Environmental Protection: EPA's Progress in Closing Completed Grants and
Contracts (Letter Report, 11/20/98, GAO/RCED-99-27).
Pursuant to a congressional request, GAO reviewed the Environmental
Protection Agency's (EPA) progress in closing completed grants and
contracts, focusing on: (1) EPA's efforts to close out inactive grants
and contracts; (2) the progress that EPA has made in reducing the number
of inactive grants and contracts, the number of remaining inactive
grants and contracts, and the dates by which they are expected to be
closed out; and (3) the amount of unliquidated obligations for inactive
grants and contracts.
GAO noted that: (1) over the last 8 years, EPA has taken several
initiatives to reduce the backlogs of inactive grants and contracts
needing closeout; (2) in 1992, EPA developed a policy specifying
procedures for closing out nonconstruction grants, and in 1998, the
agency developed a strategy for eliminating the existing backlog of
inactive nonconstruction grants and preventing a future backlog; (3)
however, closeout procedures and strategies for nonconstruction grants
were not consistently followed, and strategies at the regional level
frequently did not include specific actions for implementation; (4) EPA
also developed automated systems to improve the monitoring of the
nonconstruction grant closeout process; (5) in 1990 and 1997, EPA
developed strategies to reduce the backlog of wastewater treatment
construction grants; (6) in fiscal year (FY) 1994, EPA established goals
for closing out a specific number of inactive contracts; (7) EPA has
made significant progress in closing out inactive grants and contracts,
but a considerable number remain to be closed; (8) in 1996, the agency
had a backlog of nearly 18,000 nonconstruction grants, but by June 1998,
the backlog was reduced to approximately 4,100; (9) EPA estimated in
1996 that the backlog of nonconstruction grants would be eliminated by
July 2000; (10) with closeouts progressing at the current rate, it is
likely that this goal will be attained; (11) the number of inactive
wastewater treatment construction grants needing closeout was about 500
as of March 1998--reduced from about 5,900 at the end of FY 1990; (12)
while the construction grant backlog was initially projected to be
eliminated by the end of FY 1997, this goal was not attained, and in
December 1996, EPA revised its projection to eliminate the backlog by
2002; (13) recent estimates from EPA's offices implementing the closeout
strategy for construction grants indicate that this goal is unlikely to
be attained; (14) in March 1993, EPA had approximately 2,000 inactive
contracts needing closeout, and by August 1998, that number had been
reduced to 1,028; (15) significant amounts of unliquidated obligations
remain for inactive grants and contracts and could potentially be
allocated for other EPA projects and programs; (16) the unliquidated
obligations for construction and nonconstruction grants totalled about
$612.1 million, and for about $423.8 million of this total amount, there
are no statutory time restrictions on the use of funds; and (17)
therefore, a large portion of these funds is potentially available for
recovery and could be used for other approved projects.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-99-27
TITLE: Environmental Protection: EPA's Progress in Closing
Completed Grants and Contracts
DATE: 11/20/98
SUBJECT: Contract administration
Grant administration
Deobligations
Budget obligations
Contractor payments
Projections
Wastewater treatment
Unexpended budget balances
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Cover
================================================================ COVER
Report to the Chairman, Subcommittee on VA, HUD, and Independent
Agencies, Committee on Appropriations, House of Representatives
November 1998
ENVIRONMENTAL PROTECTION - EPA'S
PROGRESS IN CLOSING COMPLETED
GRANTS AND CONTRACTS
GAO/RCED-99-27
Closing Out EPA's Grants and Contracts
(160423)
Abbreviations
=============================================================== ABBREV
EPA - Environmental Protection Agency
FMO - Financial Management Office
FSR - Financial Status Report
GAO - General Accounting Office
GMO - Grants Management Office
IFMS - Integrated Financial Management System
PO - Project Office
Letter
=============================================================== LETTER
B-281260
November 20, 1998
The Honorable Jerry Lewis
Chairman, Subcommittee on VA, HUD,
and Independent Agencies
Committee on Appropriations
House of Representatives
Dear Mr. Chairman:
The Environmental Protection Agency (EPA) has a primary mission to
protect human health by safeguarding the natural environment--air,
water, and land. EPA carries out a large part of its mission by
awarding grants and contracts to states, public and private entities,
and other federal agencies. More than 70 percent of EPA's budget is
used to award grants\1 and contracts. Once a grant or contract is
completed or terminated and once the applicable budget or project
period has expired, the agency must determine if the required work
was completed and then close out the project, which includes making
any final payments due the recipient. One of the primary purposes of
closing out grants and contracts is to ensure that any unliquidated
obligated funds are recovered and used for environmental programs, as
permitted by statute. The unliquidated funds from completed grants
and contracts represent millions of dollars that potentially could be
recovered, deobligated, and used to provide EPA with additional
resources needed to fund other environmental programs. The timely
closeout of grants and contracts is also an important financial
management practice to ensure that the terms of the contracts and
grants are accomplished.
The timely closeout of inactive grants and contracts--those completed
grants and contracts whose required time period for closeout has
expired--is a long-standing management problem for EPA. The agency's
untimely grant closeout activities and insufficient oversight of
nonconstruction grants were identified as material weaknesses in the
agency's Fiscal Year 1997 Integrity Act Report to the President and
Congress. Also identified as a separate material weakness was the
untimely closeout of construction grants for wastewater treatment
facilities. Government entities were provided with these grants to
improve water quality. In 1994, EPA's Office of Inspector General
reported that a significant number of inactive contracts needed to be
closed out. EPA has developed several initiatives to reduce the
number, or backlog, of inactive grants and contracts requiring
closeout.
This report responds to your request that we (1) identify EPA's
efforts to close out inactive grants and contracts; (2) identify the
progress that EPA has made in reducing the number of inactive grants
and contracts, identify the number of remaining inactive grants and
contracts, and identify the dates by which they are expected to be
closed out; and (3) determine the amount of unliquidated obligations
for inactive grants and contracts.
To respond to these objectives, we reviewed documents, interviewed
EPA officials, and reviewed a random sample of grant and contract
files. We also analyzed EPA's automated data files to identify the
amount of unliquidated obligations for inactive grants and contracts.
--------------------
\1 In this report, "grants" include both grants and cooperative
agreements. Grants provide organizations with financial assistance
to carry out programs without substantial federal involvement.
Cooperative agreements provide financial assistance with substantial
federal involvement.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Over the last 8 years, EPA has taken several initiatives to reduce
the backlogs of inactive grants and contracts needing closeout. In
1992, EPA developed a policy specifying procedures for closing out
nonconstruction grants, and in 1998, the agency developed a strategy
for eliminating the existing backlog of inactive nonconstruction
grants and preventing a future backlog. However, closeout procedures
and strategies for nonconstruction grants were not consistently
followed, and strategies at the regional level frequently did not
include specific actions for implementation. EPA also developed
automated systems to improve the monitoring of the nonconstruction
grant closeout process. In 1990 and 1997, EPA developed strategies
to reduce the backlog of wastewater treatment construction grants.
In fiscal year 1994, EPA established goals for closing out a specific
number of inactive contracts.
EPA has made significant progress in closing out inactive grants and
contracts, but a considerable number remain to be closed. In 1996,
the agency had a backlog of nearly 18,000 nonconstruction grants, but
by June 1998, the backlog was reduced to approximately 4,100. EPA
estimated in 1996 that the backlog of nonconstruction grants would be
eliminated by July 2000. With closeouts progressing at the current
rate, it is likely that this goal will be attained. The number of
inactive wastewater treatment construction grants needing closeout
was about 500 as of March 1998--reduced from about 5,900 at the end
of fiscal year 1990. While the construction grant backlog was
initially projected to be eliminated by the end of fiscal year 1997,
this goal was not attained, and in December 1996, EPA revised its
projection to eliminate the backlog by 2002. Recent estimates from
EPA's offices implementing the closeout strategy for construction
grants indicate that this goal is unlikely to be attained. In March
1993, EPA had approximately 2,000 inactive contracts needing
closeout, and by August 1998, that number had been reduced to 1,028.
Many of the remaining contracts are likely to be more difficult to
close out because they are old (37 percent have been inactive for 5
years or more) or are of a type that requires additional
documentation to close out. Therefore, it is questionable whether
EPA can sustain the closeout progress made in the past.
Significant amounts of unliquidated obligations remain for inactive
grants and contracts and could potentially be allocated to other EPA
projects and programs. As of June 30, 1998, inactive nonconstruction
grants and contracts accounted for approximately $428.9 million in
unliquidated obligations. Construction grants had unliquidated
obligations of about $183.2 million as of March 30, 1998. Together,
these unliquidated obligations total $612.1 million, and for about
$423.8 million of this total amount, there are no statutory time
restrictions on the use of funds. Therefore, a large portion of
these funds is potentially available for recovery and could be used
for other approved projects.
BACKGROUND
------------------------------------------------------------ Letter :2
EPA relies extensively on states, public and private entities, and
other federal agencies to implement most federal environmental
programs by awarding grants and contracts. The administration of
these grants and contracts has been primarily delegated to EPA's
Grants Administration Division and Office of Acquisition Management.
The Grants Administration Division's grant management functions are
performed through EPA's 10 regional Grants Management Offices and two
Grants Operation Branches in Washington, D.C. Three Office of
Acquisition Management contracting offices, located in Research
Triangle Park, North Carolina; Cincinnati, Ohio; and Washington,
D.C., perform most of the agency's contracting activities.
The closeout of federal grants and contracts is required within
specified time periods after the grants and contracts are completed
or terminated. EPA's Final Closeout Policy for Assistance Agreements
establishes the agency's policy for closing out all completed grants.
The grants addressed in this policy include nonconstruction grants,
such as grants to states for conducting air quality monitoring
activities or grants to universities for conducting environmental
research. Completed nonconstruction grants should be closed out
within 180 days after all of their terms and conditions have been
satisfied. Construction grants are used for designing and
constructing wastewater treatment facilities to improve water quality
in specific geographical areas. The required closeout time frame for
construction grants varies, depending on the last grant action (e.g.,
final audit resolution, project returned unaudited by the Office of
Inspector General, final debt collection, or forgiveness or dismissal
of debt). Generally, the closeout for construction grants should
begin within 6 months of the last grant action.
Contracts are used by EPA for obtaining goods and services, such as
the services of contractors who remove hazardous waste at abandoned
industrial sites. The Federal Acquisition Regulation sets the time
standards for closing out completed contracts. These standards,
which depend on the nature of the contract, range from 6 to 36 months
after the physical completion of the contract. In addition to the
Federal Acquisition Regulation, EPA refers to its Acquisition
Handbook in implementing the agency's closeout procedures for
managing contracts. The regulations and handbook provide for uniform
and systematic procedures for promptly closing out completed
contracts. Closeout actions may begin when a contract is physically
completed, which occurs when the contractor delivers all goods or
performs all services as required. A contract is also considered
complete when EPA gives the contractor notice of complete contract
termination.
A significant number of inactive grants and contracts were not closed
out in a timely manner and grew into a significant work backlog. In
1996, there were nearly 18,000 inactive nonconstruction grants
requiring closeout, and at the end of fiscal year 1990, there were
5,860 construction grants requiring closeout. In 1994, EPA's Office
of Inspector General reported that approximately 2,000 inactive
contracts required closeout.
EPA HAS TAKEN SEVERAL ACTIONS
TO CLOSE OUT INACTIVE GRANTS
AND CONTRACTS
------------------------------------------------------------ Letter :3
EPA has taken an aggressive approach to reducing the backlogs of
inactive grants and contracts awaiting closeout. During the past 6
years, EPA has implemented several initiatives to address these
backlogs and avert future ones. For example, EPA has developed
automated systems to monitor the closeout process and streamlined
closeout procedures to avoid unnecessary delays. These initiatives
generally involved headquarters-developed strategies that required
implementation by other organizational units. These units are in
EPA's regional grants management or contracting offices that have
primary responsibility for closing out the inactive grants and
contracts. The initiatives vary in terms of scope and length of
time, but they all attempt to focus management's attention on the
issue of closing out inactive grants and contracts. The agency has
developed a strategy for eliminating the backlog of nonconstruction
grants and preventing a future backlog. A separate strategy was
developed to reduce the backlog of wastewater treatment construction
grants that were not closed out.
While EPA has devoted considerable effort and resources to these
initiatives, the closeout requirements and strategies that it
developed have not been consistently implemented. While reviewing
randomly selected files, we found that closeout procedures were not
followed at times and that the strategies to avert a future backlog
of grants requiring closeout were not implemented as required. For
example, notification letters to alert grantees of the required
reports for the closeout process were not always sent at the required
intervals, and closeout strategies developed at the regional offices
did not specifically describe how the plans for regional strategies
would operate. As a result, improvements in the closeout process
were not fully realized.
EPA HAS TAKEN EFFORTS TO
REDUCE THE NUMBER OF
NONCONSTRUCTION GRANTS
REQUIRING CLOSEOUT
---------------------------------------------------------- Letter :3.1
EPA has undertaken several significant efforts to reduce the number
of inactive nonconstruction grants that require closeout. To clarify
and emphasize closeout requirements for grants, EPA, in 1992, issued
a policy--the Final Closeout Policy for Assistance Agreements--to all
EPA organizations that were responsible for closing out grants. This
document sets forth the agency's policy for closing out completed
grants for all EPA programs. To ensure the timely closeout of
grants, the policy requires that the agency's offices and grant
recipients take certain actions within specified time frames. These
time frames include those for agency offices to obtain required
documents from grant recipients and take actions to complete
closeouts. For example, 90 days before a grant ends, EPA is required
to notify the grant recipient of the closeout requirements.
The 1992 policy specifies that completed grants should be closed out
within 180 days after all of their terms and conditions have been
satisfied. For example, one grant that we reviewed, made to a
Georgia county organization for providing environmental information
to teachers, was completed in January 1996 and was closed in May 1996
when the organization received information that the program had been
conducted as described in the project plan and that other terms of
the grant were fulfilled. To ensure the timely submission of
required documents showing that a grant's conditions have been
satisfied, the 1992 policy contains a schedule for sending
notification letters to the grant recipient requesting these
documents. For example, a notification letter that provides
instructions and lists the documents that the recipient must submit
as a part of the closeout process should be mailed 90 days prior to
the grant's ending date. Subsequent notification letters are
required if the documents have not been received.
EPA also implemented a policy in January 1998 to expedite the
closeout of grants that expired prior to October 1, 1990. This
policy provided that EPA could request required documents for several
grants from the same grantee and that if the documents were not
available or the grantee was no longer in existence, the grants could
be closed without the required documents consistent with EPA's
regulations. To avert a future grant backlog, the agency developed a
strategy that includes identifying the required closeout documents
for individual grants before the grants are awarded, requiring each
grants management office to develop a closeout strategy, and
streamlining closeout procedures to improve the effectiveness of the
closeout process.
Other ongoing initiatives taken by EPA include developing a pending
grants closeout database to improve and track closeout information
for EPA's headquarters program and grants management offices, pilot
testing an automated notification system to provide EPA with
information on required reports for closing out inactive grants, and
tracking and monitoring grants by their required closeout dates.
CLOSEOUT PROCEDURES AND
PLANS FOR NONCONSTRUCTION
GRANTS WERE NOT CONSISTENTLY
FOLLOWED OR IMPLEMENTED
---------------------------------------------------------- Letter :3.2
EPA did not always follow its procedures when closing out
nonconstruction grants. Grants were closed out without the
information needed to determine whether their objectives were
accomplished or whether expenditures were made according to plans and
requirements. For example, EPA's closeout procedures require that
the grant project officer certify that the project has been completed
in accordance with the conditions of the grant award. During our
review of 15 randomly selected grant files, we found that only 2
files showed evidence that the final certifications were made by the
project officers.\2 In addition, a follow-up letter requesting
required reports was sent to the grant recipient for only one file.
Appendix I contains additional information on the results of our file
reviews.
EPA also closed out a number of pre-1990 inactive grants without
required documentation by using its January 1998 policy to expedite
the closeout of older grants. Agency officials could not identify
the number of grants that were closed out under this policy. The
implementation of the policy resulted in deviations from the agency's
closeout procedures that might not have been needed if the grants had
been closed out in a timely manner. Deviations from EPA's closeout
procedures were attributed to such factors as EPA's not having
received the final certification of a project's completion from the
project officer or EPA's missing some required closeout reports
(e.g., the final financial status report or federally owned property
report). EPA officials cited these factors as some of the primary
impediments they encountered when closing out the older grants.
The strategy to avert a future backlog was also not consistently
implemented. The regional grants management offices were required to
prepare individual plans for averting a backlog, but our review of
these plans showed that most generally restated the 1992 final
closeout policy. As a result, the issues facing individual grants
management offices were not addressed. Some submitted plans provided
no assurance that another backlog would be averted because they
lacked specific guidance on how they would operate. For example, the
majority of the plans did not identify a specific strategy or
methodology that would be used to accomplish closeout goals, and some
did not contain any closeout strategy. Additional information on the
lack of follow-through on closeout procedures or plans by EPA is
found in appendix I.
--------------------
\2 The selected files were from three locations--Chicago, Illinois;
Atlanta, Georgia; and Washington, D.C.--and were from a universe of
grants that were closed out from 1993 through 1998. The results of
this sample are not projectable to the universe of closed grants.
STRATEGIES HAVE NOT RESULTED
IN THE CLOSEOUT OF ALL
CONSTRUCTION GRANTS
---------------------------------------------------------- Letter :3.3
EPA has developed two closeout strategies for construction grants
during the past 8 years. The objectives of the first strategy,
developed in 1990, were not attained, and actions called for in the
second strategy, developed in 1997, were not fully implemented. The
construction grants program provided grants to municipalities for
individual projects to improve water quality. Fiscal year 1990 was
the final year that funding was authorized for the program. At the
end of that year, 5,860 grant projects totaling $34 billion were yet
to be completed and closed out. After 1990, state revolving funds
were to provide loans for community wastewater treatment
facilities.\3 To close out these grant projects, in November 1990,
EPA developed a closeout strategy that contained eight action
initiatives to expedite the closeout process. The plan had a goal of
closing out all grants by September 30, 1997. If all the initiatives
had been implemented successfully, a substantial portion of the plan
could have been completed by fiscal year 1996, and project audits\4
and closeouts would have occurred shortly thereafter to reach the
goal for fiscal year 1997. This goal presumed that EPA's Office of
Inspector General would take the steps necessary to eliminate the
audit backlog and accelerate the audit process. Completed project
grants were submitted to the Office of Inspector General for a
decision on whether to audit the projects, and the Office had 3 years
to make these decisions. To accelerate these audits, the Office of
Inspector General had changed its audit-screening process in fiscal
year 1995 by identifying 1,400 projects that were subject to review
to determine whether an audit should be performed. The remaining
projects did not have to be screened and could be closed without an
audit. As a result, regional offices had an increased number of
grants that they could close without a decision or audit by the
Office of Inspector General.
In June 1997, EPA issued a second closeout strategy, which recognized
that all construction grants would not be closed out by the end of
fiscal year 1997 for a variety of reasons. The plan stated that 497
of the 5,860 original remaining construction grants would not be
closed out by the end of fiscal year 1997 and that a concerted effort
would be required to close out these grants to prevent additional
delays after fiscal year 1997. This closeout strategy also called
for several initiatives, including reviewing the workload for grants
in each region and identifying impediments to closing grants.
Following the assessments, agreements were to be made between
headquarters and the regions on plans to complete the closeouts and
address the identified impediments. While EPA headquarters officials
discussed impediments with EPA regional personnel, the actions to
address impediments were not documented in regional agreements, and
all of the impediments were not resolved. The plan also called for
an assessment of key headquarters processes affecting the regional
closeouts, but this too was not performed.
--------------------
\3 In the 1987 amendments to the Federal Water Pollution Control Act,
also known as the Clean Water Act, the Congress authorized the
creation of state revolving funds. The federal government provides
annual grants for states to help capitalize their revolving funds,
which are used to make loans to local governments and others to
improve water quality.
\4 EPA's Office of Inspector General may decide to audit any
construction grant.
EPA HAS TAKEN EFFORTS TO
REDUCE THE NUMBER OF
INACTIVE CONTRACTS NEEDING
CLOSEOUT
---------------------------------------------------------- Letter :3.4
EPA took several actions to reduce the number of contracts that
require closeout after we and the Office of Inspector General
reported on the number of contracts that required closeout.\5 In
1994, EPA officials distributed a memorandum instructing contracting
offices to place special emphasis on decreasing the closeout backlog
and closing out the older contracts. EPA also required contracting
offices to establish annual goals for the number of contracts to be
closed. For example, each contracting office submitted its closeout
goals to the Office of Acquisition Management for fiscal year 1998.
These goals were broken out by the age of the contracts--those that
were more than 10 years old, from 5 to 10 years old, and less than 5
years old. In total, all locations planned to close out 347
contracts during fiscal year 1998. As of October 1998, EPA did not
know if this goal had been attained.
During our review, EPA also took several other actions to help reduce
the inventory of inactive contracts. First, EPA verified and is
correcting the information in its automated database on the status of
contracts, which supports its closeout activities. As a result,
officials believe they have more accurate management information on
the remaining contracts to be closed. Second, EPA established goals
for a "reasonable number" of contracts to be closed at each
contracting location and is establishing expectations for when each
location should reach these levels. Third, EPA is revising its
closeout procedures, which the agency hopes will make it easier to
close out more low-dollar-value contracts without a detailed audit.
Audits can add significant time to the closeout process, and because
the audits are generally conducted by other agencies, EPA has limited
control to accelerate the audit process. EPA's acquisition
regulations now allow a quick closeout--without a detailed audit--for
contracts with total costs of $2 million or less. By contrast, the
Federal Acquisition Regulation generally allows for quick closeouts
if a contract's indirect costs are $1 million or less, regardless of
the contract's total costs.\6
EPA plans to eliminate the $2 million criterion in its regulation and
use the $1 million indirect cost criterion specified in the general
Federal Acquisition Regulation. Once the change is implemented, EPA
officials believe that it should reduce the number of required
external audits and expedite the closeout of some contracts.
--------------------
\5 EPA's Contract Management: Audit Backlogs and Audit Follow-Up
Problems Undermine EPA's Contract Management (GAO/T-RCED-91-5, Dec.
11, 1990).
\6 Indirect costs are costs not directly identified with a final cost
objective, such as a contract.
INACTIVE GRANTS AND CONTRACTS
AND EXPECTED CLOSEOUT TIME
FRAMES
------------------------------------------------------------ Letter :4
EPA has made significant reductions in the number of inactive grants
and contracts. For nonconstruction grants, the backlog was reduced
from approximately 18,000 in 1996 to approximately 4,100 as of June
30, 1998, and the number of inactive construction grants was about
500 as of March 1998--reduced from about 5,900 at the end of fiscal
year 1990. Inactive contracts were reduced from 2,000 in 1993 to
about 1,000 as of August 1998. The backlog of inactive
nonconstruction grants will likely be eliminated by 2000, but it is
uncertain when the backlogs of construction grants and contracts will
be eliminated.
CURRENT STATUS OF
NONCONSTRUCTION GRANTS
REQUIRING CLOSEOUT
---------------------------------------------------------- Letter :4.1
EPA has made significant progress in reducing the backlog of
nonconstruction grants, and, as of June 30, 1998, had reduced the
initial backlog of nearly 18,000 identified in 1996 to approximately
4,100. EPA management's attention was focused on the issue in July
1996, when the backlog was reported to be nearly 18,000 by the Office
of Inspector General and determined to be a material weakness. From
1996 through June 30, 1998, 15,548 grants in this backlog were closed
out. Many of these grants had expired over 5 years before they were
closed out. Table 1 displays the progress EPA has made, by grant
expiration date.
Table 1
Number of Nonconstruction Grants Still
Requiring Closeout Action, by Grant
Expiration Date, as of June 30, 1998
Grants Grants Grants
expiring expiring expiring
Grants from from from
expiring Oct. 1, Oct. 1, Oct. 1,
prior to 1990, to 1995, to 1997, to
Oct. Sept. Sept. June 30,
Status of grants 1,1990 30, 1995 30, 1997 1998 Total
-------------------- -------- -------- -------- -------- --------
Total grants needing 5,873 7,103 6,183 541 19,700
closeout
Grants already 5,258 5,878 4,159 253 15,548
closed
Remaining grants to 615 1,225 2,024 288 4,152
be closed
----------------------------------------------------------------------
Source: GAO's presentation of data from EPA's Grants Administration
Division.
In addition to the 4,152 grants remaining to be closed out as of June
30, 1998, there were 1,134 grants that had been completed, but 180
days had not elapsed for them to be classified as inactive. If these
grants are not closed within 180 days after completion, they too will
become a part of the backlog and will increase the number of grants
requiring closeout.
In July 1996, EPA proposed 2000 as the date for eliminating the
backlog of nearly 18,000 nonconstruction grants. If the agency
maintains its current progress and closure rate, the goal may be
achieved earlier. In 1996, the agency also committed itself to
closing out all grants ending after October 1, 1995, within the 180
days allowed after completion. However, as of June 30, 1998, more
than 2,300 grants that ended from October 1, 1995, through June 30,
1998, remained in the backlog.
STATUS OF CONSTRUCTION
GRANTS TO BE CLOSED
---------------------------------------------------------- Letter :4.2
The inventory of construction grants needing closeout action has been
reduced considerably. As of March 1998, 598 construction grants
awarded prior to September 30, 1991, remained open. This represented
a reduction from 5,860 grants that remained open at the end of fiscal
year 1990. Of these 598 grants, 476 were for completed wastewater
treatment projects that had begun operations; therefore, EPA could
begin the closeout process.
EPA's initial plan was to close out all construction grants awarded
prior to September 30, 1990, by September 30, 1997. That goal was
not met, and in a 1996 report to the President and the Congress, EPA
indicated that all pre-1991 construction grant projects will be
closed out by September 2002. It is unlikely, however, that this
goal will be met either. Estimates from EPA's regional offices that
are responsible for closing out grants indicate that not all projects
will be closed out by that date. Several wastewater treatment
construction grants that remain to be closed out involve disputes
between the agency and the grantee regarding whether certain project
costs may be reimbursed with grant funds. These disputes may result
in lengthy administrative appeals. Additionally, while the remaining
grants have been put on firm schedules for completion, the schedules
have been affected by impediments such as the untimely resolution of
grantees' disputes at the regional offices. Some of these
impediments are beyond the control of the regional offices.
STATUS OF CONTRACTS
REQUIRING CLOSEOUT
---------------------------------------------------------- Letter :4.3
EPA has also made significant progress in reducing the backlog of
contracts needing closeout action, but many of the contracts that
remain will probably be more difficult to close. In 1990, we
testified that EPA had almost 2,400 inactive contracts that needed to
be closed,\7 and in 1994, the Office of Inspector General reported
that almost 2,000 needed to be closed.\8 By August 1998, EPA had
reduced that number to 1,028. The closeout process had started for
599 contracts but had not yet begun for 429.
The contracts remaining in EPA's inventory will likely be more
difficult to close because most are cost-reimbursement contracts.\9
Cost-reimbursement contracts of over $2 million are generally subject
to an audit by an outside agency. This requirement adds time to the
closeout process. For contract audits received in 1997, the average
time between the dates when the audit was requested and received was
869 days. Adding to the closeout difficulty, cost reimbursement
contracts are generally more complex than fixed-price contracts and
require more closing documents. In reducing the number of contracts
to be closed out, EPA has focused more on the fixed-price contracts,
which are easier to close out because they do not require detailed
audits and involve less documentation. From October 1993 through
August 1998, EPA closed out 1,165 fixed-price contracts and 949
cost-reimbursement contracts.
A second source of difficulty is the age of the remaining contracts,
37 percent of which have been inactive for over 5 years. The Federal
Acquisition Regulation provides that once a contracting officer
receives evidence of physical completion, an agency should close out
a cost-reimbursement contract within 36 months and a fixed-price
contract within 6 months. Because the inactive contracts were not
closed out within these required time frames, EPA and contractor
personnel are likely to be less knowledgeable about the contracts,
and records are less likely to be readily available than if the
contracts had been closed out on time.
The type and age of the inactive contracts remaining to be closed out
are shown in tables 2 and 3.
Table 2
Type of Inactive Contracts to Be Closed,
as of August 1998
Type of contract Number of inactive contracts
---------------------------------------- ----------------------------
Cost-reimbursement 718
Fixed-price 205
Other 105
======================================================================
Total 1,028
----------------------------------------------------------------------
Source: GAO's analysis of data from EPA's Contract Information
System, as of August 24, 1998. The data reflect corrections based on
reviews by EPA's contract personnel.
Table 3
Age of Inactive Contracts to Be Closed,
as of August 1998
Age of contract\a Number of inactive contracts
---------------------------------------- ----------------------------
Less than 5 years 649
5 to 10 years 295
More than 10 years 84
======================================================================
Total 1,028
----------------------------------------------------------------------
\a Includes contracts that were inactive as of June 30, 1998.
Source: GAO's analysis of data from EPA's Contract Information
System, as of August 24, 1998. The data reflect corrections based on
reviews by EPA's contract personnel.
Besides the audit delays for cost-reimbursement contracts, EPA
officials attributed the size of the inventory to the low priority
that was placed on closing out contracts because of limited staff
resources. EPA has not set a specific date for closing out the
contract inventory; however, the agency determined that an inventory
of about 620 inactive contracts for all contracting locations would
be reasonable--a level requiring a reduction of 40 percent.
According to EPA officials, by maintaining this inventory level, they
will be complying with the Federal Acquisition Regulation's time
frame requirements for closing out contracts. All contracting
locations were required to estimate an inventory level and a date by
which they would attain this level. As of August 1998, all but one
location had provided a range of estimates. In some cases, locations
had already achieved the target inventory level, while others will
not attain it until fiscal year 2001.
--------------------
\7 EPA's Contract Management: Audit Backlogs and Audit Follow-Up
Problems Undermine EPA's Contract Management (GAO/T-RCED-91-5, Dec.
11, 1990).
\8 Final Report of Audit on Contracts Not Closed, EPA/OIG (July
1994).
\9 Under cost-reimbursement types of contracts, the government
reimburses contractors for allowable incurred costs. Fixed-price
contracts generally provide for a firm price.
UNLIQUIDATED OBLIGATION AMOUNTS
------------------------------------------------------------ Letter :5
Significant amounts of unliquidated moneys remain available for
grants and contracts that are awaiting closeout. Using EPA's data
systems and information from the agency's regional offices, we
identified inactive grants and contracts with unliquidated
obligations of approximately $612.1 million that may no longer be
needed for the intended purposes. Of the total unliquidated amount,
$469.8 million represents funds whose use is not subject to statutory
time limits and may therefore be available for deobligation and reuse
for similar program activities if additional funds are not required
to satisfy outstanding project or contract obligations.
As of June 30, 1998, approximately $354.5 million in unliquidated
obligations remained for nonconstruction grants, and of this amount,
approximately $240.1 million was for funds whose obligation authority
did not have a time limit. For construction grants, approximately
$183.2 million remained available as of March 1998. These funds
represent construction grants that were made prior to fiscal year
1992. The projects are complete, and the grants are in the process
of being closed out. The remaining funds may be used for ongoing
projects, may be used for new projects, or may be transferred into
the appropriate state revolving fund. The amounts that are
ultimately available depend on the grantees' final claims and audits
that may disallow claimed amounts. Therefore, the available amounts
may increase or decrease prior to the final closeout.
In addition to grants, inactive contracts that required closeout as
of June 1998 had unliquidated obligated funds of approximately $74.4
million. EPA reserved an additional $141.2 million of unliquidated
obligated funds for these inactive contracts to cover final
expenditures or additional costs. The amount reserved is 10 percent
of the contracts' total expenditures. Approximately $46.5 million of
the $74.4 million is for funds whose obligation authority did not
have a time limit, and the majority of these funds are for EPA's
Superfund program. These funds may be recovered and used for similar
program purposes as allowed by statute.
EPA headquarters routinely requests that the agency's regional and
contracting offices identify funds from grants and contracts that are
available for deobligation. For example, each year, headquarters
requests the contracting offices to identify contracts that have
funds available for deobligation and report whether action is planned
to deobligate the funds. One special effort that we reported on
previously was EPA's concentrated effort to recover unliquidated
funds for work orders and assistance agreements for Superfund
contracts and grants that were completed before 1997.\10 Prior to
1997, EPA experienced continuing problems in recovering unliquidated
funds for inactive Superfund contract work orders and assistance
agreements. We reported that EPA has opportunities to recover $125
million by deobligating Superfund contracts and grants that expired
in 1997.
EPA has concentrated its efforts on Superfund contracts and grants.
For other contracts and grants, headquarters policies encouraging
regional and contracting offices to identify funds available for
deobligation were not effective in the past until the agency made
special efforts to reduce the backlogs.
--------------------
\10 Environmental Protection: Funds Obligated for Completed
Superfund Projects (GAO/RCED-98-232, July 21, 1998).
AGENCY COMMENTS
------------------------------------------------------------ Letter :6
We provided EPA with a draft of this report for review and comment.
The agency generally agreed with the findings in the report and
suggested several technical comments, which we incorporated into the
report. EPA also suggested that information be added to the
methodology section on the time period for liquidating
nonconstruction grant balances. We added the information EPA
suggested and included an additional note to the table in appendix II
to further clarify the time period.
---------------------------------------------------------- Letter :6.1
We conducted our review from December 1997 through November 1998 in
accordance with generally accepted government auditing standards.
Our scope and methodology are presented in appendix III. We are
sending copies of this report to appropriate congressional
committees; interested Members of Congress; the Administrator, EPA;
and other interested parties. We will make copies available upon
request.
Major contributors to this report were Roger Bothun, Jimmie Gilbert,
James Hayward, and John A. Wanska. Please call me at (202) 512-6111
if you or your staff have any questions.
Sincerely yours,
Peter F. Guerrero
Director, Environmental
Protection Issues
GRANT CLOSEOUT PROCEDURES AND
IMPLEMENTATION PLANS
=========================================================== Appendix I
We examined the implementation of the Environmental Protection
Agency's (EPA) Final Closeout Policy for Assistance Agreements and
national strategy to prevent a future backlog. On the basis of a
review of the randomly selected files and other documentation
gathered, we found that the requirements for closing out grants were
not always followed and that actions to prevent a future backlog of
grants requiring closeout were not always taken. Some grants were
closed out without the required basic financial and project
documents, and actions that were to be taken by EPA, as called for in
its national strategy, were not performed.
GRANTS CLOSED WITHOUT REQUIRED
DOCUMENTATION
EPA's Final Closeout Policy for Assistance Agreements requires that
nonconstruction grant projects be closed within 180 days after EPA
receives the required reports. To ensure the timely receipt of the
required reports, EPA is required to alert grant recipients by a
notification letter 90 days before the scheduled end of the grant
project period. The notification letter provides instructions and
identifies documents that a recipient must submit as a part of the
closeout process. If required, subsequent notification letters must
be sent at 30-, 90-, and 120-day intervals after the project's
completion to request that the recipient submit the required closeout
documents. In addition, an EPA grant specialist is to track and
record on a checklist the closeout action milestones as they occur
and make updates to the Grant Information Control System, which
tracks individual grants. This checklist is to be included in the
official grant file.
Within 90 days of a project's completion date, a grant recipient is
to submit to EPA the required closeout reports unless EPA waives the
requirement. The following are among the reports required:
-- Final progress (technical) report (covering progress made for
the entire project).
-- Final financial status report (showing the project's
expenditures and unliquidated balances, if any).
-- Federally owned property reports (listing nonexpendable personal
property owned by the government, if applicable).
-- Invention disclosure reports (showing inventions developed under
the project, if applicable).
-- Final minority business enterprise/women business enterprise
report (showing the utilization of disadvantaged businesses, if
applicable).
-- Final request for payment and/or final EPA automated clearing
house payment request (showing that all payments have been made
and accounts settled, if applicable).
In addition to these reports, a recipient must submit other data,
manuals, specifications, and products required in the grant
agreement, if applicable.
The responsibility for closing out an individual grant is shared by
the grant project officer, Grants Management Office personnel, and
Financial Management Office personnel. The project officer is
required to review and approve the technical reports related to the
grant, ensure that all grant activities have been accomplished, and
certify to the Grants Management Office within 90 days of the
project's completion that the work was performed satisfactorily and
that all technical requirements related to the grant have been met.
The Grants Management Office is required to ensure that the final
certification of the project's completion has been received from the
project officer and that the required reports, including the one
certifying compliance with all terms and conditions of the grant,
have been received. The Grants Management Office is also required to
review and analyze the financial status report. As part of its
review and analysis, the office (1) determines the allowability of
reported indirect costs, (2) reconciles the financial data in the
report with the Integrated Financial Management System's data, (3)
determines whether any unliquidated obligations and/or funds are owed
to EPA and provides the Financial Management Office with instructions
for disposing of the funds, (4) requests a final audit (if
applicable), (5) prepares the closeout amendments and letters, and
(6) retires the file.
The Financial Management Office is required to assist the Grants
Management Office in reconciling a recipient's reported financial
data. The Financial Management Office is also responsible for
reviewing closeout amendments, deobligating unliquidated funds,
billing the recipient for funds owed to EPA, establishing accounts
receivable, and conducting follow- up collection efforts when
applicable. In addition, the Financial Management Office is
responsible for making entries to the automated financial system for
any deobligations and collections of funds and for approving and
processing the recipient's final payment request.
The basic documentation required for closing out a nonconstruction
assistance agreement includes the final financial status report, the
final progress (technical) reports, and the project officer's
certification. Our review of 15 randomly selected grant files
disclosed that many of the required documents were not present, as
indicated in table I.1.
Table I.1
Compliance With Closeout Requirements
for 15 Randomly Selected Grant Files
Number of files
Number of files showing no Number of files
Criterion/ showing evidence evidence of noted as not
Issue policy of compliance compliance applicable
----------------- ---------------- ---------------- ---------------- ----------------
Was the grant EPA should close 3 12 0
and/or out a
cooperative nonconstruction
agreement closed grant project
no later than within 180 days
180 days after after receiving
the project all required
ended? reports and
deliverables.
Did the closeout Closeout policy 0 14 1
process start requires that
prior to the the grant
last 3 months of specialist
the budget/ prepare a
project period? "completion
alert" letter
90 days before
the project
ends.
Was a copy of the Closeout policy 0 3 12
letter sent to requires that
the PO? the grant
specialist send
a copy of the
completion
alert letter to
the PO.
Was an interim Closeout policy 0 5 10
alert requires that
notification within 30 days
letter mailed to after
the grant completion, a
recipient within follow-up
30 days after letter be sent
completion? to the grant
recipient about
the required
closeout
reports.
Was a copy of the Closeout policy 0 3 12
30-day requires that
notification the grant
letter sent to specialist send
the PO? a copy of the
30-day
notification
letter to the
PO.
Was a follow-up Closeout policy 1 11 3
letter sent to requires that
the grant after 90 days
recipient after following
90 days if the completion, a
overdue reports follow-up
were not letter be sent
received? to a grant
recipient with
overdue
reports.
Were copies of Closeout policy 1 7 7
the 90-day requires that
letter sent to copies of the
the PO and the 90-day letter
FMO? be sent to the
PO and the FMO.
Was a final Closeout policy 1 5 9
demand closeout requires that
letter sent to after 120 days
the grantee following
after 120 days completion, a
if the required follow-up
reports were not letter be sent
received? to a grant
recipient with
overdue
reports.
Were copies of Closeout policy 0 3 12
the 120-day requires that
follow-up letter copies of the
sent to the PO 120-day follow-
and FMO? up letter be
sent to the PO
and FMO.
Did the GMO Closeout policy 2 9 4
receive the requires the
final GMO to ensure
certification receipt of the
for the final
project's certification.
completion from
the PO?
Did the file Closeout policy 2 8 5
contain the requires the PO
final progress to review and
(technical) approve the
report? final progress
report.
Did the GMO Closeout policy 7 5 3
reconcile the requires that
FSR's financial the GMO ensure
data with the that the FSR's
IFMS' data? financial data
are reconciled
with the IFMS'
data.
Did the GMO Closeout policy 1 7 7
determine the requires that
allowability of the GMO
the reported determine
indirect costs allowability of
(on the basis of the reported
the assistance indirect costs
agreement's on the basis of
provisions and the assistance
the final agreement's
negotiated provisions and
indirect cost the final
rate)? negotiated
indirect cost
rate.
Did the file have Closeout policy 4 11 0
a closeout requires that
checklist? the GMO record
milestone
events as they
occur on a
locally
prepared
checklist for
inclusion in
the official
agreement file.
Did the PO assess Closeout policy 5 8 2
the grantee's requires that
compliance with the PO ensure
the work plan? that all
deliverables
required under
the award are
received and
are acceptable.
Did the PO Closeout policy 5 5 5
approve the requires that
final progress the PO review
(technical) and approve all
report? technical
reports in
accordance with
the
requirements of
the award and
statement of
work.
Did the PO review Policy requires 0 12 3
and reconcile that the PO and
the FSR with the FMO share
award document? responsibility
for reconciling
differences in
billing and
payments and
for determining
the final
payment due the
recipient.
-----------------------------------------------------------------------------------------
Legend
FMO Financial Management Office
FSR Financial status report
GMO Grants Management Office
IFMS Integrated Financial Management System
PO Project officer
ACTIONS NOT TAKEN TO PREVENT
FUTURE BACKLOGS
EPA did not take specific actions identified in the agency's national
strategy to avert a future backlog of assistance agreements. EPA's
national strategy policy applies to nonconstruction grants that were
awarded after October 1, 1995. The national strategy primarily
addresses the following five issues and the actions to address the
issues:
-- Identifying closeout reports prior to an award. For grants
awarded after October 1, 1997, the Grants Management Office, in
conjunction with the project officer, is to identify the
required closeout reports in the file at least 30 days before or
at the time of the award. To facilitate the closeout process
and avoid waiting for unnecessary closeout reports, the Grants
Management Office, in conjunction with the project officer, is
required to document the reports that the recipient will need to
close out the inactive project.
-- Streamlining the number of closeout procedures. To expedite the
closeout process and prevent another backlog, the Grants
Administration Division streamlined two procedures involving the
property and invention reports.
-- Requiring Grants Management Offices to develop a closeout
strategy. Grants Management Offices were to develop a closeout
strategy and certify to the Grants Administration Division by
April 1, 1998, that a plan had been implemented to prevent
another backlog. Revised strategies are to be developed and
provided for the Grants Administration Division by January 1 for
subsequent years.
-- Analyzing the efficacy of the closeout strategies. The Grants
Administration Division will periodically assess the strategies
and provide the Grants Management Offices with the results.
-- Testing Region VI's notification system in headquarters. The
Grants Administration Division will test the system and
determine whether to make the system available to regional
Grants Management Offices in fiscal year 1999.
Our review of 15 files for grants that had recently been awarded
showed that none of the files included or identified the data needed
before an award is made. In addition, the files showed no evidence
that the Grants Management Offices are identifying and documenting
the closeout reports that recipients need to expeditiously close out
inactive grants. Moreover, as previously noted, some of the Grants
Management Offices' strategic plans to avert a future backlog did not
identify a specific strategy or methodology that would meet the goals
identified in the plan. On the basis of the conditions we observed,
we concluded that the Grants Management Offices' strategies do not
ensure that a future backlog will be averted.
UNLIQUIDATED AMOUNTS FOR INACTIVE
GRANTS BY APPROPRIATION CATEGORY,
AS OF JUNE 30, 1998
========================================================== Appendix II
(Dollars in millions)
Appropriation time period\a
----------------------------------------------------------
Appropriation category No-year 2-year 1-year
----------------------------- ------------------ ------------------ ------------------
Wastewater treatment (pre- $183.2\b $0 $0
1992)
State revolving funds 60.8 0 0
State and tribal assistance 91.4 0 0
grants
Superfund grants 26.7 0 0
Leaking Underground Storage 35.9 0 0
Tank Trust Fund
Oil Pollution Act Trust Fund 0.1 0 0
Environmental program 0 100.7 0
management and abatement
control and compliance
Science and technology, and 17.4 6.9 0
research and development\c
Other, including 7.8 6.3 0.5
reimbursables
Total\d $423.3 $113.9 $0.5
-----------------------------------------------------------------------------------------
\a No-year authority is budget authority that remains available for
obligation for an indefinite period of time. One-year and 2-year
authority is available for obligation during only one or two specific
fiscal years, respectively, and expires, if not obligated, at the end
of that time.
\b As of March 31, 1998.
\c Includes Superfund moneys transferred to science and technology.
\d Total amount includes $14.4 million for completed nonconstruction
grants that were within the 180-day closeout period and were not
classified as inactive as of June 30, 1998.
SCOPE AND METHODOLOGY
========================================================= Appendix III
To review EPA's efforts to reduce the number of completed grants and
contracts that should be closed out, we interviewed EPA officials at
selected locations to discuss the initiatives taken and planned to
reduce the number of completed contracts and grants. We reviewed
documents related to EPA's efforts, including regulations, policies,
and closeout strategy plans. We also reviewed 15 closed out grant
files and 5 closed out contract files that were randomly selected to
assess EPA's compliance with established closeout requirements. The
grant files were reviewed at EPA headquarters and at the agency's
regional offices in Atlanta, Georgia, and Chicago, Illinois. The
contract files were selected and reviewed at the Contracts Management
Division in Research Triangle Park, North Carolina. For wastewater
treatment construction grants, we interviewed officials and reviewed
documents from EPA's regional offices in New York, New York; Boston,
Massachusetts; Philadelphia, Pennsylvania; and EPA headquarters. To
assess the implementation of EPA's strategy to prevent a future
backlog of grants, we reviewed the national strategy plan and
regional implementation plans. We also randomly selected 15 files of
recently awarded grants to determine if the strategy's measures had
been implemented. These files were located at the same offices as
those for the grant selections previously mentioned.
To identify the number of completed grants and contracts that should
be closed, we obtained data from EPA headquarters and analyzed the
data to determine the status of grants and contracts closed and
remaining to be closed as of June 30, 1998. For wastewater treatment
construction grants, we requested that EPA obtain information on the
number of inactive grants as of March 1998. To determine when
completed grants and contracts are expected to be closed, we reviewed
EPA's closeout strategies that contained expected completion dates
and discussed these dates with EPA officials. We also discussed with
EPA officials the impediments to closing grants and contracts.
To determine the amount of unliquidated obligations for completed
grants and contracts that should be closed, we developed data from
EPA's financial databases, which included the Integrated Financial
Management System, the Contract Information System, and the Grants
Information Control System. Unliquidated obligations are associated
with grants completed between October 31, 1991, and June 30, 1998.
These dollars also include amounts not in the closeout backlog (i.e.,
within 180 days of the completion date). For wastewater treatment
construction grants, we obtained unobligated amounts as part of EPA
headquarters' March 1998 request to EPA's regional offices. To
verify these automated data, we randomly selected 15 grant files and
5 contract files and verified selected financial information against
data contained in the automated systems. We found no significant
differences in the data. We conducted our review from December 1997
to November 1998 in accordance with generally accepted government
auditing standards.
*** End of document. ***