	Undisbursed Balances in Expired Grant Accounts Have Declined but More Action Is Needed

We found that as of September 30, 2011, more than $794 million in  undisbursed balances remained in PMS in 10,548 expired grant  accounts. These are accounts that were more than 3 months past the  grant end date, had no activity for 9 months or more, and therefore should  be considered for grant closeout. This is an improvement from 2008,  when we reported that at the end of calendar year 2006, roughly $1 billion  in undisbursed funding remained in expired PMS grant accounts. This improvement is notable given that the overall amount of  grant disbursements through PMS increased by about 23 percent from  2006 to 2011. First, we found that undisbursed balances remained in grant accounts  several years past their expiration date. We found that 991 expired grant  accounts containing a total of $110.9 million in undisbursed funding were  more than 5 years past the grant end date at the end of fiscal year 2011. Of these, 115 expired grant accounts containing roughly $9.5 million in  undisbursed funding remained open more than 10 years past the grant  end date. Raising the Visibility of Grant Closeout Can Lead to Improvements

We have found that when agencies made concerted efforts to address  timely grant closeout, they, their inspectors general, and auditors reported  that they were able to improve the timeliness of grant closeouts and  decrease the amount of undisbursed funding in expired grant accounts. While we found that  roughly three-fourths of all undisbursed balances in expired PMS grant  accounts were from grants issued by HHS, we also found that the total  undisbursed balances in these accounts represented the lowest  percentage (2.7 percent) for any federal department included on the   In comments on our draft report,  September 30, 2011, closeout report.HHS reported that it had identified $116 million in undisbursed balances  in PMS available for deobligation through a special initiative begun in  2011 and is updating existing department policies and procedures to  improve the grant closeout process going forward. In our review of CFO Act agencies’ annual performance reports  for fiscal years 2009 to 2011, we found that systematic, agencywide  information on undisbursed balances in grant accounts eligible for  closeout was largely lacking. GAO Recommends that OMB Issue Governmentwide Guidance to Track and Report on Undisbursed Balances in Grants Eligible for Closeout

In our 2012 grant closeout report, we reiterate our recommendation that  OMB instruct all executive departments and independent agencies to  report on the status and resolution of the undisbursed funding in grants  that have reached the grant end date in their annual performance reports,  the actions taken to resolve the undisbursed funding, and the outcomes  associated with these actions. Instruct agencies with undisbursed balances still obligated to grants  several years past their grant end date to develop and implement  strategies to quickly and efficiently take action to close out these  grants and return unspent funds to the Treasury when appropriate. OMB staff said that they generally agreed with the recommendations and  will consider them as they review and streamline grant policy guidance. The challenge presented by undisbursed balances in expired grant  accounts is just one of a number of grants management challenges we  have identified in our past work. As the  federal government confronts long-term and growing fiscal challenges, its  ability to maintain the flow of intergovernmental revenue, such as through  grant programs, could be constrained. To make the best use of federal  grant funds, it is critical to address grants management challenges that  could impact the efficiency and effectiveness of federal grants processes. While Grants Have Consistently Been a Significant Component of Federal Spending, the Focus of Grants Outlays Has Shifted In the Last 30 Years

Grants have been, and continue to be, an important tool used by the  federal government to provide program funding to state and local  governments. According to OMB, federal outlays for grants to state and  local governments increased from $91 billion in fiscal year 1980 (about  $221 billion in 2011 constant dollars) to over $606 billion in fiscal year  2011. Specifically,  they are the streamlining of grants management processes; the  measurement of grant performance; grant lessons learned from  implementing the American Recovery and Reinvestment Act of 2009  (Recovery Act); and internal control weaknesses in grants management  processes.
Why GAO Did This Study

As the federal government confronts long-term fiscal challenges, it is critical to improve the efficiency of federal grants processes, such as grant closeout procedures that allow for the return of unspent balances to the Treasury. In 2008, GAO reported that about $1 billion in undisbursed funding remained in expired grant accounts in the largest civilian payment system for grantsPMS. For this statement, GAO provides information from its April 2012 report updating its 2008 analysis. GAO also describes federal grant spending over the last three decades and discusses other grant management challenges identified in its past work and that of others.
This testimony addresses (1) the amount of undisbursed funding remaining in expired grant accounts; (2) actions OMB and agencies have taken to track undisbursed balances; (3) GAO recommendations to improve grant closeout; (4) recent and historical funding levels for federal grants; and (5) GAOs ongoing and future work on grants management issues.

What GAO Found

Closeout is an important final point of grants accountability. It helps to ensure that grantees have met all financial and reporting requirements. It also allows federal agencies to identify and redirect unused funds to other projects and priorities as authorized or to return unspent balances to the Department of the Treasury (Treasury). At the end of fiscal year 2011, GAO identified more than $794 million in funding remaining in expired grant accounts (accounts that were more than 3 months past the grant end date and had no activity for 9 months or more) in the Payment Management System (PMS). GAO found that undisbursed balances remained in some grant accounts several years past their expiration date: $110.9 million in undisbursed funding remained unspent more than 5 years past the grant end date, including $9.5 million that remained unspent for 10 years or more. Nevertheless, the more than $794 million in undisbursed balances remaining in PMS represents an improvement in closing out expired grant accounts with undisbursed balances in PMS compared to the approximately $1 billion GAO found in 2008. This improvement is notable given that the overall amount of grant disbursements through PMS increased by about 23 percent from 2006 to 2011.
When agencies made concerted efforts to address timely grant closeout, they and their inspectors general and auditors reported that they were able to improve the timeliness of grant closeouts and decrease the amount of undisbursed funding in expired grant accounts. GAO found that raising the visibility of the problem within federal agencies can also lead to improvements in grant closeouts. However, GAOs review of agencies annual performance reports for fiscal years 2009 to 2011 found that systematic, agencywide information on undisbursed balances in grant accounts eligible for closeout is still largely lacking.
The challenge presented by undisbursed balances in expired grant accounts is just one of a number of grants management challenges identified in past GAO work. Addressing these challenges is critical to increasing the efficient and effective use of federal grant funds, which represent a significant component of overall federal spending. According to the Office of Management and Budget (OMB), federal outlays for grants to state and local governments, including Medicaid, increased from $91 billion in fiscal year 1980 (about $221 billion in 2011 constant dollars) to more than $606 billion in fiscal year 2011, accounting for approximately 17 percent of total federal outlays. During this 30-year period there has been a shift in grant spending, increasing the percentage of grant funding of Medicaid while decreasing the percentage of funding of non-Medicaid-related grant programs.
GAO work on grants over the last decade has identified a range of issues related to the management of grant programs, including the streamlining of grants management processes, the measurement of grant performance, grant lessons learned from implementing the American Recovery and Reinvestment Act of 2009, and internal control weaknesses. GAO will be looking at each of these grants management issue areas in future work for this Subcommittee.

What GAO Recommends

For grant closeout, GAOs April 2012 report recommended OMB revise future guidance to better target undisbursed balances and instruct agencies to take action to close out grants that are past their end date or have no undisbursed balances remaining. OMB staff said they generally agreed with and will consider the recommendations.