Federal grant-making procedures could be consolidated, controller says

The baffling array of procedures for obtaining federal grants could constructively be combined in a single document, Office of Management and Budget Controller Danny Werfel said during a House hearing Thursday. He was responding to a suggestion from Rep. James Lankford, R-Okla., that codifying circulars from OMB with related documents would help "establish consistent baseline standards for federal grant writing."

The two spoke during a House Oversight and Government Reform Subcommittee on Technology, Information Policy, Intergovernmental Relations and Procurement Reform hearing, at which the Government Accountability Office released a new summary of its work on improving the grants process.

Lankford noted that spending on federal grants has risen from $135 billion to $608 billion during the past two decades, and now constitutes one-fifth of federal spending. In fiscal 2010, more than 1,670 federal grant programs were offered by 23 agencies, the bulk of them from the Education, Health and Human Services, and Transportation departments, according to GAO.

Lankford lamented a shortage of guidelines and called the existing ones "impenetrably opaque." Agencies don't "always disclose discretionary grant criteria, and decisions are not well-documented," he said, which creates an impression that grants are sometimes steered toward those with "great grant-writing skills."

Rep. Gerry Connolly, D-Va., ranking member of the subcommittee, agreed on the need to improve standards and transparency. On Grants.gov, for example, applicants "can't look back and see why they won or lost," he said. But imposing too many labor-intensive audits and reporting requirements "might discourage smaller entities" from applying, he said, adding that too often, "the government tends to go for a one-size-fits-all" approach.

Jeanette Franzel, managing director of GAO's financial management assurance team, said the federal process has "weak control systems at all points in the grant cycle." She called for improving the use of single audits for grant recipients spending more than $500,000 by simplifying and streamlining them. She said the federal oversight process is inadequate, many agencies fail to use the audits for cost-benefit analysis and guidance from OMB is not always timely.

Werfel told the hearing OMB has convened panels to act on GAO's recommendations on single audits, and is seeking to clarify policies and improve Grants.gov to make it as "deep" as the Recovery.com website used to track federal stimulus money. Lankford pointed out that Grants.gov doesn't follow up on results of grant spending or on whether recipients who came in under budget returned the remainder of the grant. Werfel said such limitations might now be remedied under the 2010 Government Performance and Results Modernization Act.

The Obama administration has had successes, Werfel said, in recovering an unprecedented portion of the estimated $125 billion in annual improper payments to contractors. He said reducing waste in grant making is part of the administration's new Campaign to Cut Government Waste implemented this month by executive order.

Natalie Keegan, a Congressional Research Service analyst in American federalism, said the discretion enjoyed by agencies in awarding grants influences the degree of transparency. "For most grants, there isn't a clear picture of how the [winner] was selected," she said. Despite regular postings in the Federal Register, she said, the absence of spelled-out formulas or "a precise list of factors and their weights makes it difficult for Congress to monitor grants for efficiency." Agencies establish priorities on panels that score grant applications from zero to 100, she added, but "agencies are not bound by those scores and they are not disclosed."

Keegan also noted that in the 1990s, formulas on methods for making grant decisions were required under a General Services Administration annual compilation titled "Formula Report to Congress," but it was sunsetted by Congress in 1995.

Other cited obstacles to transparency included national security concerns at agencies such as the Homeland Security Department, and "proprietary" interests of some grant applicants that wish to avoid disclosing internal material to competitors.

Cynthia Schnedar, acting inspector general at the Justice Department, told the panel that Justice had greatly improved its grant-making procedures and monitoring offices. But the agency still must guard against conflicts of interest among peer reviewers and ascertain that grantees segregate their payroll duties and properly train staff, she said.

Rep. Pat Meehan, R-Pa., asked panelists why the rate of improper payments was so high.

"It is time to go to the next step of improper payments and get to the causes so we can find remedies," Franzel said. Examples of possible reasons for the errors include poor documentation as to whether the payment has been made, and weak controls or faulty program design that make it difficult to implement controls on who is eligible, she said.

Meehan also asked whether it was effective to go after ineligible recipients using special auditors who work for a percentage of the funds recovered. Werfel replied that the use of auditors has been successful, first with Medicare and then with Medicaid, so now it is being used at all agencies.

But Lankford said organizations in his district are afraid of such "bounty hunters." Because of human error, he said, "they will always find something," and it turns the government into an "enemy and not an ally."