would likely have ended by the time of our
data collection in 1999, selecting this period also allowed us to review the
institutes' procedures for closing out grants. Furthermore, we asked
officials at each institute to identify two grants that had problems, and we
reviewed the files to understand the difficulties and ascertain how they
were resolved. In addition, at each of the six institutes we reviewed the
files of grants that were terminated or withdrawn in fiscal year 1997
according to the information for management, planning, and coordination
(IMPAC II) database. We cannot generalize from the results of our sample
review to other institutes or NIH as a whole.

To determine whether NIH has controls to ensure the effective financial
management of its extramural research grants, we obtained an understanding
of the grants control environment by reviewing and analyzing related grants
policies and procedures and interviewing NIH officials. We held discussions
with and coordinated our work with the independent public accountant (IPA)
responsible for performing the fiscal year 1999 financial audit of NIH and
reviewed fiscal year 1998 and 1999 workpapers related to grants monitoring.

We selected a statistical sample of 78 research project grants and program
project grants that were active in fiscal year 1999 from the IMPAC II
system. These 78 grants were awarded by 15 NIH institutes. The 15 institutes
were the National Institute on Alcohol Abuse and Alcoholism; National
Institute on Aging; National Institute of Allergy and Infectious Diseases;
National Institute of Arthritis and Musculoskeletal and Skin Diseases;
National Cancer Institute; National Institute on Drug Abuse; National
Institute on Deafness and other Communication Disorders; National Institute
of Diabetes and Digestive and Kidney Diseases; National Institute of
Environmental Health Sciences; National Eye Institute; National Institute of
General Medical Sciences; National Institute of Child Health and Human
Development; National Heart, Lung, and Blood Institute; National Institute
of Mental Health; and National Institute of Neurological Disorders and
Stroke. We interviewed grants management staff at these 15 institutes and
reviewed the grantee files related to the 78 grants to determine whether key
financial monitoring documentation was maintained, such as signed grant
applications, approved Notice of Grant Awards, and financial status reports.
We traced the 78 grants to the payment management system and to the NIH
accounting system to determine whether they were properly accounted for and
reported. To understand a research institution's management of grants, we
interviewed officials at one of NIH's top ten recipients of extramural grant
funds. To determine whether NIH's grantees complied with the Single Audit
Act requirements, we analyzed fiscal year 1997 data from the Department of
Health and Human Services' (HHS) single audit report database. We also
reviewed HHS' policies and procedures on the Single Audit Act and
interviewed agency officials.

To ascertain how NIH used its increased fiscal year 1999 appropriation for
extramural research, which accounted for the largest percentage of the
nearly $2 billion increase in funding for fiscal year 1999, we compared the
NIH fiscal year 1998 and 1999 appropriations allocated to extramural
research. Additionally, we examined the increase in the average cost per
research grant awarded in fiscal year 1999. For this comparison, we obtained
the data from the HHS budget justification to appropriations committees for
fiscal years 2000 and 2001 and did not independently verify the information.
In the course of this work, we also interviewed officials from NIH's Office
of Budget.

We performed our work at NIH's Washington, D.C., area offices and the HHS
headquarters in Washington, D.C., from May 1999 through April 2000. We
conducted our work in accordance with generally accepted government auditing
standards.

Unaudited Fiscal Year 1999 and 2000 NIH Appropriations

                                                           1999    2000
 National Cancer Institute                                 $2,892  $3,312
 National Heart, Lung, and Blood Institute                 1,775   2,026
 National Institute of Allergy and Infectious Diseases     1,571   1,797
 National Institute of General Medical Sciences            1,203   1,354
 National Institute of Diabetes and Digestive and Kidney
 Diseases                                                  1,021   1,141
 National Institute of Neurological Disorders and Stroke   897     1,030
 National Institute of Mental Health                       854     975
 National Institute of Child Health and Human Development  752     859
 National Institute on Drug Abuse                          617     687
 National Institute on Aging                               600     688
 National Center for Research Resources                    561     675
 National Eye Institute                                    396     450
 National Institute of Environmental Health Sciences       388     443
 National Institute of Arthritis and Musculoskeletal and
 Skin Diseases                                             306     349
 National Human Genome Research Institute                  284     336
 National Institute on Alcohol Abuse and Alcoholism        259     293
 National Institute of Dental and Craniofacial Research    238     269
 National Institute on Deafness and Other Communication
 Disorders                                                 231     264
 National Library of Medicine                              182     215
 National Institute of Nursing Research                    70      90
 National Center for Complementary and Alternative
 Medicinea                                                 51      69
 John E. Fogarty International Center for Advanced Study
 in the Health Sciences                                    35      43
 Office of the Directora                                   256     282
 Buildings and facilities                                  197     165
 Total                                                     $15,633 $17,813

Note: Dollars in millions. Totals may not add because of rounding.

aNational Center for Complementary and Alternative Medicine received its
first direct appropriation in fiscal year 2000. Fiscal year 1999 amounts
were allocated to its predecessor, the Office of Alternative Medicine, from
the Office of Director appropriation. The Office of Director amounts have
been adjusted accordingly.

Source: HHS, NIH, Fiscal Year 2001 Justification of Estimates for
Appropriations Committees, Vol. 1 (Washington, D.C.: 2000), p. 36.

Comments From the Department of Health and Human Services

GAO Contacts and Staff Acknowledgments

Bruce D. Layton, 202-512-6837
Chinero N. Nwaigwe, 202-512-5472

David W. Bieritz, Bertha Dong, Harrison E. Greene, Jr., Rosa R. Harris, and
Paul T. Wagner, Jr., also made key contributions to this report.

Related GAO Products

Financial Management: National Institutes of Health Research Invention
Licenses and Royalties (GAO/AIMD-00-44R, Nov. 22, 1999 ).

Financial Management: Increased Attention Needed to Prevent Billions in
Improper Payments (GAO/AIMD-00-10, Oct. 29, 1999 ).

NIH Clinical Trials: Various Factors Affect Patient Participation
(GAO/HEHS-99-182, Sept. 30, 1999 ).

Technology Transfer: Reporting Requirements for Federally Sponsored
Inventions Need Revision (GAO/RCED-99-242, Aug. 12, 1999 ).

Technology Transfer: Number and Characteristics of Inventions Licensed by
Six Federal Agencies (GAO/RCED-99-173, June 18, 1999) .

Single Audit: Efforts Underway to Implement 1996 Refinements
(GAO/T-AIMD-99-177, May 13, 1999 ).

Single Audit: Refinements Can Improve Usefulness (GAO/AIMD-94-133, June 21,
1994 ).

NIH Extramural Clinical Research: Internal Controls Are Key to Safeguarding
Phase III Trials Against Misconduct (GAO/HEHS-96-117, July 11, 1996 ).

(101832/916302)

Table 1: Unaudited Fiscal Year 1998-99 NIH Appropriations 22

Table 2: Unaudited Fiscal Year 1998-99 Changes in Funding for NIH Extramural
Research Grants 24
  

1. HHS has 13 component organizations called operating divisions.

2. See OMB Circular A-110, Uniform Administrative Requirements for Grants
and Agreements with Institutions of Higher Education, Hospitals and Other
Non-Profit Organizations (Washington, D.C.: Aug. 29, 1997).

3. Institutes and centers award the majority of extramural research funds
through research project grants and program project grants. In general, the
research project grant funds a single project with an individual principal
investigator while the program project grant funds a group of
multidisciplinary projects conducted by several investigators working on
different aspects of a specific research objective or theme.

4. OMB's Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations (Washington, D.C.: June 24, 1997), stipulates specific
reporting requirements for nonfederal agencies. It currently requires that
audits be completed and necessary documentation be submitted to the federal
clearinghouse that OMB has designated, within 30 days after the receipt of
the auditor's report by the auditee or 9 months after the end of the audit
period, whichever is earlier. For fiscal years beginning on or before June
30, 1998, the circular requires that audits be completed and supporting
documentation be submitted 30 days after receipt of the auditor's report or
13 months after the end of the audit period, whichever is earlier.

5. The six institutes were the National Cancer Institute; National Heart,
Lung, and Blood Institute; National Institute on Alcohol Abuse and
Alcoholism; National Institute of Child Health and Human Development;
National Institute of Dental and Craniofacial Research; and National
Institute of Neurological Disorders and Stroke.

6. The three files come from a sample of problem cases that the institutes
we visited identified.

7. In 1995, NIH implemented the Streamlined Noncompeting Award Process for
research project grants and certain other types of grants to expedite the
processing of noncompetitive continuation awards. For awards under this
process, grantees are no longer required to submit annual budget information
with a budget justification and the expenditure report is required only at
the end of the grant period.

8. The 116 grants in our sample should have been assessed a total of 369
times when applications were submitted annually for noncompetitive
continuation of funding.

9. See Technology Transfer: Reporting Requirements for Federally Sponsored
Inventions Need Revision (GAO/RCED-99-242, Aug. 12, 1999 ), in which we
noted that organizations did not always disclose or document the
government's rights as required.

10. See HHS, OIG, NIH Oversight of Extramural Research Inventions, Report
OEI-03-91-00930 (Washington, D.C.: May 1994).

11. IMPAC II, the NIH grants system, is an online computer-based information
system that contains application and award information on extramural grants.
CAS is the central system that accumulates all NIH's accounting records and
is designed to meet NIH's specific financial needs. PMS serves as a fiscal
intermediary between agencies that award grants and recipients of grants and
contracts. Among other functions, it expedites the flow of cash between the
federal government and recipients, transmits recipient disbursement data
back to the awarding agencies, and maintains cash advances sent to the grant
recipients.

12. See Single Audit: Refinements Can Improve Usefulness (GAO/AIMD-94-133,
June 21, 1994 ). The 1984 act was superseded by the Single Audit Act
Amendments of 1996 (31 U.S.C. 7501) to improve coverage, effectiveness, and
reporting.

13. In commenting on the draft of this report, HHS provided updated
information. As of May 2000, eight grantees have not submitted fiscal year
1995 or 1996 single audit reports. HHS said that NIH made grant awards in
fiscal year 1999 to three of these grantees totaling about $15.4 million.

14. The Notice of Grant Award is a legally binding document that notifies
the grantee and others that an award has been made. It contains or
references all terms and conditions of the award and its dollar amount.

15. Each institute transmits grant award data from IMPAC II to the Office of
Financial Management (OFM). These data include the dollar amount of the
grant award, document number, and the common account number. OFM transmits
this information to NIH's CAS, which in turn transmits valid transactions to
PMS.

16. The synchronization report identifies inconsistencies in grant data
between CAS and PMS.

17. Of the 38 grants on the paylist, 1 was included in our sample of 78
grants.
*** End of document. ***