	Grants Play a Significant Role in Implementing and Funding Federal Programs

The federal government’s use of grants to achieve national objectives and  respond to emerging trends, such changing demographics and changing  threats to homeland security, has grown significantly in the last two  decades. According to the Office of Management and Budget (OMB), from  fiscal years 1990 to 2010, federal outlays for grants to state and local  governments increased from $135 billion to $608 billion—almost one-fifth  of the federal budget and a 350 percent increase since fiscal year 1990 (see  fig. 1). In fiscal year 2010, OMB identified 23 federal grant–making  departments and agencies that offered over 1,670 federal grant programs. Risks and Vulnerabilities Exist in Key Controls in the Grant Life Cycle

In awarding federal grants, effective oversight and internal control is of  fundamental importance in assuring the proper and effective use of federal  funds to achieve program goals. Effective internal control systems provide  reasonable assurance to taxpayers that grants are awarded properly,  recipients are eligible, and federal funds are used as intended and in  accordance with applicable laws and regulations. The grant life  cycle is shown in figure 2. Overall our work on grant management and oversight issues found  weaknesses in the control systems of the stages of the grant life cycle: the  preaward and award stages, implementation, and close out. Federal agencies are dependent on the design and  implementation of recipients’ grant management programs to ensure that  federal funds are used for their intended purposes and are appropriately  safeguarded. Attention Is Needed To Address Governmentwide Issues

Through our work, we found that weaknesses in grant oversight and  accountability issues that span the government. For example, in August 2008, we reported that  during calendar year 2006 about $1 billion in undisbursed funding  remained in expired grant accounts in the largest civilian grant payment  system. The expired but still open grant accounts found were associated  with thousands of recipients and over 325 different federal programs. Many Grant Programs Have Significant Levels of Improper Payments

Federal agencies reported improper payments of an estimated $125.4  billion in fiscal year 2010. This $125.4 billion estimate comes from over 70  programs spread among 20 federal agencies. Many of those programs  reporting improper payments were federal grant programs. Improvements Are Needed to Make Single Audits a More Effective Accountability Mechanism over Federal Grant Funding

OMB has indicated that single audits play a key role in the achievement of  its accountability over federal grant funding. We and others have  identified and reported on significant concerns with the Single Audit  process that diminish its effectiveness as an oversight accountability  mechanism and concluded that improvements are needed. The Federal Oversight Structure Is Not Adequate to Monitor the Efficiency and Effectiveness of the Single Audit Process

in June 2007, which raised significant concerns about the  quality of single audits and made recommendations aimed at improving the quality of those  audits. The four areas of recommendations included  (1) instilling federal leadership over the single audit process to improve  program accountability and reduce improper payments;  (2) managing risks by refocusing the single audit to include those  nonfederal entities that present the greatest risk of improper payments;  (3) improving the access to information in single audit reports to enhance  federal agency follow-up of audit findings and to coordinate single audit  and improper payments analysis and results; and  (4) amending the stated purposes of the Single Audit Act of 1984, as  amended, to emphasize the importance of acting on single audit findings  as a way to reduce the risk of improper payments. Need to Focus on High- Risk Activities, Programs, and Recipients While Potentially Streamlining, Simplifying, or Reducing Focus on Areas of Low Risk

Single audit stakeholders have raised concerns about the complexity and  relative costs and benefits of the audit requirements for single audits,  especially at the smaller entities. OMB Has Implemented Some Recommendations but More Work Is Needed

OMB has taken initiative and is conducting studies to improve the Single  Audit process but time frames for implementing the results of these  studies are unclear. Legal Services Corporation: Improvements Needed in Controls over  Grant Awards and Grantee Program Effectiveness. Legal Services Corporation: Improved Internal Controls Needed in  Grants Management and Oversight. American Samoa: Accountability for Key Federal Grants Needs  Improvement. This is a work of the U.S. government and is not subject to copyright protection in the  United States.
Why GAO Did This Study

While federal grant funding has been increasing, long-standing concerns remain about the federal government's grants management and the lack of effective oversight tools to reasonably assure that grants are used for their intended purposes and that risks of fraud, waste, and abuse are minimized. GAO has issued a range of reports raising concerns about the risks and vulnerabilities related to grants management and oversight. The Administration recognizes these concerns. It included improving grants management as a part of its initiative to eliminate waste in the U.S. government and has various efforts underway to improve grants oversight and accountability. This testimony addresses the (1) significance of federal grant funding, (2) risks and vulnerabilities in key controls in the federal grant life cycle, and (3) improvements needed to make the single audit process an effective accountability mechanism. This testimony is primarily based on prior GAO work that reviewed grant accountability and the single audit process.

What GAO Found

Grants Play a Significant Role in Implementing and Funding Federal Programs: The federal government's use of grants to achieve national objectives and to respond to emerging trends, such as changing demographics and changing threats to homeland security, has grown significantly in the last two decades. From fiscal years 1990 to 2010, federal grant outlays to states and local governments, increased from about $135 billion to over $600 billion--almost one-fifth of the fiscal year 2010 federal budget, according to the Office of Management and Budget (OMB). In fiscal year 2010, over 1,670 federal grant programs were offered by 23 federal grant-making departments and agencies. Risks and Vulnerabilities Exist in Key Controls in the Grant Life Cycle: Organizations that award and receive grants need effective internal control over the processes and funds involved. These controls are fundamental in assuring the proper and effective use of federal funds to achieve program goals and to ensure that funds are used for their intended purposes. Overall, our work on grant management has found weaknesses in the control systems of federal awarding agencies. We found vulnerabilities at different points in the grant life cycle: in the preaward, award, implementation, and closeout stages. Furthermore, we observed oversight issues that exist across the government. For example, in 2008 we reported that in 2006 about $1 billion remained in undisbursed funding in expired grant accounts in the largest civilian grant payment system, which was associated with thousands of grantees and over 325 different federal programs and could have been identified through improved oversight and grant tracking. In addition, federal agencies reported an estimated $125.4 billion in improper payments for fiscal year 2010. This estimate was attributable to over 70 programs spread across 20 agencies. Many of those programs reporting improper payments were federal grant programs, including Medicaid. Improvements Are Needed to Make Single Audits a More Effective Accountability Mechanism Over Grant Funding: The single audit process for organizations spending $500,000 or more in federal grant awards in a year is intended to play a key role in achieving accountability over federal grant resources. These audits report on the financial statements and internal controls over compliance with laws and grant provisions, among other things. GAO and others have identified and reported on significant concerns with the single audit process that diminish its effectiveness as an oversight accountability mechanism and concluded that improvements are needed. Through our work we found that (1) the federal oversight structure is not adequate to monitor the efficiency and effectiveness of the single audit process; (2) time frames of the single audit process do not facilitate the timely identification and correction of audit findings; and (3) single audit stakeholders have raised concerns about the complexity and relative costs and benefits of the single audit requirements, especially at smaller entities. Currently, OMB is conducting initiatives looking to improve the process, but time frames for implementing the results of ongoing studies are unclear. Through our body of work on federal grant accountability, GAO has made numerous recommendations directed at improving management and oversight. Our recommendations include a range of actions at the agency and governmentwide levels.