Ten bureaus and posts accounted for the majority of federal  assistance obligations that State made in fiscal year 2012 (see table 1). State Has Established Policies and Guidance That Provide a Supportive Environment for Administering and Overseeing Grants State’s Policies Incorporate Federal Regulations

State has established a core set of policies and guidance incorporating  federal regulations for administering and overseeing grants. In particular, grants officials have not adhered  consistently to State’s policies about identifying, assessing, and mitigating  risks associated with the grants we reviewed. Furthermore, grants  officials do not always document the implementation of key internal  controls activities as required. Of the 45 grants that  underwent a risk identification process, 28 had risks identified. 2). The grants  officials, however, did not reflect these risks in a risk mitigation or  monitoring plan. Grants Officials Often Did Not Document Control Activities

Grants officials in the sample of grants we reviewed generally did not  adhere to State policies and procedures relating to documenting control  activities. 3). Grants Officials Cited Several Reasons for Nonadherence to Risk Analysis and Documentation Requirements, and State Does Not Have Processes for Ensuring Compliance

GOs and GORs we interviewed cited a variety of reasons for not  conducting the required risk analysis and documentation, including a  misunderstanding of State policies and guidance, a heavy workload, and  a lack of staff expertise. However, we found  that most of the grant files we reviewed did not contain evidence of an  appropriate risk analysis or were missing other required internal control  documentation, and State has not developed processes for ensuring that  grants officials implement these requirements. As a  result, State cannot be certain that its oversight of grants management is  adequate or that it is using its limited oversight resources effectively. Recommendations for Executive Action

To help ensure that State’s grants officials fully implement grants  management policies and internal controls that are in place, and that  grant funds are used as intended, we recommend that the Secretary of  State take the following two actions:  Develop processes to help ensure that bureaus and missions conduct appropriate risk assessments, and grants officials complete required documentation for all grants. In addition, we recommend that the Secretary of State take the following  action:  follow up systematically on recommendations from State’s internal  reviews of its grants management. In  addition, State concurred with our recommendation to follow up  systematically on recommendations from State’s internal reviews of its  grants management. Appendix I: Objectives, Scope, and Methodology

Our objectives were to examine (1) the policies and guidance that the  Department of State (State) has established to administer and oversee  grants and cooperative agreements, and (2) the extent to which the  implementation of those policies and guidance provides reasonable  assurance that funds are being used as intended. To assess the extent to which State’s policies and guidance provide  reasonable assurance that funds are being used as intended, we  assessed State’s policies and guidance for grants management against  the implementation of those policies, as well as reviewing State’s own  process for conducting internal assessments of the implementation of  those policies. To further determine how State implements these policies, we selected  three case study countries —Afghanistan, Cambodia, and Turkey—  based on criteria that included total dollar value of grants in a country,  geographic diversity, and balance among the bureaus involved in  managing the awards. Washington, D.C.:  March 28, 2012. GAO-11-1.
Why GAO Did This Study

Grants are key tools that State uses to conduct foreign assistance. In fiscal year 2012, State obligated over $1.6 billion worldwide for around 14,000 grants to individuals and organizations for a variety of purposes, such as fostering cultural exchange and facilitating refugee resettlement. However, recent GAO and Inspectors General reports have identified challenges with State's management of these funds. This report examines (1) the policies and guidance that State has established to administer and oversee grants, and (2) the extent to which the implementation of those policies and guidance provides reasonable assurance that funds are being used as intended. GAO analyzed State's policies and guidance, and interviewed cognizant grants officials at 14 bureaus headquartered in Washington, D.C., and three overseas missions (Afghanistan, Cambodia, and Turkey). GAO also conducted file reviews for a sample of 61 grants totaling approximately $172 million. Selection criteria included total dollar value of grants in a country, geographic diversity, and balance among bureaus.

What GAO Found

The Department of State (State) has established policies and guidance that provide a supportive environment for managing grants and cooperative agreements (grants). In addition, State provides its grants officials mandatory training on these policies and guidance, and routinely identifies and shares best practices. State's policies are based on federal regulations, reflect internal control standards, and cover topics such as risk assessment and monitoring procedures. State's policies also delineate specific internal control activities that grants officials are required to both implement and document in the grant files as a way of promoting accountability (see fig.).
GAO found that inconsistent implementation of policies and guidance weakens State's assurance that grant funds are used as intended.
Inadequate risk analysis . In most of the files GAO reviewed, grants officials did not fully identify, assess, and mitigate risks, as required. For example, officials conducted a risk identification process for 45 of the 61 grants that GAO reviewed. While grants officials identified risk in 28 of those 45 grants, they mitigated risks in only 11.
Poor documentation . Grants officials generally did not adhere to State policies and procedures relating to documenting internal control activities. For example, 32 of the 61 files reviewed did not contain the required monitoring plan. Considerable turnover among grants officials makes documenting internal control activities particularly important. State's periodic management reviews of selected bureaus' and overseas missions' grant operations have also found that key documentation was frequently missing or incomplete and made recommendations to address the problem. However, State has not consistently followed up to ensure the implementation of these recommendations, as internal control standards require.
State does not have processes for ensuring compliance with risk analysis and documentation requirements. Without the proper implementation of its internal control policies for grants management, State cannot be certain that its oversight is adequate or that it is using its limited oversight resources effectively.

What GAO Recommends

GAO recommends that the Secretary of State develop processes for ensuring that (1) bureaus and missions conduct appropriate risk assessments and (2) grants officials complete required documentation. GAO also recommends that the Secretary of State (3) follow up systematically on recommendations from State's internal reviews of its grants management. State concurred with GAO's recommendations.