Report Highlights Difficulties with Regulating Federal Grants

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GAO identifies oversight challenges in administering federal grants to state and local governments.

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The Government Accountability Office (GAO) released a report on Tuesday identifying a number of management, oversight, and accountability challenges that federal agencies face in regulating and administering federal grants to state and local governments.

States and local governments receive 80 percent of all federal grant funding, according to the Office of Management and Budget (OMB). But the GAO claims that overseeing these grants, evaluating their effectiveness, and eliminating fraud and waste has presented administering agencies with an ongoing challenge. Moreover, the report observes that, based on data collected by the OMB, funding levels for these grants have consistently risen between 1980 and 2011, making the oversight challenges outlined in the report that much more consequential.

Not surprisingly, oversight of federal grants has garnered significant attention in the past few years. During his term, President Obama has issued both an executive order and a presidential memorandum calling on OMB to improve the oversight of federal grants. Last October, the OMB announced the creation of a new council tasked with identifying the best ways to deliver, oversee, and report federal grants. In addition, in February 2012 the OMB released for public comment reforms that aim to standardize information collection across agencies, adopt a risk-based auditing model, and provide new approaches to the administration and management of federal funds.

In Tuesday’s report, the GAO noted how the substantial diversity in the way federal agencies administer grants has increased complexity in how these grants are managed. With complexity comes several key challenges that the GAO grouped into five categories:

  1. agencies’ difficulties in measuring grant performance due to a lack of appropriate performance measures and accurate data;
  2. a lack of coordination in creating federal grant programs over time and duplication between different grant programs;
  3. agencies’ collaboration challenges with other federal agencies and with state and local governments in the distribution of grants intended for federal assistance, such as by the Federal Emergency Management Agency (FEMA) following Hurricanes Katrina and Rita;
  4. weaknesses in an agency’s internal controls for managing and overseeing grant programs limit the agency’s ability to ensure grants funds are spent effectively, for instance, by managing undisbursed funds remaining in grant accounts, administering closeout procedures, and tracking improper payments; and
  5. a lack of organizational, financial, and human capital capacity amongst both federal agencies and recipients.

These sorts of challenges have given rise to a wide range of restrictions on federal grants found in authorizing legislation and implementing regulations to ensure that funding is spent for its intended purpose.

Often the legislation authorizing agencies to award grants to states and local governments also delegates to the same federal agencies the power to impose regulations related to the administration of those grants. For example, the Department of Housing and Urban Development (HUD), administers grants to aid states and localities in providing affordable housing for low-income families. Congress mandated that HUD administer these grants so as to further fair housing and subsequent HUD regulations direct grant recipients to prepare documents and maintain records to prove this goal is fulfilled as a condition of receiving funds.

In its recent report, the GAO categorized federal grants based on their accompanying restrictions and the amount of discretion given to recipient governments—ranging from categorical grants which restrict use for specific activities to general purpose grants which require only that funds are used for government purposes. It concluded that the current regulations and legislative restrictions are ineffective in ensuring that grants are efficiently administered for the purposes authorized by Congress.

In this respect, the latest GAO report reaches the same basic conclusion found in a previous GAO report that called for better grant management under the American Recovery and Reinvestment Act of 2009, a law which required increased reporting and oversight on both grant-making agencies and recipients for various grant programs receiving additional funding under the Act.

Although the GAO report makes no explicit recommendations, it notes that in light of the increasing long-term fiscal challenges faced by the federal government, continuing “to support the current scope and breadth of federal grants will be a challenge.”