Improving Accountability and Oversight in the Grants Process

By: Andrew Lewis, CGFM, CPA

Andrew Lewis is a senior manager with KPMG LLP’s government audit practice and a Fellow of the KPMG Government Institute. In addition, Andrew is president-elect of the Montgomery/Prince George’s Counties Chapter, and is an adjunct professor in the Masters of Accountancy program at The George Washington University.

In the FY 2010 President’s Budget, the administration has proposed spending over $652 billion in mandatory, block and discretionary grants to state and local governments, in addition to tens of billions of discretionary grants to private organizations and individuals for research, development, education and other programs. Without question, grant activity within the federal government has grown by leaps and bounds over the past 50 years. For example, consider the growth in federal grants to state and local governments.

Source: OMB, President’s FY 2010 Budget, Analytical Perspectives, Table 8-2. Trends in Federal Grants to State and Local Governments

Put another way, federal grants to state and local governments have grown fivefold in the past 20 years and twofold in the past 10 years. This certainly begs the question: “Is the federal government’s accountability community doing enough monitoring of these grant programs?”

In my experience, the oversight of grants includes three key phases or stages:

• Grant formulation and award—For discretionary grants, the federal agency’s grant officers, similar to a contracting officer, spends a considerable amount of time reviewing grant applications and determining whether the grantee’s idea meets the objectives of the overall grant program. These grant officers typically use a checklist to evaluate the grant applications, and ensure the necessary approvals from within the federal agency are in place before the grant is awarded. For formula and block grants, there is less involvement by the federal agency’s personnel since the formula or block grant award is determined by policy or legislative direction.
• Grant execution—For all types of grants, the federal agency personnel are responsible for evaluating payments to the grantee, and to review periodic reporting by the grantee on progress in meeting the requirements of the grant.  Federal agency personnel might monitor their grants through direct contact with the grantee, review of quarterly grant execution reports filed by the grantee with the federal agency, and/or review of the grantee’s Single Audit results.
• Grant closeout—Similar to a federal contract, steps must be taken to evaluate the grant after its execution to document the results achieved through the grant and to ensure that necessary documentation is gathered and reviewed by the federal agency. These closeout procedures may involve a physical visit to the grantee and inspection of the grant’s accomplishments, a retrospective review of payments made to the grantee over the life of the grant, a review of any undisbursed funds remaining on the grant award, and/or information from a third party (such as the Defense Contract Audit Agency or the state auditor) on cost models used by the grantee to determine eligible reimbursement amounts to the state or organization.

Often I’ve found that federal agencies dedicate most of their resources on the grant formulation and award and closeout phases, primarily due to the administrative burdens to award and close a grant, and far fewer of their resources on the grant execution phase. Although significant issues may be found during the grant closeout phase that might’ve been detected during the grant execution phase, typically these observations by the federal agency during the grant closeout phase are performed too late for any significant change to be made to what the grantee accomplished (or didn’t accomplish) through the use of the grant funds. 

Understanding that agencies face limited resources, I’ve found that a risk-based model is one of the most important tools an agency can employ in deciding which grantees to monitor closely during the grant execution phase. A risk-based model could evaluate such factors as past practice with the federal agency, how much experience the grantee has with the grant program, turnover by grantee personnel, and size and amount of grant awards.

Questions for Discussion:  What have you seen in terms of accountability and oversight of the federal grants process? Do you think improvements are needed? Have you seen a successful risk-based grant monitoring program? 

KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International. KPMG International’s member firms have 137,000 professionals, including more than 7,600 partners, in 144 countries.

This essay represents the views of the author only, and does not represent the views or professional advice of KPMG LLP. 

Comments

[Soft Laser]

Its a great lecture. Risk based approach and a somewhat Agile methodology is what ensures maximum performance. Great Andrew.

[Andrew Lewis]

Jeff -

Thanks for your comments. I agree that this could become a key issue for some agencies as they become more and more reliant on grantees to help carry out the agencies' increasingly complicated missions.

- Andrew

[Jeff Steinhoff]

Andrew --

Your essay is right on target. A risk-based approach to monitoring government grant programs and operations is a key to help ensure effectiveness, efficiency, and program results. Resources for oversight and management are limited; but at the same time, the stakes are extremely high and getting higher each year as you point out.

Implementation of risk-based approaches can be challenging and require the ability to arrive at the right balance and target the right things. But is a "must do", with hundreds of billions of dollars on the line annually.

Jeff Steinhoff