Out  of an $7.6 billion fiscal year 2003 budget, EPA awarded $4.2 billion in grants  and $934 million in contracts, as shown in figure 1. In fiscal year 2003, EPA awarded $656 million in discretionary grants. Discretionary Grant and Contract Funding Have Had Similar Trends, but Existing Data Make It Difficult to Analyze Trends in Goods and Services

EPA’s funding for discretionary grants and contracts have had similar  trends from fiscal years 1993 through 2003, and this trend suggests there  has been limited migration between discretionary grant and contract funds  in EPA’s budget over this period. We estimate,  on the basis of our survey responses from recipients of discretionary grants  closed in fiscal years 2001 and 2002 and that had project start dates after  October 1, 1997, that the majority of discretionary grants’ goods and  services fell into three categories:  research and development; training,  workshops, and education; and journals, publications, and reports. EPA Generally Has More Specific Procedures Than Other Federal Agencies but Often Does Not Adequately Document Its Reasons for Choosing a Grant or a Contract

EPA has procedures to guide decisions on choosing a grant or a contract,  but often has not followed one of its most important procedures— documenting in its award decision memorandums the reasons for choosing  a grant instead of a contract. It is unclear whether  this documentation shortcoming obscured inappropriate decisions to use  grants instead of contracts. On the one hand, on the basis of our survey  results, we estimate that 8 percent of EPA’s grantees would identify EPA as  the grant’s primary and direct beneficiary. This estimate could suggest that  the principal purpose of the award was to acquire property or services for  EPA’s direct benefit, and that EPA should therefore have awarded some  grants as contracts. However, for those grant recipients we surveyed who  identified EPA as the grant’s primary and direct beneficiary, we could not  determine from our file reviews and grantee interviews that the principal  purpose of the award was to benefit EPA directly and that a contract  should have been used instead. Conclusions

Although EPA has specific guidance to implement the Federal Grants and  Cooperative Agreement Act, our review showed that EPA often did not  follow its own requirements for adequately documenting in its decision  memorandums the reasons for choosing a grant or a cooperative  agreement instead of a contract. Key contributors to this report are listed in appendix V.

Objectives, Scope, and Methodology

Our objectives were to determine (1) the trends over the last 11 years on  the Environmental Protection Agency’s (EPA) expenditures on grants and  contracts and the types of goods and services obtained by each and (2) the  extent to which EPA has and follows procedures for deciding when to use  grants or contracts. Was this financial assistance award made in the form of a grant or a cooperative  agreement?
Why GAO Did This Study

Grants and contracts constitute over two-thirds of the Environmental Protection Agency's (EPA) budget. In fiscal year 2003, EPA awarded $3.6 billion in grants directed by Congress, $656 million in grants awarded at its own discretion, and $934 million in contracts. Under the Federal Grant and Cooperative Agreement Act of 1977, whether EPA should award a grant or a contract depends upon the principal purpose of the award. In this context, GAO was asked to determine (1) the trends over the last 11 years on EPA's expenditures on discretionary grants and contracts and the types of goods and services obtained by each and (2) the extent to which EPA has and follows procedures for deciding when to use grants or contracts.

What GAO Found

EPA's funding for discretionary grants and contracts had similar trends from fiscal years 1993 through 2003, suggesting limited migration between these funds in EPA's budget over this period. Although EPA grants data provide little information on goods and services obtained with discretionary grants, GAO estimates, based on its survey of grantees with grants closed in fiscal years 2001 and 2002 and that had project start dates after October 1, 1997, that the majority of goods and services fell into three categories: (1) research and development; (2) training, workshops, and education; and (3) journals, publications, and reports. EPA has specific procedures to guide decisions on choosing grants or contracts but often has not followed a very important one--documenting in its award decision memorandums the reasons for choosing a grant instead of a contract. EPA procedures define staff roles and responsibilities, provide examples of when to use a grant or a contract, and require documentation in the award decision memorandum to justify the use of a grant or a contract. However, in 64 percent (43 of 67) of the memorandums GAO reviewed, EPA did not fully justify its reasons for choosing a grant instead of a contract. It is unclear whether this shortcoming obscured inappropriate decisions to use grants instead of contracts. On the one hand, GAO's survey results showed that an estimated 8 percent of EPA's discretionary grantees would identify EPA as the primary and direct beneficiary. This estimate could suggest that the principal purpose of the grant award was acquiring property or services for EPA's direct benefit, and that EPA should have awarded some grants as contracts. However, for those grantees who identified EPA as the grant's primary and direct beneficiary, GAO's review of grant files and follow-up interviews indicated that some of these grants benefited both the federal government and the public and therefore could arguably have been awarded as either a grant or a contract.