In fiscal year  2005, EPA awarded about $2.4 billion in nondiscretionary grants. EPA Has Strengthened the Award Process, but Lack of Key Documentation Raises Accountability Concerns

EPA has strengthened its award process by, among other things,  expanding competition to select the most qualified applicants. EPA also issued a policy to require certain nonprofit  organizations to document that they have administrative and financial  systems to manage grants. While EPA has improved its award process, its internal reviews in program  and regional offices have found that staff do not always fully document  their reviews of grantees’ cost proposals. This documentation problem may hinder  EPA’s ability to ensure the reasonableness of its grantees’ estimated costs  for performing the proposed work. Because of the continuing problems  with documenting cost reviews, EPA is reexamining its cost review policy  for grants. In-depth Monitoring Results Can Be Analyzed Nationwide to Identify Problems, but Staff Do Not Always Document Whether Corrective Actions Have Been Taken

EPA has begun to review the results of its in-depth monitoring to identify  systemic grantee problems, but staff do not always document whether  grantees have taken corrective actions. A lack of documentation  raises questions about the adequacy of the project officers’ and grant  specialists’ ongoing monitoring of grantee performance. During closeout, EPA ensures that the grant recipient  has met all financial requirements and provided final technical reports,  and ensures that any unexpended balances are “deobligated” and returned  to the agency. EPA’s current performance measure  for closing out grants is a valuable tool for determining if grants were  ultimately closed out. In fact, for fiscal year 2005, EPA closed out  only 37 percent of the grants within the 180 days. However, it took the region an additional 591 days after the grantee  provided the final reports to close out the grant. EPA Has Initiated Actions to Obtain Results from Grants, but Its Efforts Are Not Complete

EPA has taken steps to obtain environmental results from its grants, but  its efforts are not complete. EPA included a performance measure in its  Grants Management Plan for identifying expected environmental results  from grants and issued an environmental results policy, effective in  January 2005. To assess the agency’s effectiveness in implementing its environmental  results policy, EPA identified seven criteria that grant agreements should  meet. Furthermore, EPA acknowledges that it has not  identified better ways to integrate its systems for reporting on the results  of grants. While EPA has taken positive steps by  issuing a results policy, OMB’s evaluation of EPA grant programs in 2006  indicate that EPA must continue its concerted efforts to achieve results  from its grants. EPA Has Taken Steps to Manage Grants Staff and Resources More Effectively but Still Faces Major Management Problems

EPA has taken steps to manage grants staff and resources more effectively  in four key areas: (1) analyzing workload; (2) providing training on grant  policies; (3) assessing the reliability of the agency’s grants management  computer database; and (4) holding managers and staff accountable for  successfully fulfilling their grant responsibilities. Nevertheless,  management attention to these four issues is still needed. Holding managers and staff accountable. In response, EPA issued a  plan in January 2006 to ensure that the agency’s new performance  appraisal system addresses grants management responsibilities. Mr. Chairman, about 3 years into its Grants Management Plan, 2003- 2008, EPA has made important strides in achieving its grant reforms, but it  has not resolved its long-standing problems in documenting ongoing  monitoring and closing out grants.
Why GAO Did This Study

The Environmental Protection Agency (EPA) has faced challenges for many years in managing its grants, which constitute over one-half of the agency's budget, or about $4 billion annually. EPA awards grants through 93 programs to such recipients as state and local governments, tribes, universities, and nonprofit organizations. In response to concerns about its ability to manage grants effectively, EPA issued its 5-year Grants Management Plan in 2003, with performance measures and targets. This testimony is based on GAO's May 2006 report, Grants Management: EPA Has Made Progress in Grant Reforms but Needs to Address Weaknesses in Implementation and Accountability (GAO-06-625). GAO examined EPA's progress in implementing its grant reforms in four key areas: (1) awarding grants, (2) monitoring grantees, (3) obtaining results from grants, and (4) managing grant staff and resources.

What GAO Found

EPA has made important strides in achieving the grant reforms laid out in its 2003 Grants Management Plan, but weaknesses in implementation and accountability continue to hamper effective grants management in four areas. First, EPA has strengthened its award process by, among other things, (1) expanding the use of competition to select the most qualified applicants and (2) issuing new policies and guidance to improve the awarding of grants. However, EPA's reviews found that staff do not always fully document their assessments of grantees' cost proposals; GAO also identified this problem in one region. Lack of documentation may hinder EPA's ability to be accountable for the reasonableness of a grantee's proposed costs. EPA is reexamining its cost review policy to address this problem. Second, EPA has made progress in reviewing its in-depth monitoring results to identify systemic problems, but long-standing issues remain in documenting ongoing monitoring and closing out grants. EPA and GAO found that staff do not always document ongoing monitoring, which is critical for determining if a grantee is on track in meeting its agreement. Without documentation, questions arise about the adequacy of EPA's monitoring of grantee performance. In addition, grant closeouts are needed to ensure that grantees have met all financial requirements, provided their final reports, and returned any unexpended balances. For fiscal year 2005, EPA closed out only 37 percent of its grants within 180 days after the grant project ended, as required by its policy. EPA also did not always close out grants properly in the regional files GAO reviewed. Third, EPA has initiated actions to obtain environmental results from its grants, but these efforts are not complete. For example, EPA's 2005 environmental results policy establishes criteria that grants should meet to obtain results. However, EPA has not established a performance measure that addresses these criteria. Furthermore, EPA has not yet identified better ways to integrate its grant reporting systems. The Office of Management and Budget's 2006 assessment also indicates that EPA needs to continue its concerted efforts to achieve results from grants. Finally, EPA has taken steps to manage grant staff and resources more effectively by analyzing workload, providing training, assessing the reliability of its grants management computer database, and holding managers and staff accountable for successfully fulfilling their grant responsibilities. Management attention is still needed because, among other things, EPA has just begun to implement its performance appraisal system for holding managers and staff accountable for grants management.