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United States Government Accountability Office: 
GAO: 

Report to the Chairman, Subcommittee on Financial and Contracting 
Oversight, Committee on Homeland Security and Governmental Affairs, 
U.S. Senate: 

July 2014: 

State Department: 

Implementation of Grants Policies Needs Better Oversight: 

GAO-14-635: 

GAO Highlights: 

Highlights of GAO-14-635, a report to the Chairman, Subcommittee on 
Financial and Contracting Oversight, Committee on Homeland Security 
and Governmental Affairs, U.S. Senate. 

Why GAO Did This Study: 

Grants are key tools that State uses to conduct foreign assistance. In 
fiscal year 2012, State obligated over $1.6 billion worldwide for 
around 14,000 grants to individuals and organizations for a variety of 
purposes, such as fostering cultural exchange and facilitating refugee 
resettlement. However, recent GAO and Inspectors General reports have 
identified challenges with State's management of these funds. This 
report examines (1) the policies and guidance that State has 
established to administer and oversee grants, and (2) the extent to 
which the implementation of those policies and guidance provides 
reasonable assurance that funds are being used as intended. GAO 
analyzed State's policies and guidance, and interviewed cognizant 
grants officials at 14 bureaus headquartered in Washington, D.C., and 
three overseas missions (Afghanistan, Cambodia, and Turkey). GAO also 
conducted file reviews for a sample of 61 grants totaling 
approximately $172 million. Selection criteria included total dollar 
value of grants in a country, geographic diversity, and balance among 
bureaus. 

What GAO Found: 

The Department of State (State) has established policies and guidance 
that provide a supportive environment for managing grants and 
cooperative agreements (grants). In addition, State provides its 
grants officials mandatory training on these policies and guidance, 
and routinely identifies and shares best practices. State's policies 
are based on federal regulations, reflect internal control standards, 
and cover topics such as risk assessment and monitoring procedures. 
State's policies also delineate specific internal control activities 
that grants officials are required to both implement and document in 
the grant files as a way of promoting accountability (see figure). 

Figure: Key Internal Control Activities Required through the Grants 
Life Cycle: 

[Refer to PDF for image: illustration] 

Preaward: 
* Select and vet potential recipients; 
* Identify potential risks. 

Award: 
* Develop risk mitigation/monitoring plan; 
* Establish performance measures and indicators. 

Postaward: 
* Review activities and performance; 
* Mitigate identified risks and performance issues. 

Closeout: 
* Assess final reports and results; 
* Reconcile finances. 

Source: GAO analysis of Department of State data. GAO-14-635. 

[End of figure] 

GAO found that inconsistent implementation of policies and guidance 
weakens State's assurance that grant funds are used as intended. 

* Inadequate risk analysis. In most of the files GAO reviewed, grants 
officials did not fully identify, assess, and mitigate risks, as 
required. For example, officials conducted a risk identification 
process for 45 of the 61 grants that GAO reviewed. While grants 
officials identified risk in 28 of those 45 grants, they mitigated 
risks in only 11. 

* Poor documentation. Grants officials generally did not adhere to 
State policies and procedures relating to documenting internal control 
activities. For example, 32 of the 61 files reviewed did not contain 
the required monitoring plan. Considerable turnover among grants 
officials makes documenting internal control activities particularly 
important. State's periodic management reviews of selected bureaus' 
and overseas missions' grant operations have also found that key 
documentation was frequently missing or incomplete and made 
recommendations to address the problem. However, State has not 
consistently followed up to ensure the implementation of these 
recommendations, as internal control standards require. 

State does not have processes for ensuring compliance with risk 
analysis and documentation requirements. Without the proper 
implementation of its internal control policies for grants management, 
State cannot be certain that its oversight is adequate or that it is 
using its limited oversight resources effectively. 

What GAO Recommends: 

GAO recommends that the Secretary of State develop processes for 
ensuring that (1) bureaus and missions conduct appropriate risk 
assessments and (2) grants officials complete required documentation. 
GAO also recommends that the Secretary of State (3) follow up 
systematically on recommendations from State's internal reviews of its 
grants management. State concurred with GAO's recommendations. 

Contents: 

Letter: 

Background: 

State Has Established Policies and Guidance That Provide a Supportive 
Environment for Administering and Overseeing Grants: 

Inconsistent Implementation of State Policies and Guidance Weakens 
Assurance That Grant Funds Are Used as Intended: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Internal Control Standards as Designed and Implemented in 
State's Grants Management: 

Appendix III: Agency Comments: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Top 10 U.S. Department of State Grant-Making Bureaus and 
Posts by Total Federal Financial Assistance Obligated in Fiscal Year 
2012: 

Table 2: Department of State's Grants Policy Directives (GPD) as of 
April 2, 2014 and Related Internal Controls: 

Table 3: Overall Results Relating to Risk Management from GAO File 
Reviews: 

Table 4: Control Activities: Overall Results Relating to Monitoring 
Approach from GAO File Reviews: 

Table 5: Control Activities: Results Relating to Closeout Activities 
from GAO File Reviews: 

Table 6: Results Relating to Information and Communications from GAO 
File Reviews: Basic Documentation: 

Table 7: Results Relating to Information and Communications from GAO 
File Reviews: Justifying Competitive Selection Decisions: 

Table 8: Results Relating to Information and Communications from GAO 
File Reviews: Justifying and Documenting Sole-Source Decisions: 

Table 9: State's Internal Monitoring: Findings from A/OPE's GMRs and 
GREATs for Bureaus and Posts within GAO's Sample: 

Figures: 

Figure 1: Key Internal Control Activities Required Through a Grant's 
Life Cycle: 

Figure 2: Grant Sample Compliance with the Various Steps of a Risk 
Analysis: 

Figure 3: Key Documentation at Each Phase of a Grant's Life Cycle: 

Abbreviations: 

A/OPE: Office of the Procurement Executive: 

AQM: Bureau of Administration, Office of Acquisitions Management: 

CFR: Code of Federal Regulations: 

ECA: Bureau of Educational and Cultural Affairs: 

GMR: Grant Management Review: 

GO: grants officer: 

GOR: grants officer representative: 

GPD: grant policy directive: 

GREAT: Grants Review Evaluation and Assistance Trainings: 

INL: Bureau of International Narcotics and Law Enforcement: 

ISN: Bureau of International Security and Nonproliferation: 

NEA/MEPI: Bureau of Near East Affairs, U.S.-Middle East Partnership 
Initiative: 

OMB: Office of Management and Budget: 

PM/WRA: Bureau of Political-Military Affairs, Office of Weapons 
Removal and Abatement: 

PRM: Bureau of Population, Refugees, and Migration: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

July 21, 2014: 

The Honorable Claire McCaskill: 
Chairman: 
Subcommittee on Financial and Contracting Oversight: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

Dear Madam Chairman: 

Grants and cooperative agreements are key tools that the U.S. 
Department of State (State) uses to conduct foreign assistance. State 
uses them to award assistance to individuals and organizations for a 
variety of purposes, such as fostering educational and cultural 
exchanges with citizens of other countries, facilitating refugee 
resettlement, and developing U.S. allies' law enforcement capacity. In 
fiscal year 2012, State obligated over $1.6 billion for approximately 
14,000 grants and cooperative agreements worldwide. 

State's Office of the Inspector General and the Special Inspector 
General for Afghanistan Reconstruction recently reported that State 
faced challenges overseeing its grants and ensuring that funds were 
being used as intended.[Footnote 1] In particular, they found 
deficiencies in certain internal control activities as well as 
financial reporting. We have also identified challenges and lessons 
learned for grants management across the federal government in a body 
of work spanning several decades.[Footnote 2] 

You asked us to review issues related to State's management and 
oversight of grants and cooperative agreements. This report examines 
(1) the policies and guidance that State has established to administer 
and oversee grants and cooperative agreements, and (2) the extent to 
which the implementation of those policies and guidance provides 
reasonable assurance that funds are being used as intended. 

To address these objectives, we analyzed federal regulations and 
State's policies and guidance. We interviewed State officials from the 
Office of the Procurement Executive (A/OPE); the Office of the Deputy 
Chief Financial Officer, and various functional and regional bureaus 
and offices headquartered in Washington, D.C.; and three overseas 
missions to determine how State both designs and implements department-
wide internal control policies on grants performance and financial 
management.[Footnote 3] To further determine how State implements 
these policies, we selected three case study countries--Afghanistan, 
Cambodia, and Turkey--based on criteria that included total dollar 
value of grants in a country, geographic diversity, and balance among 
the bureaus involved in managing the awards. For these countries we 
examined a nongeneralizable sample of 48 grants and cooperative 
agreements by award size and bureau that had obligations in fiscal 
year 2012.[Footnote 4] In addition, we used the same criteria to draw 
another nongeneralizable sample of 13 grants managed in Washington, 
D.C.[Footnote 5] Overall, the 61 grants we reviewed ranged in value 
from just over $25,000 to $28,000,000, and totaled approximately $172 
million.[Footnote 6] Collectively, the grants in our samples were 
managed by 3 posts and 14 of the 27 grant-making bureaus and offices 
in State, and included grants by 6 of the top 10 bureaus and posts in 
terms of total dollar amount obligated for federal financial 
assistance in fiscal year 2012.[Footnote 7] We developed a data 
collection instrument that we used to conduct file reviews for the 61 
grants. Our file review assessed grants officials' implementation of a 
selection of State's required internal control activities for grants 
management, including risk assessment, monitoring of recipients, and 
documentation of key activities. We also conducted interviews with 
cognizant grants officials for each of the grants to learn how they 
implemented grants management policies. To identify any internal 
control deficiency patterns or trends, we analyzed and compared the 
data we collected from our file reviews and interviews, and also 
compared them to the findings from State's internal inspections of 
grant-making operations. 

We conducted this performance audit from May 2013 to July 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. A more detailed description 
of our scope and methodology can be found in appendix I. 

Background: 

State Grants Management: Definitions and Key Roles and 
Responsibilities: 

Grants and cooperative agreements are assistance instruments used to 
transfer money, property, or services to accomplish a public purpose. 
The difference between the two instruments relates to the amount of 
involvement between the agency and the recipient during performance: 
when substantial involvement is not anticipated, State uses a grant; 
otherwise, it uses a cooperative agreement. For the purposes of this 
report, the term "grants" refers to both grants and cooperative 
agreements.[Footnote 8] 

State's grants vary greatly by size and recipient--from grants of less 
than $100 to help cover an individual's travel expenses, to multi-
million dollar grants to, for example, international nongovernmental 
organizations for democracy-building programs. A/OPE sets department-
wide policies related to grants management, and individual bureaus may 
also develop their own specific policies to supplement those from 
A/OPE.[Footnote 9] Managing a grant involves a variety of State 
officials, often from multiple bureaus and posts. The principal grants 
officials include the following: 

* The grants officer (GO), who is ultimately responsible for 
overseeing the grant. 

* The grants officer representative (GOR), who often has program 
implementation expertise and assists the GO in overseeing a grant. 

* The program officer, who, if the GO is from a different bureau, may 
provide programmatic expertise, primarily during the preaward phase. 
For example, a program officer may design the grant announcement and 
assist in selecting recipients. In some cases, the program officer may 
be designated as the GOR once the grant is awarded to a recipient. 

* The budget officer, who is responsible for ensuring that the 
appropriated funds are drawn down correctly. 

Some GOs and GORs also reported using a grants management specialist 
or other staff, such as interns, to help them manage certain aspects 
of their portfolios. 

The various grants officials involved in the management of a grant may 
be from different bureaus as well as different locations. Twenty-seven 
bureaus and offices within State, including the U.S. Mission to the 
United Nations, have grant-making authority or grant oversight 
responsibilities. Posts, including embassies and consulates overseas, 
may also make grants. Ten bureaus and posts accounted for the majority 
of federal assistance obligations that State made in fiscal year 2012 
(see table 1). For those GOs located in Washington, D.C., the GOR is 
usually located in the principal place of performance, which may be at 
State headquarters in Washington, D.C.--for cultural exchange 
programs, for example--or overseas. Eighteen of the 27 bureaus with 
grant-making authority have their own GOs. Those that do not have GOs 
or whose GOs do not have a high enough grant-making authority rely on 
the Office of Acquisitions Management to fulfill the GO role. This 
office provides a full range of grant management services, including 
planning, negotiations, cost and price analysis, and 
administration.[Footnote 10] In those instances, the bureau requesting 
the grant then generally provides the GOR, program officer, or both to 
supply program-specific expertise. As of May 2014, there were 571 GOs 
worldwide, with 503 of them based overseas. Most GOs at posts are 
Foreign Service Officers with multiple other duties. In addition, 
Foreign Service Officers usually rotate to another post within 1-3 
years, per State's normal operating procedures. This considerable 
turnover rate means that a single grant may have multiple GOs over its 
life cycle.[Footnote 11] 

Table 1: Top 10 U.S. Department of State Grant-Making Bureaus and 
Posts by Total Federal Financial Assistance Obligated in Fiscal Year 
2012: 

Bureau, office, or post: Bureau of Educational and Cultural Affairs 
(ECA); 
Total obligated amount (in U.S. dollars): $397,283,825. 

Bureau, office, or post: Bureau of Administration, Office of 
Acquisitions Management (AQM); 
Total obligated amount (in U.S. dollars): $393,229,481. 

Bureau, office, or post: Bureau of Population, Refugees, and Migration 
(PRM); 
Total obligated amount (in U.S. dollars): $352,658,294. 

Bureau, office, or post: Bureau of Political-Military Affairs, Office 
of Weapons Removal and Abatement (PM/WRA); 
Total obligated amount (in U.S. dollars): $129,243,899. 

Bureau, office, or post: Bureau of Near East Affairs, U.S.-Middle East 
Partnership Initiative (NEA/MEPI); 
Total obligated amount (in U.S. dollars): $90,472,412. 

Bureau, office, or post: Bureau of International Narcotics and Law 
Enforcement (INL); 
Total obligated amount (in U.S. dollars): $69,890,738. 

Bureau, office, or post: Kabul, Afghanistan; 
Total obligated amount (in U.S. dollars): $56,381,107. 

Bureau, office, or post: Islamabad, Pakistan; 
Total obligated amount (in U.S. dollars): $27,999,681. 

Bureau, office, or post: Bureau of Near East Affairs, Iraq (NEA/Iraq); 
Total obligated amount (in U.S. dollars): $16,840,547. 

Bureau, office, or post: Office to Monitor and Combat Trafficking in 
Persons; 
Total obligated amount (in U.S. dollars): $15,850,928. 

Bureau, office, or post: Total; 
Total obligated amount (in U.S. dollars): $1,549,850,912. 

Source: GAO analysis of data from the Department of State. GAO-14-635. 

Notes: Federal financial assistance includes all grants and cooperative 
agreements. Our sample of 61 grants included grants managed by ECA, 
AQM, PRM, INL, PM/WRA, and Kabul. 

[End of table] 

State's grants generally follow a life cycle that consists of four 
phases--preaward, award, postaward, and closeout. In the preaward 
phase, grants officials develop the program idea, evaluate proposals, 
and select a recipient. The GO then negotiates the costs of the grant 
with the recipient and drafts the award document during the award 
phase. In the postaward phase, grants officials monitor the 
recipient's progress and disburse payments as appropriate. Finally, in 
the closeout phase, grants officials assess final programmatic and 
financial reports and determine any final payments or reimbursements 
that are necessary. 

Internal Control Standards Applicable to State Grants Management: 

Side bar: 

The Five Standards for internal control:
1. Control environment; 
2. Risk assessment; 
3. Control activities; 
4. Information and communications; 
5. Monitoring. 
Source: GAO. GAO-14-635. 

[End of side bar] 

As we have noted in prior reports, effective oversight and internal 
control are important when awarding and managing federal grants to 
provide reasonable assurance to federal managers and taxpayers that 
grants are awarded properly, recipients are eligible, and federal 
grant funds are used as intended and in accordance with applicable 
laws and regulations.[Footnote 12] The Standards for Internal Control 
in the Federal Government (the federal standards) sets forth the 
standards that provide the overall framework for establishing and 
maintaining internal control and for identifying and addressing major 
performance and management challenges and areas at greatest risk of 
fraud, waste, abuse, and mismanagement.[Footnote 13] 

* Control environment: Management and employees should establish and 
maintain an environment that sets a positive and supportive attitude 
toward internal control and conscientious management. A positive 
control environment is the foundation for all other standards. 

* Risk assessment: Internal control should provide for an assessment 
of the risks the agency faces from both external and internal sources. 
Risk assessment is the identification and analysis of relevant risks 
associated with achieving the agency's objectives and forming a basis 
for determining how risks should be managed. 

* Control activities: Internal control activities help ensure that 
management's directives are carried out. Control activities are the 
policies, procedures, techniques, and mechanisms that enforce 
management's directives. They help ensure that actions are taken to 
address risks, and they are integral to the stewardship of government 
resources and achieving effective results. 

* Information and communications: Information should be recorded and 
communicated to management in a form and within a time frame that 
enables management to carry out its internal control and other 
responsibilities. 

* Monitoring: Internal control monitoring should assess the quality of 
performance over time and ensure that any issues are promptly resolved. 

State Has Established Policies and Guidance That Provide a Supportive 
Environment for Administering and Overseeing Grants: 

State has established a core set of policies and guidance 
incorporating federal regulations for administering and overseeing 
grants. A/OPE has established policies and training to further assist 
grants officials as they implement the department's policies and to 
reduce wasteful spending in government. A/OPE has taken steps to 
improve its policies, revising many of them since their issuance. 
State has provided these policies, as well as training and other 
support, to staff to encourage effective grant management throughout 
the life cycle of a grant. 

State's Policies Incorporate Federal Regulations: 

State's grant management policies incorporate requirements established 
in federal regulations and guidance, which are codified in the Code of 
Federal Regulations (CFR).[Footnote 14] These regulations are based on 
Office of Management and Budget (OMB) circulars on grants and 
cooperative agreements with nongovernmental organizations and 
institutions of higher education as well as with state and local 
governments. OMB circulars provide guidance to grants officials for 
implementing rules regarding allowable costs, program purposes, and 
financial management procedures.[Footnote 15] In addition, the 
authorities for specific assistance programs may provide requirements 
for associated grants.[Footnote 16] OMB guidance and regulations 
contained in the CFR inform State's policies for grants management. 
State collects and articulates the department's policies in the 
Foreign Affairs Manual and its associated handbooks. This manual 
assigns A/OPE the authority to prescribe acquisition and assistance 
policies, regulations and procedures for State.[Footnote 17] State 
officials told us that A/OPE also works closely with the Office of the 
Deputy Chief Financial Officer to develop policies related to the 
financial management of grants. 

Since 1992, A/OPE has issued 59 grants policy directives to provide 
additional guidance specific to State's staff explaining how they 
should conduct grants management in accordance with federal 
regulations.[Footnote 18] A/OPE has issued or revised more than half 
of these policies since 2008, creating at least two of them in 
response to concerns from its Inspector General and us about State's 
internal controls for grants management.[Footnote 19] 

State's Policies and Guidance Establish Internal Controls throughout 
the Grant Life Cycle: 

Side bar: 

The Five Standards for Internal Control: 
1. Control environment: sets a positive and supportive attitude; 
toward internal control and conscientious management; 
2. Risk assessment; 
3. Control activities; 
4. Information and communications; 
5. Monitoring. 
Source: GAO. GAO-14-635. 

[End of side bar] 

State's policies and guidance help establish a control environment 
framework for grants management. Two of the directives related to risk 
assessment, for example, directly cite the federal standards, which 
call on federal agencies to identify risks as part of a positive 
internal control environment. State's policies also provide guidance 
for implementing key internal control activities throughout the life 
cycle of a grant, such as approval of the monitoring plan or review of 
quarterly or annual reports (see fig. 1). 

Figure 1: Key Internal Control Activities Required Through a Grant's 
Life Cycle: 

[Refer to PDF for image: illustration] 

Preaward: 
Key required internal control activities: 
* Select and vet potential recipients; 
* Identify potential risks. 

Award: 
Key required internal control activities: 
* Develop risk mitigation/monitoring plan; 
* Establish performance measures and indicators. 

Postaward: 
Key required internal control activities: 
* Review activities and performance; 
* Mitigate identified risks and performance issues. 

Closeout: 
Key required internal control activities: 
* Assess final reports and results; 
* Reconcile finances. 

Source: GAO analysis of Department of State data. GAO-14-635. 

[End of figure] 

State's control environment also includes a variety of additional 
guidance, including mandatory training, "best practices" 
dissemination, and online resources. 

* Training: State offers its staff several grants management courses, 
covering such topics as monitoring and evaluation, cost principles, 
and ethics. GOs must take at least 24 hours of grants management 
training, and GORs must take both an introduction and a monitoring 
course to obtain certification.[Footnote 20] Both must update their 
training with at least 16 hours of courses every 3 years. Some courses 
are also available online, and A/OPE has worked with several bureaus 
to hold training focused on their specific needs. In addition, A/OPE 
occasionally offers regional or post training in the field, depending 
on resources, and has recently begun holding webinars to train and 
answer questions from grants officials overseas.[Footnote 21] 

* Best practices dissemination: According to State officials, A/OPE 
began holding quarterly meetings in 2004 for grants officials 
throughout the department to both raise issues and share best 
practices. More recently, A/OPE has begun to offer a 2-day course 
twice a year in lieu of the quarterly meetings. The course offers an 
update on trends and regulation changes as well as a refresher on 
grants administration and policy. 

* Online resources: Finally, State has a number of Intranet resources 
available for grants officials. Beyond distance learning courses, 
A/OPE also has sample templates for a variety of grant documentation, 
including a preaward survey, financial management survey, risk 
assessment tool, and several types of monitoring reports. An A/OPE 
official told us A/OPE is currently updating the Federal Assistance 
Policy Manual, which will provide additional guidance for the entire 
grant life cycle.[Footnote 22] Furthermore, bureaus and posts are 
allowed to design guidance appropriate to the varying circumstances 
surrounding their grants. For example, three of the bureaus and two of 
the posts in our sample have developed their own risk assessment 
checklists. 

State guidance also directs grants officials to document key internal 
control activities throughout the life cycle of a grant, including the 
use of funds, the recipient's progress, and the grants officials' 
assessment of that progress. State has several policies either 
dedicated to documentation or requiring documentation. For example, 
one policy describes the roles and responsibilities for both the GOs 
and the GORs, listing what information they must document as well as 
where and at what phase in the grant life cycle they should document 
it.[Footnote 23] For certain internal control activities, State has 
created additional policies with detailed documentation and reporting 
requirements. The policies cover topics such as competition versus 
sole source decisions, risk identification and assessment processes, 
and developing monitoring plans. These policies also include sample 
templates outlining various approaches to documenting these 
activities. Under State guidance, bureaus and posts may tailor these 
policies to their specific needs. Given the considerable turnover rate 
of GOs who are Foreign Service Officers, as well as the fact that 
grants management is not often their primary task, a strong internal 
controls environment is essential for accountability. 

Inconsistent Implementation of State Policies and Guidance Weakens 
Assurance That Grant Funds Are Used as Intended: 

State has not consistently implemented the risk analysis and 
documentation of internal controls required by grants management 
policies and guidance, a fact that weakens assurance that grant funds 
are used as intended. In particular, grants officials have not adhered 
consistently to State's policies about identifying, assessing, and 
mitigating risks associated with the grants we reviewed. Furthermore, 
grants officials do not always document the implementation of key 
internal controls activities as required. State has established 
procedures for assessing grants officials' implementation of its 
internal controls. In conducting these reviews, A/OPE found 
insufficient documentation in the grant files at all 10 of the bureaus 
and posts that were also in our review and recommended solutions, but 
did not systematically follow up to ensure that the bureaus and posts 
had implemented them. 

Grants Officials Often Did Not Conduct Required Risk Analysis: 

Side bar: 

The Five Standards for internal control: 
1. Control environment; 
2. Risk assessment: the identification and analysis of relevant risks 
associated with achieving the agency's objectives and forming a basis 
for determining how risks should be managed; 
3. Control activities; 
4. Information and communications; 
5. Monitoring. 
Source: GAO. GAO-14-635. 

[End of side bar] 

Grants officials responsible for the files in our sample often did not 
adhere to State's policies on risk assessment. Federal standards 
define risk assessment as "the identification and analysis of relevant 
risks associated with achieving the [agency's] objectives." A risk 
analysis helps ensure that grants officials undertake the necessary 
control activities and use oversight resources appropriately. State's 
policy on risk management further elaborates that risk assessment 
should begin in the preaward phase and continue throughout the grant 
life cycle. Furthermore, it states that a risk management plan must 
include identification, assessment, and monitoring and mitigation of 
risk. In most of the files we reviewed, however, we did not find 
evidence that grants officials had fulfilled these requirements, as 
described below. 

* Risk identification: State's policies require grants officials to 
carry out a comprehensive review of potential recipients to identify 
risks. Risk factors could include a lack of stable financial 
infrastructure or experience in managing a U.S. government grant, past 
performance problems, an unusual or difficult environment, 
responsibility for a large amount of funds, and concern the 
organization might be involved in terrorist activities. Of the 61 
grant files we reviewed, 45 showed that grants officials had at least 
partially undertaken a risk identification process.[Footnote 24] 
However, 33 of these were missing key elements of a risk 
identification process, such as a review of the recipient's financial 
systems and internal controls. 

* Risk assessment: State policy requires grants officials to exercise 
a greater level of oversight for high-risk versus low-risk grants; 
however, we found in our file reviews that grants officials often did 
not assess identified risks to determine the grants' risk level. Of 
the 45 grants that underwent a risk identification process, 28 had 
risks identified. However, only 15 of those 28 grants that identified 
risks also included at least a partial assessment of risks, such as a 
preaward checklist at one post that included some questions about 
prior federal grant management experience and other past performance 
issues. In addition, while State has established a variety of guidance 
on risk assessment, the wording of the guidance is not consistent in 
certain aspects, such as assessment of external risk factors. For 
example, while one of the grants policy directives lists Transparency 
International's Corruption Perception Index as a risk assessment 
resource, none of A/OPE's sample risk assessment templates mention the 
index or corruption in general.[Footnote 25] In another example, we 
found that a grant to support civil society had received a "low-risk" 
determination, based on calculations from a risk assessment checklist, 
although grants officials remarked in the notes section of the 
checklist that corruption was rampant in that country. Since 
corruption was not an element of the checklist itself, it did not 
factor into the overall risk-level determination--nor was it reflected 
anywhere else in the grant file documentation.[Footnote 26] 

* Risk mitigation: State policies require grants officials to document 
how they will mitigate, or address, identified risks, including by 
preparing and implementing a monitoring plan. Of the 15 grants that 
showed both identification and assessment of risks, 11 showed at least 
partial mitigation of those risks (see fig. 2). Of the remaining 4 
grants that showed no risk mitigation, 1 included an audit report 
identifying significant financial management risks, such as 
noncompliance with allowable costs, on the part of the grant 
recipient.[Footnote 27] The grants officials, however, did not reflect 
these risks in a risk mitigation or monitoring plan. In two other 
grant files we reviewed, grants officials identified allegations of 
prior financial mismanagement, but awarded the grant without 
addressing how the risk would be mitigated. Furthermore, State's 
various risk-related guidance does not clearly emphasize the 
importance of linking risk assessment to monitoring. Federal standards 
state that risk analysis generally includes deciding how to manage the 
risk and what actions should be taken. Of the five sample monitoring 
templates that A/OPE has developed, however, three do not mention 
risk.[Footnote 28] Grants officials who use these templates, 
therefore, may not make the link between monitoring and risk. For 
example, of the 13 grants from two bureaus in our sample that had 
developed their own risk assessment checklists based on A/OPE's 
templates, we found that 7 did not reflect risks identified in a 
monitoring plan. Moreover, of the 23 grants in our sample overall that 
had assessed risks and had a monitoring plan, only 10 reflected the 
risks in the plan. 

Figure 2: Grant Sample Compliance with the Various Steps of a Risk 
Analysis: 

[Refer to PDF for image: stacked vertical bar graph] 

Universe of 61 grants: 

Undertook required risk identification process: 
At least partially compliant: 45; 
Noncompliant: 16. 

Identified risks: 
At least partially compliant: 28; 
No risks identified: 17. 

Completed required assessment of risks identified: 
At least partially compliant: 15; 
Noncompliant: 13. 

Completed required mitigation of risk: 
At least partially compliant: 11; 
Noncompliant: 4. 

Source: GAO analysis of Department of State data. GAO-14-635. 

[End of figure] 

Without identifying and assessing risks, it may be difficult for State 
to determine whether there are any observable impediments to the 
recipient's effective management of State funds that would need to be 
mitigated. Determining which grants warrant greater oversight and 
which require less helps managers ensure the appropriate allocation of 
resources for safeguarding grant funds. 

Grants Officials Often Did Not Document Control Activities: 

Side bar: 

The Five Standards for internal control: 
1. Control environment; 
2. Risk assessment; 
3. Control activities: the policies, procedures, techniques, and 
mechanisms that enforce management's directives;
4. Information and communications: Information should be recorded and 
communicated to management in a form and within a time frame that 
enables them to carry out their internal control and other 
responsibilities; 
5. Monitoring. 
Source: GAO. GAO-14-635. 

[End of side bar] 

Grants officials in the sample of grants we reviewed generally did not 
adhere to State policies and procedures relating to documenting 
control activities. Federal standards call for the clear, prompt, and 
accurate documentation of internal control and all other significant 
events, including risk assessments and monitoring activities, and 
state that this documentation should be readily available for 
examination. State guidance directs grants officials to document key 
internal control activities throughout the life cycle of a grant, 
including the use of funds, the recipient's progress, and the grants 
officials' assessment of that progress (see fig. 3). To support 
officials as they implement this guidance, State has created multiple 
systems for organizing, retaining, and sharing information about 
grants, whether the files are in electronic or hard copy form. 
Documenting grant management activities is particularly important 
because of grants officials' considerable turnover rate, which can 
leave newly assigned grants officials dependent on files to determine 
what control activities are required and which have been conducted. 

Figure 3: Key Documentation at Each Phase of a Grant's Life Cycle: 

[Refer to PDF for image: illustration] 

Preaward: 
Key required internal control activities: 
* Select and vet potential recipients; 
* Identify potential risks; 
Key documentation requirements: 
* Internal control checklist; 
* Competition announcement or sole source justification; 
* Document risk assessment. 

Award: 
Key required internal control activities: 
* Develop risk mitigation/monitoring plan; 
* Establish performance measures and indicators; 
Key documentation requirements: 
* Internal control checklist;
* Notice of Award; 
* Monitoring plan. 

Postaward: 
Key required internal control activities: 
* Review activities and performance; 
* Mitigate identified risks and performance issues; 
Key documentation requirements: 
* Internal control checklist; 
* Document review of progress reports; 
* Site visit reports; 
* Key correspondence; 
* Document risk assessment. 

Closeout: 
Key required internal control activities: 
* Assess final reports and results; 
* Reconcile finances; 
Key documentation requirements: 
* Internal control checklist; 
* Document review of final reports; 
* Closeout memo. 

Source: GAO analysis of Department of State data. GAO-14-635. 

[End of figure] 

However, the grant files we reviewed did not consistently document key 
grant activities as required, to demonstrate that internal controls 
had been implemented. In many of the files we reviewed, required 
documents were missing from the official file or incomplete, as 
described below. 

* Internal control checklist: State requires each grant file to 
contain a checklist, which grants officials are supposed to use to 
document the completion of many internal control activities throughout 
the grant's life cycle. These activities include vetting recipients, 
identifying the amount of funds and project duration, identifying key 
contacts at State and the recipient organization, and tracking receipt 
of information from the recipient about progress made and costs 
incurred. State's training further emphasizes the importance of 
keeping all sections of this checklist current to assist managers in 
monitoring grants and ensure that they fulfill the U.S. government's 
obligation to grant recipients. However, 17 out of the 61 files we 
reviewed did not contain this checklist, and only about 11 percent (5 
out of 44) of the forms that did exist were completely filled out. 
[Footnote 29] 

* Grant award justification: State requires grant files to contain a 
justification for awarding any grants without a full and open 
competition.[Footnote 30] However, for the 24 grants in our sample 
that were sole-sourced, 7 did not contain this justification. 

* Monitoring plans: State policies require grants officials to prepare 
a monitoring plan to measure the recipient's progress toward achieving 
the grant's goals and objectives and ensure that the recipient 
complies with the grant agreement. The grants officials must use the 
plan to indicate the type and frequency of monitoring they will 
conduct given the risks involved and the resources available for these 
activities. However, about half of the files we reviewed (32 of the 
61) did not contain a monitoring plan. Furthermore, some of the 29 
plans that were documented did not address key aspects of monitoring 
the terms and conditions of the grant agreement, such as risk analysis 
and evaluation. For example, 3 of the 29 documented plans we reviewed 
did not describe how the GO planned to monitor progress toward the 
grant's specific goals and objectives. 

* Monitoring activities conducted: While most of the files contained 
evidence of some monitoring activities, such as e-mail communication 
with recipients, this monitoring did not completely adhere to State's 
guidance. Of the 29 documented monitoring plans, the evidence showed 
that grants officials had fully executed 8 of them and partially 
executed an additional 10. For example, some of the partially executed 
plans indicated that the grants officials were to conduct site visits 
and review recipient reports, but the grant files showed that the 
grants officials had closed the grants without documenting any 
evidence of these planned monitoring activities. Regardless of whether 
grants had monitoring plans, we found that only 16 of the 61 files 
contained evidence that the grants officials had completed the 
required review of all the recipient's financial and programmatic 
reports to monitor for key information--including verifying timely 
progress toward the goals, as well as identifying and addressing any 
delays or inappropriate expenditures. Another 24 of the 61 files 
contained evidence that grants officials had done partial reviews of 
these reports. These reviews, as well as reviews of the final 
recipient reports, are required to close an award, but we found four 
awards that GOs had closed without evidence that they had reviewed the 
recipient's final reports. On more than one occasion, State had 
difficulty providing required internal control documentation to us, 
either because a grants official was on leave or had moved on to 
another post. For example, we identified incomplete documentation in 
some award files at one post, including missing final financial and 
programmatic reports. Three months after our site visit, the GO still 
could not produce the documents, because the grants management 
specialist whose computer's hard drive contained the documents was on 
extended leave. Two other GOs we interviewed said the files they 
inherited did not contain required documents, such as the approval 
forms from bureau headquarters for awards exceeding $25,000. 

Without documentation such as the internal control checklist, the 
grant award justification, monitoring plans, and monitoring reports, 
State cannot provide adequate oversight to ensure grant funds are 
being used as intended. Without the required checklist, for example, 
managers cannot readily ensure that the required documentation 
supporting the management of each grant is present and complete. State 
also cannot determine whether the GO's decision not to award a grant 
through open competition was justifiable according to State's guidance 
unless the GO documents that decision. Furthermore, while grants 
officials told us they do conduct monitoring, absent adequate 
monitoring plans and reports, it is difficult for managers to 
determine whether grants officials are effectively allocating 
resources or conducting monitoring, or that a grant accomplished its 
intended goals. 

Grants Officials Cited Several Reasons for Nonadherence to Risk 
Analysis and Documentation Requirements, and State Does Not Have 
Processes for Ensuring Compliance: 

GOs and GORs we interviewed cited a variety of reasons for not 
conducting the required risk analysis and documentation, including a 
misunderstanding of State policies and guidance, a heavy workload, and 
a lack of staff expertise. For example, several of these grants 
officials told us they did not do a risk analysis either because the 
recipient was well known or they knew intuitively that the risk level 
was low--particularly if the grant was relatively small or funded a 
short-term project such as a 2-day photography exhibit. State 
policies, however, do not preclude well-known organizations from risk 
analysis. Moreover, we found an example where the GO assumed the grant 
was low-risk without doing a full risk analysis, even though it was 
the first time that State had awarded a grant to the recipient. The 
grant files contained evidence that as the grant progressed, the 
recipient had a variety of performance issues, including trying to use 
the grant funds for activities other than what was intended. The 
amount of time and resources dedicated to an appropriate risk analysis 
may vary for lower dollar value grants, well-known recipients, or 
other factors; nonetheless, according to an A/OPE official, a risk 
analysis is still required in these circumstances. State, however, 
does not have a process in place for ensuring that grants officials 
conduct a risk analysis. 

According to State officials and the files we reviewed, multiple 
responsibilities and large portfolios limited the oversight they 
conducted to ensure that required documentation was in place. Grants 
officials reported having high numbers of grants to manage and 
multiple responsibilities beyond managing grants. At bureaus with GOs 
based in Washington, D.C., workloads tended to be higher, according to 
an A/OPE official.[Footnote 31] This official reported that the 
average number of grant transactions undertaken by these domestic GOs 
in fiscal year 2013 was 46, and two Washington, D.C.-based GOs we 
interviewed reported having portfolios of 110 and 200 active grants, 
respectively. At two posts we visited, the GOs were responsible for 
managing portfolios of about 56 to 66 grants in fiscal year 2012, in 
addition to their primary responsibilities as public affairs officers 
for the embassies. Both GOs reported relying on GORs and others to 
complete the award documentation. They reported conducting occasional 
spot checks of the files compiled by the GORs. At both posts, however, 
we found that each grant file in our sample managed by these GOs was 
missing required internal control documents. Furthermore, we brought 
oversight issues to the attention of the GOs of which they had 
previously been unaware, such as unexpended funds from a closed-out 
grant.[Footnote 32] 

Some grants officials told us that State's systems for documenting key 
management activities are not easy to use. A/OPE officials told us 
they are working to improve the main electronic management systems 
used by grants officials (the Grants Database Management System and 
the State Assistance Management System),[Footnote 33] but the accuracy 
of some information will still depend on the person inputting it, and 
State does not have a process for ensuring that all of the required 
documentation is included. Three grants officials we interviewed 
reported that interns and grant assistants update the paper and 
electronic files and that the grants officials do not check their 
work. In addition, some grants officials told us that while official 
files might be missing required documentation, the information was 
stored elsewhere and could be retrieved upon request. While some 
grants officials eventually produced the requested information, others 
did not. Some grants officials told us that they kept information 
about recipient performance on their computer's hard drive, a fact 
that may limit other grants officials' access to this information. 
Furthermore, the official files did not indicate where this 
information could be found. 

State Has Assessed Implementation of Internal Controls at Bureaus and 
Posts, but Has Not Followed Up on Most Recommendations for Improvement: 

State has assessed the implementation of internal controls at several 
bureaus and posts and has recommended improvements; however, it has 
not followed up to ensure the implementation of its recommendations. 
According to the federal standards, successful monitoring should 
include policies and procedures for regularly assessing the 
effectiveness of the internal controls in place and for ensuring that 
the findings of audits and other reviews are promptly resolved. In 
2008, A/OPE issued a policy to systematically review grants management 
at posts and bureaus.[Footnote 34] The policy stated that the number 
and extent of the reviews conducted each year would be dependent on 
A/OPE's available resources.[Footnote 35] 

Side bar: 

The Five Standards for internal control: 
1. Control environment; 
2. Risk assessment; 
3. Control activities; 
4. Information and communications; 
5. Monitoring: Internal control monitoring should assess the quality 
of performance over time and ensure that any issues are promptly 
resolved. 
Source: GAO. GAO-14-635. 

[End of section] 

A/OPE has assessed compliance with grant management policies at some 
bureaus in Washington, D.C., and overseas posts and found some 
deficiencies in grants officials' implementation of those policies. In 
2008, State created a Grants Management Review (GMR) program with 
guidelines and a checklist for reviews. The bureaus and posts are to 
be selected for review based on weaknesses identified by the Inspector 
General, dollar amount and volume of grants processed, informal risk 
assessments, public visibility of the grants, and bureau or post 
requests to be reviewed. In addition to the GMRs and other reviews of 
grant-making bureaus headquartered in Washington, D.C., A/OPE has 
conducted less formal reviews at grant-making posts overseas, 
combining file reviews with training. These reviews--called Grants 
Review Evaluation and Assistance Trainings (GREAT)--are initiated in 
response to requests for training or when A/OPE becomes aware of 
challenges faced at certain posts, including considerable turnover. 
According to officials, A/OPE tries to select posts for review if they 
are located at or near destinations where A/OPE staff have other 
reasons to travel, so as to conserve resources. A/OPE officials said 
their method for conducting GREATs was similar to that used for GMRs, 
but less in-depth. As a result, unlike the formal GMRs--which State 
officials said can take 2 to 3 months to conduct--these informal 
GREATs take 2 to 3 days and result in shorter reports. Between 2001 
and February 2014, A/OPE completed 13 GMRs and other reviews at 12 
bureaus and offices headquartered in Washington, D.C., and 42 GREATs 
at 37 posts around the world.[Footnote 36] 

These assessments of grants officials' implementation of grants 
management policy at bureaus and posts have found insufficient 
documentation, among other deficiencies, and recommended solutions. 
Specifically, 52 of the 55 reviews found insufficient documentation in 
grant files, affecting 47 bureaus and posts. Ten of the bureaus and 
posts where A/OPE had conducted GMRs, GREATs, and other reviews were 
included in our review samples.[Footnote 37] At all 10 bureaus and 
posts, State found challenges with documentation similar to those we 
identified. For example, in 5 of the 10 bureaus and posts, A/OPE found 
that grants officials did not consistently document monitoring reports 
or site visit reports, and in one case the post had no monitoring 
plans in its award files. A/OPE found insufficient documentation in 
the other 4 bureaus as well, such as incomplete internal control 
checklists or inadequate documentation of sole source justification. 
One bureau in Washington, D.C., kept its monitoring reports on an 
electronic shared drive, but the award files did not indicate where to 
find the reports. A/OPE has made many recommendations to bureaus and 
posts aimed at correcting the deficiencies it identified. These 
recommendations have included the establishment of standard operating 
procedures and more effective use of electronic systems for 
documentation, among others. 

However, State has not systematically followed up to ensure the 
implementation of these recommendations. State's system for tracking 
compliance with its grants management policies has yielded 
recommendations for improvement at 48 of the 49 bureaus and posts it 
has reviewed, but State has conducted follow-up with only 6 of those 
48 bureaus and posts to ensure that these recommendations were 
implemented. State's policy for GMRs outlines how State will select 
and conduct a review, but does not provide a procedure for ensuring 
that corrective action has been taken and no further management action 
is needed. However, A/OPE officials report that they have limited 
staff, with currently only one individual leading both the GMR and 
GREAT reviews. In addition, they report having a limited travel budget 
for conducting follow-up reviews. A senior A/OPE official said it is 
necessary to be vigilant about regularly sending messages regarding 
important grant-related tasks, particularly when there is considerable 
turnover among personnel at posts. Because State does not track or 
report on the implementation of recommendations, State cannot 
determine whether its grants management reviews and training are 
achieving their purpose of strengthening the management and oversight 
of assistance agreements. 

Conclusions: 

Given the relatively large amount of funding for grants and the 
widespread use of these instruments to achieve foreign policy goals, 
it is important for State to ensure that grant funds are used as 
intended. State has made progress toward establishing the internal 
controls it needs to gain this assurance. For example, State has 
outlined its expectations for grants management in detailed policies 
and guidance that should be clear for all grants officials. In 
particular, the requirements to conduct a risk analysis and document 
the implementation of required control activities conform to the 
federal standards for internal control. However, we found that most of 
the grant files we reviewed did not contain evidence of an appropriate 
risk analysis or were missing other required internal control 
documentation, and State has not developed processes for ensuring that 
grants officials implement these requirements. Therefore, State's 
assurance that grant funds are used as intended is weakened. 
Recommendations made in State's internal reviews of grant-making 
practices reinforce expectations concerning documentation. However, 
State management does not systematically follow up to ensure that 
grants officials throughout the department consistently implement 
these required control activities or act upon recommendations made. As 
a result, State cannot be certain that its oversight of grants 
management is adequate or that it is using its limited oversight 
resources effectively. 

Recommendations for Executive Action: 

To help ensure that State's grants officials fully implement grants 
management policies and internal controls that are in place, and that 
grant funds are used as intended, we recommend that the Secretary of 
State take the following two actions: 

Develop processes to help ensure that: 

* bureaus and missions conduct appropriate risk assessments, and: 

* grants officials complete required documentation for all grants. 
Such a process could include systematic inspections of grant files, 
with the results shared among A/OPE, the appropriate bureaus and 
missions, and the grants officials themselves, so as to promote 
accountability. 

In addition, we recommend that the Secretary of State take the 
following action: 

* follow up systematically on recommendations from State's internal 
reviews of its grants management. 

Agency Comments: 

We provided a draft of this report to State for its review and 
comment. State provided written comments, which we have reprinted in 
appendix III, as well as technical comments, which we incorporated, as 
appropriate. 

State provided additional information about its efforts to establish 
policies and guidance to provide a supportive environment for 
administering and overseeing grants. In particular, State noted that, 
in addition to the policies and guidance described in our report, the 
department has implemented processes regarding grant-making authority 
and certification for grants officials and has cooperated with the 
Office of Management and Budget on governmentwide foreign assistance 
management issues. 

State concurred with our recommendations to develop processes for 
ensuring that bureaus and missions conduct appropriate risk 
assessments and that grants officials complete required documentation. 
Specifically, State indicated that it will modify risk assessment 
guidance to include suggestions from our report, provide additional 
training focused on risk assessment, and specifically evaluate 
compliance with risk assessment requirements in State's own 
assessments of internal controls at bureaus and posts. State also 
indicated that it will increase the emphasis on file documentation and 
expand the extent of file reviews during these assessments at bureaus 
and posts to help ensure that grants officials complete required 
documentation for all grants. In addition, State concurred with our 
recommendation to follow up systematically on recommendations from 
State's internal reviews of its grants management. Specifically, it 
said that it will require formal responses to recommendations from its 
grant management assessments at bureaus and posts, to include 
recommendation implementation status updates. 

We are sending copies of this report to the appropriate congressional 
committee and the Secretary of State. In addition, the report is 
available at no charge on GAO's website at hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-3149 or GootnickD@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made major 
contributions to this report are listed in appendix IV. 

Sincerely yours, 

Signed by: 

David Gootnick: 
Director, International Affairs and Trade: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to examine (1) the policies and guidance that the 
Department of State (State) has established to administer and oversee 
grants and cooperative agreements, and (2) the extent to which the 
implementation of those policies and guidance provides reasonable 
assurance that funds are being used as intended. 

To define grants and cooperative agreements (grants) and to describe 
the roles and responsibilities of those involved in managing State's 
grants and the key activities grants officials must conduct during 
each phase, we reviewed State's grants policy directives (GPD) and 
State's required grants officials training, and interviewed State 
officials.[Footnote 38] To describe the internal control standards 
applicable to State grants management, we reviewed the Standards for 
Internal Control in the Federal Government (the federal standards). 
[Footnote 39] 

To describe the policies and guidance that State has established to 
administer and oversee grants, we reviewed federal regulations, Office 
of Management and Budget (OMB) circulars, and State's GPDs, as well as 
training and other resources the department provides its grants 
officials. We collected and analyzed all 54 active GPDs issued by 
State's Office of the Procurement Executive (A/OPE).[Footnote 40] We 
reviewed State Department training regarding State's incorporation of 
federal regulations into its grants policies and interviewed A/OPE 
officials regarding this topic. We interviewed officials from A/OPE 
and the Office of the Deputy Chief Financial Officer, who set 
department-wide policies on grant performance and financial 
management, and bureau and post officials regarding any additional 
policies and guidance they provide that is specific to the programs 
they manage. To describe the extent to which State's GPDs establish 
internal controls throughout the phases of a grant's life cycle, we 
compared the key activities the grants officials must conduct at each 
phase, as well as the additional training and guidance A/OPE provides 
to grants officials, with the federal standards and with federal 
regulations for grants management. 

To assess the extent to which State's policies and guidance provide 
reasonable assurance that funds are being used as intended, we 
assessed State's policies and guidance for grants management against 
the implementation of those policies, as well as reviewing State's own 
process for conducting internal assessments of the implementation of 
those policies. We interviewed State officials from A/OPE, the Office 
of the Deputy Chief Financial Officer, and various functional and 
regional bureaus and offices headquartered in Washington, D.C., and 
three overseas missions to determine how State both designs and 
implements department-wide internal control policies on grants 
performance and financial management.[Footnote 41] 

To further determine how State implements these policies, we selected 
three case study countries--Afghanistan, Cambodia, and Turkey--based 
on criteria that included total dollar value of grants in a country, 
geographic diversity, and balance among the bureaus involved in 
managing the awards. For these countries we examined a 
nongeneralizable sample of 48 grants by award size and bureau that had 
obligations in fiscal year 2012.[Footnote 42] In addition, we used the 
same criteria to draw another nongeneralizable sample of 13 grants 
managed in the United States, Washington, D.C.[Footnote 43] Overall, 
the 61 grants we reviewed ranged in value from just over $25,000 to 
$28,000,000, and totaled approximately $172 million.[Footnote 44] To 
arrive at these 61 grants, we included all grants over $25,000 with 
obligations in fiscal year 2012 in Cambodia and Turkey, which had 15 
and 21 such grants respectively, and selected 20 such grants managed 
in the other two countries, for a total of 76 files. We excluded 
grants where multiple places of performance were listed and selected 
only those grants where our four countries were listed as the only 
place of performance. However, once we began conducting interviews 
regarding these grants, we discovered that some of the grants had been 
mislabeled in State's Grants Database Management System. Specifically, 
2 were managed in countries other than the ones listed in the 
database; another grant was listed in the database as being managed in 
Cambodia alone, but was in fact managed from Washington, D.C., and 
implemented worldwide; and a fourth grant was a duplicate of a grant 
already in our sample. Correcting for these errors and adjustments, 
our sample was reduced to 72 grants. Three bureaus each managed 10 or 
more of these, accounting for 39 of the 72 grants. We determined that 
we had obtained sufficient coverage of grants from the three bureaus 
in question by reviewing 28 of their 39 grants. This determination 
further reduced our overall sample size from 72 to 61 grants. The 
final sample of 61 grants we conducted file reviews for included 19 in 
Afghanistan, 10 in Cambodia, 19 in Turkey, and 13 in the United 
States.[Footnote 45] 

Collectively, the grants in our samples were managed by 3 posts and 14 
bureaus of the 27 grant-making bureaus and offices in State.[Footnote 
46] Our sample included grants by 6 of the top 10 bureaus and posts in 
terms of State's total federal financial assistance obligations in 
fiscal year 2012.[Footnote 47] Our sample was nongeneralizable and did 
not allow us to determine whether there were any statistically 
significant differences by factors such as bureau or award size. In 
this report, we presented the overall results of the data on internal 
control activities for all 61 grants that we selected for data 
collection instrument review. During our analysis, we also looked for 
any overall patterns or differences by bureau and award size in terms 
of dollar value, but did not note any. We identified examples of 
concerns about controls that we reported on, such as incomplete 
documentation and absence of a risk assessment, in awards with high 
and low dollar values across the bureaus in our sample.[Footnote 48] 
To examine how grants officials implemented grants management 
policies, we conducted file reviews for 61 grants using a data 
collection instrument and interviews regarding those 61 grants using a 
standard set of questions. We developed the data collection instrument 
to assess grants officials' implementation of a selection of State's 
required internal control activities for grants management, including 
risk assessment, monitoring of recipients, and documentation of key 
activities. To identify these required internal control activities, we 
analyzed federal regulations and State policies and guidance related 
to management of grants across their life cycle and compared them 
against the federal standards.[Footnote 49] The data collection 
instrument asked a series of questions about critical elements of 
these internal control activities. During our reviews, we examined the 
files that State provided for each grant to determine whether they 
contained sufficient evidence to indicate whether the control 
activities had been performed. Our file review guidance indicated that 
while State policy requires the complete official file to be located 
in at least one place, analysts completing the reviews were directed 
to contact grants officials responsible for the files to request 
missing information where possible. Comments sections in the data 
collection instrument allowed the reviewers to document these requests 
and other notes they had about each question in the file. Two analysts 
reviewed each file, with the second analyst verifying the first 
analyst's review. The focus of our analysis was the degree to which 
the grants officials had performed the required control activities for 
the grants in our sample. As noted above, we also considered whether 
there were any patterns or differences by award size in dollars or by 
bureau, but did not find any. In addition, the interview questions 
asked grants officials to identify training and guidance they found 
helpful, as well as any challenges they encountered as they 
implemented these policies. We pretested both the data collection 
instrument and interview questions in Kabul, and tested revised 
versions in Washington, D.C. Our file review and interview questions 
covered each phase of the grant life cycle, from preaward to closeout. 
We then compared the file review results for control activities 
against responses collected using the standard interview questions to 
provide a more complete picture of how the grants officials 
implemented the policies and identify reasons these officials cited 
for instances of noncompliance, as well as any State policies and 
guidance they found helpful. 

We conducted interviews using the standard set of questions with at 
least one grants officer (GO) for each of the 61 grants in our sample, 
ultimately interviewing more than 50 GOs and grants officer 
representatives (GOR), as well as some program officers.[Footnote 50] 
To identify any internal control deficiency patterns or trends, we 
analyzed and compared the data we collected from our file reviews and 
interviews and also compared them to the findings from State's 
internal inspections of grant-making operations. 

To describe State's assessment of grants officials' implementation of 
its internal controls, we reviewed State's guidance for conducting 
these reviews, interviewed A/OPE officials regarding the review 
process, and reviewed 55 assessment reports A/OPE issued between 2001 
and February 2014. These 55 included the assessment reports A/OPE 
conducted in 12 grant-making bureaus, including 10 Grants Management 
Reviews and 3 other reviews, and reports from the 42 Grants Review 
Evaluation and Assistance Trainings A/OPE conducted at 37 posts around 
the world. Of the 55 assessment reports, 10 covered 10 of the 17 
bureaus and posts included in our review. We analyzed those 10 reports 
to identify any findings related to the federal standards.[Footnote 
51] We also reviewed all 55 reports to identify any instances where 
A/OPE either made recommendations and then returned to the bureaus and 
posts to follow up, or documented receiving recommendation 
implementation progress reports from those bureaus and posts. 

We conducted this performance audit from May 2013 to July 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

[End of section] 

Appendix II: Internal Control Standards as Designed and Implemented in 
State's Grants Management: 

We analyzed State's grants policy directives (GPD) as well as its own 
grants management reviews, and we conducted file reviews for 61 grants 
in our sample to help determine both the policies State established 
for internal controls in grants management as well as how grants 
officials implemented those policies. To conduct the file reviews, we 
developed a data collection instrument that focused on basic 
documentation, decisions about competitive selections, risk management 
approach, monitoring approach, and closeout activities. For a full 
description of the methodology for the file reviews, see appendix I. 

The following tables reflect our overall analysis of State's policies 
and management reviews as well as selected results from our file 
reviews that correspond to the five internal control standards of 
control environment, risk assessment, control activities, information 
and communication, and monitoring.[Footnote 52] 

We analyzed A/OPE's GPDs against each internal control standard to 
describe the control environment (see table 2). For risk assessment, 
control activities, and information and communications, we selected 
results from our 61 file reviews using a data collection instrument we 
developed to analyze these three internal control standards in 
particular (see tables 3-8). Finally, for monitoring, we analyzed 
A/OPE's findings from its internal reviews assessing the 
implementation of the internal control activities at eight bureaus and 
two posts included in our sample (see table 9). We selected these 
results because they add additional detail to the information 
summarized in the report. 

Control Environment: 

As shown in Table 2, we analyzed all 54 of A/OPE's active GPDs against 
each internal control standard to help describe the control 
environment.[Footnote 53] 

Table 2: Department of State's Grants Policy Directives (GPD) as of 
April 2, 2014 and Related Internal Controls: 

GPD: GPD 1 Revision 6; 
Subject: Grants Officer Appointments; 
Related internal control standard(s): Control environment and control 
activities. 

GPD: GPD 2 Revision 3; 
Subject: Liability and Enforcement Actions for Unauthorized 
Commitments; 
Related internal control standard(s): Control activities. 

GPD: GPD 3 Revision 3; 
Subject: Grants Management Forms; 
Related internal control standard(s): Control activities. 

GPD: GPD 5 Revision 4; 
Subject: Competition Requirements for Assistance Awards; 
Related internal control standard(s): Control environment, 
control activities, and information and communications. 

GPD: GPD 8 Revision 3; 
Subject: Signatory Authority for Overseas Awards; 
Related internal control standard(s): Control activities. 

GPD: GPD 9 Revision 1; 
Subject: Audit Appeals; 
Related internal control standard(s): Monitoring. 

GPD: GPD 11 Revision 3; 
Subject: Regional Bureau Notification/Approval Process for Awards 
Issued by Overseas Posts; 
Related internal control standard(s): Control activities. 

GPD: GPD 12 Revision 1; 
Subject: Congressional Notification Requirements for Public Diplomacy 
Awards; 
Related internal control standard(s): Information and communications. 

GPD: GPD 14 Revision 4; 
Subject: Standardized Assistance Instrument Identification System; 
Related internal control standard(s): Control activities. 

GPD: GPD 16 Revision 3; 
Subject: Designation Of Grants Officer Representatives; 
Related internal control standard(s): Control environment and control 
activities. 

GPD: GPD 19 Revision 1; 
Subject: Excluded Parties List System Preaward Due-Diligence 
Requirement; 
Related internal control standard(s): Risk assessment. 

GPD: GPD 20 Revision 3; 
Subject: Federal Assistance Awards To Commercial For-Profit Firms; 
Related internal control standard(s): Control activities. 

GPD: GPD 21 Revision 3; 
Subject: Grants Database Management System (GDMS) Requirements; 
Related internal control standard(s): Control activities and 
information and communications. 

GPD: GPD 22 Revision 1; 
Subject: Indirect Costs; 
Related internal control standard(s): Monitoring. 

GPD: GPD 23 Revision 2; 
Subject: Federal Assistance File Folder, Form DS-4012; 
Related internal control standard(s): Control activities. 

GPD: GPD 24 Revision 3; 
Subject: Catalog of Federal Domestic Assistance; 
Related internal control standard(s): Information and communications. 

GPD: GPD 25; 
Subject: Intellectual Property Infringement and Responsibility 
Determinations; 
Related internal control standard(s): Risk assessment. 

GPD: GPD 26 Revision 1; 
Subject: Grants.gov and other Announcement Methods; 
Related internal control standard(s): Information and communications. 

GPD: GPD 27; 
Subject: Methods of Competition; 
Related internal control standard(s): Information and communications. 

GPD: GPD 28 Revision 1; 
Subject: Roles and Responsibilities For The Award And Administration 
Of Federal Assistance; 
Related internal control standard(s): Control environment. 

GPD: GPD 29 Revision 3; 
Subject: Mandatory Collection of the Data Universal Numbering System 
(DUNS) and Central Contractor Registration; 
Related internal control standard(s): Control activities. 

GPD: GPD 30 Revision 2; 
Subject: Property Grants And Requirements For The Disposal Of Property 
Through Federal Assistance Awards; 
Related internal control standard(s): Control activities. 

GPD: GPD 31 Revision 1; 
Subject: Standardized Federal Assistance Award formats; 
Related internal control standard(s): Control Activities. 

GPD: GPD 34; 
Subject: Grants Management Reviews; 
Related internal control standard(s): Monitoring. 

GPD: GPD 36; 
Subject: Conflict Of Interest And Non-Disclosure Requirements; 
Related internal control standard(s): Control environment. 

GPD: GPD 37; 
Subject: Risk assessment for Terrorism Finance Federal Assistance 
Awards; 
Related internal control standard(s): Risk assessment. 

GPD: GPD 38; 
Subject: The State Assistance Management System (SAMS): Policy 
Deviations for Grantsolutions.gov Users; 
Related internal control standard(s): Information and communications. 

GPD: GPD 39; 
Subject: Standards for Proposal Review Panels; 
Related internal control standard(s): Control environment. 

GPD: GPD 41 Revision 2; 
Subject: Close-Out of Federal Assistance Awards; 
Related internal control standard(s): Control activities, information 
and communications, and monitoring. 

GPD: GPD 42; 
Subject: Monitoring Assistance Awards; 
Related internal control standard(s): Control environment, control 
activities, risk assessment, and monitoring. 

GPD: GPD 43; 
Subject: Preaward Responsibility Determination; 
Related internal control standard(s): Control activities and risk 
assessment. 

GPD: GPD 45; 
Subject: Retention, Retrieval, and Disposal of Records; 
Related internal control standard(s): Control activities. 

GPD: GPD 48; 
Subject: Debarment and Suspension; 
Related internal control standard(s): Control environment, control 
activities. 

GPD: GPD 51; 
Subject: Federal Awardee Performance and Integrity Information System; 
Related internal control standard(s): Control activities, information 
and communications, and monitoring. 

GPD: GPD 52; 
Subject: Improper Payments; 
Related internal control standard(s): Control environment and risk 
assessment. 

GPD: GPD 53 Revision 1; 
Subject: Corrective Action Plan (CAP); 
Related internal control standard(s): Control environment, control 
activities, risk assessment, and monitoring. 

GPD: GPD 57; 
Subject: Risk Management; 
Related internal control standard(s): Control environment, control 
activities, and risk assessment. 

GPD: GPD 58; 
Subject: High-Risk recipients; 
Related internal control standard(s): Control activities, risk 
assessment, and monitoring. 

GPD: GPD 59; 
Subject: Management of Contractors Supporting Grant Administration; 
Related internal control standard(s): Monitoring. 

GPD: GPD 62; 
Subject: Vetting of Afghanistan and Five-Country Pilot Program for the 
Prevention of Terrorist Financing; 
Related internal control standard(s): Monitoring. 

GPD: GPD 65; 
Subject: Audits of Foreign Recipient Organizations; 
Related internal control standard(s): Monitoring. 

Source: GAO analysis of Department of State policies. GAO-14-635. 

Notes: The GPD numbers do not run sequentially, given that A/OPE has 
retired five of them and did not always number them consecutively. 
Furthermore, some GPDs did not directly relate to any of the five 
internal control standards. 

[End of table] 

Risk Assessment: Risk Management Approach: 

To determine the extent to which overall risk management was conducted 
for each grant, each file reviewer first answered a series of 
questions in our data collection instrument about key elements of risk 
management, including the risk identification process, review of 
financial and systems controls, consideration of external risks, risk 
identification, risk assessment, and risk mitigation. On the basis of 
the responses to those questions, the reviewers made a final 
determination on overall risk management (see table 3). 

Table 3: Overall Results Relating to Risk Management from GAO File 
Reviews: 

Data collection instrument statement: The risk management approach 
adheres to State guidance; 
Generally agree: 5; 
Partially agree: 38; 
Do not agree: 18. 

Source: GAO. GAO-14-635. 

[End of table] 

Control Activities: Monitoring Approach and Closeout: 

To determine the extent to which overall monitoring (see table 4) and 
closeout activities (see table 5) were conducted for each grant, each 
file reviewer first answered a series of questions in our data 
collection instrument about key elements of monitoring and closeout, 
including whether there was a monitoring plan, and if so, whether it 
reflected risks, whether monitoring mechanisms were described in the 
plan, whether the plan had been executed, and whether monitoring had 
been carried out in the absence of a plan.[Footnote 54] On the basis 
of the responses to those questions, the reviewers made a final 
determination about overall monitoring. 

Table 4: Control Activities: Overall Results Relating to Monitoring 
Approach from GAO File Reviews: 

Data Collection Instrument statement: The monitoring approach adheres 
to State guidance; 
Generally agree: 11; 
Partially agree: 41; 
Do not agree: 9. 

Source: GAO. GAO-14-635. 

[End of table] 

Table 5: Control Activities: Results Relating to Closeout Activities 
from GAO File Reviews: 

Data collection instrument questions: If the award end date was more 
than 120 days ago, has the award been closed out? 
Yes: 16; 
No: 9; 
Not applicable: 36. 

Data collection instrument questions: 
* If yes, did the Grants Officer Representative provide the Grants 
Officer with a written evaluation of the recipient's performance? 
Yes: 12; 
No: 4; 
Not applicable: [Empty]. 

Source: GAO. GAO-14-635. 

[End of table] 

Information and Communications: 

The data collection instrument we used to conduct the 61 file reviews 
also contained questions related to information and communications. 
For example, it contained questions and statements to verify whether 
required documentation was present and if so, whether it was complete. 
The documentation we looked for included the required internal control 
checklist, or DS-4012 (see table 6); overall documentation of 
competitive selection decisions (see table 7); and the required 
justification for awarding any grants without a full and open 
competition (sole-sourcing) (see table 8). To determine the extent to 
which overall competitive selection decisions were justified for each 
grant, each file reviewer first answered a series of questions about 
key elements of that justification, including--but not limited to--
whether the award was sole-sourced, and if so, whether the decision to 
sole-source was justified in writing. On the basis of the responses to 
those and other questions, the reviewers made a final determination 
about the overall documentation of justification of competitive 
selection decisions (see table 7). 

Table 6: Results Relating to Information and Communications from GAO 
File Reviews: Basic Documentation: 

Data collection instrument questions: Is the DS-4012 included?[A] 
Yes: 
44; 
No: 17. 

Data collection instrument questions: 
* If so, is the cover sheet of the DS-4012 Section 1 Summary 
Information completely filled out? 
Yes: 5; 
No: 39. 

Source: GAO. GAO-14-635. 

[A] The DS-4012 is the required internal control checklist. 

[End of table] 

Table 7: Results Relating to Information and Communications from GAO 
File Reviews: Justifying Competitive Selection Decisions: 

Data collection instrument statement: Decisions about competitive 
selection are justified; 
Generally agree: 45; 
Partially agree: 7; 
Do not agree: 9. 

Source: GAO. GAO-14-635. 

[End of table] 

Table 8: Results Relating to Information and Communications from GAO 
File Reviews: Justifying and Documenting Sole-Source Decisions: 

Data collection instrument questions: Was the award sole-sourced? 
Yes: 24. 

Data collection instrument questions: 
* If yes, is there documented written justification of this decision? 
Yes: 16. 

Source: GAO. GAO-14-635. 

[End of table] 

Monitoring: 

A/OPE has assessed compliance with grant management policies at some 
bureaus in Washington, D.C., and overseas posts using its Grants 
Management Reviews (GMR) and Grants Review Evaluation and Assistance 
Trainings (GREAT) and other reviews. The 55 reviews State conducted 
between 2001 and February 2014 found some deficiencies in grants 
officials' implementation of State's grant management policies. Eight 
of the bureaus and two of the posts where State conducted there 
reviews were included in our sample of grants. We analyzed those 10 
reports to identify any findings related to the federal standards (see 
table 9). 

Table 9: State's Internal Monitoring: Findings from A/OPE's GMRs and 
GREATs for Bureaus and Posts within GAO's Sample: 

Type of review: GMR; 
Bureau or post: Bureau of Administration, Office of Acquisitions 
Management; 
Findings by internal control standard: Control environment, control 
activities, information and 
communications,and monitoring. 

Type of review: GMR; 
Bureau or post: Bureau of Democracy, Human Rights, and Labor; 
Findings by internal control standard: Control environment, control 
activities, and information and communications. 

Type of review: GMR; 
Bureau or post: Bureau of Educational and Cultural Affairs; 
Findings by internal control standard: Control environment, control 
activities, information and communications, and risk assessment. 

Type of review: GMR; 
Bureau or post: Bureau of International Narcotics and Law Enforcement; 
Findings by internal control standard: Control environment, control 
activities, information and communications, and monitoring. 

Type of review: GMR; 
Bureau or post: Bureau of International Security and Nonproliferation 
(ISN)[A]; 
Findings by internal control standard: Control environment, control 
activities, and information and communications. 

Type of review: GMR; 
Bureau or post: Office of Overseas Schools; 
Findings by internal control standard: Control environment and control 
activities. 

Type of review: GMR; 
Bureau or post: Bureau of Population, Refugees, and Migration; 
Findings by internal control standard: Control environment, control 
activities, and information and communications. 

Type of review: GMR; 
Bureau or post: Bureau of Political-Military Affairs (PM)[B]; 
Findings by internal control standard: Control environment, control 
activities, and information and communications. 

Type of review: GREAT; 
Bureau or post: Ankara, Turkey; 
Findings by internal control standard: Control environment, control 
activities, information and communications, and risk assessment. 

Type of review: GREAT; 
Bureau or post: Kabul, Afghanistan; 
Findings by internal control standard: Control environment, control 
activities, and information and communications. 

Source: GAO analysis of State data. GAO-14-635. 

Notes: The internal control standard of monitoring includes management 
and supervisory activities, including the oversight that a GO has of 
GOR activities or that State management has of a GO's activities: 

[A] This GMR reviewed the Office of Export Control Cooperation within 
ISN. 

[B] This GMR reviewed the Office of Weapons Removal and Abatement 
within PM. 

[End of table] 

[End of section] 

Appendix III: Agency Comments: 

United States Department of State: 
Comptroller: 
P.o. Box 150008: 
Charleston, SC 29415-5008: 

June 30, 2014: 

Dr. Loren Yager: 
Managing Director: 
International Affairs and Trade: 
Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548-0001: 

Dear Dr. Yager: 

We appreciate the opportunity to review your draft report,
"State Department: Implementation of Grants Policies Needs Better
Oversight" GAO Job Code 320978. 

The enclosed Department of State comments are provided for incorporation
with this letter as an appendix to the final report. 

If you have any questions concerning this response, please contact
Jeffrey Johnson, Director, Federal Assistance Division, Bureau of 
Administration at (703) 812-2526. 

Sincerely, 

Signed by: 

Christopher H. Flaggs, Acting: 

Enclosure: as stated. 

cc: 
GAO - David Gootnick; 
A - Joyce A. Barr; 
State/OIG - Norman Brown. 

Department of State Comments on GAO Draft Report: 

State Department: Implementation of Grants Policies Needs Better 
Oversight (GAO-14-635, GAO Code 320978): 

The Department of State appreciates the opportunity to comment on the 
draft GAO report "State Department: Implementation of Grants Policies 
Needs Better Oversight." 

The Department appreciates GAO acknowledgment of our efforts to ensure
appropriate management of our grants portfolio. As the report notes, the
Department issued guidance, created and conducted training, 
disseminated best practices, created and executed a grants operation 
review process at both domestic and overseas locations and otherwise 
created an appropriate internal controls environment. The report did 
not identify that we also created a Grants Officer's Representative 
(GOR) certification program and that we implemented a Grants Officer 
Warrant and GOR certification tracking database to identify and track 
GOs and GORs across the Department. The program has resulted in the 
certification of 1,256 GORs since January 2013. 

The Department's Director of Federal Assistance created and chairs an
International Federal Assistance Working Group that worked with the 
Office of Management and Budget (OMB) on government-wide federal 
assistance management issues. The Department of State was, also, 
recently appointed by OMB as the at-large member to the Council on 
Financial Assistance Reform. The Council coordinates and advises OMB 
on policies and actions necessary to effectively deliver, oversee, and 
report on federal assistance government-wide. These relationships 
strengthen our ability to ensure State policies reflect government-
wide requirements as noted positively in your report. 

The Department uses GAO and other oversight organization recommendations
to improve our management of grants. 

1) Develop processes to help ensure that bureaus and missions conduct
appropriate risk assessments. 

The Department concurs with the GAO recommendation and notes that they
speak to government-wide efforts already underway by OMB to strengthen
guidance for federal assistance with an emphasis on risk assessment. The
Department will modify the risk assessment guidance to include 
suggestions from the report such as evaluating corruption factors, 
determining an overall risk level, and linking monitoring more closely 
to the risk assessment and mitigation plan. Additional training of 
Department personnel will focus on the risk assessment process. Grants 
Management Reviews (GMRs) and Grant Review Evaluation and Assistance 
Trainings (GREATs) will also specifically evaluate compliance with
risk assessment requirements. 

2) Develop processes to help ensure that grants officials complete 
required documentation for all grants. Such a process could include 
systematic inspections of grants files, with the results shared among 
A/OPE, the appropriate bureaus and missions, and the grants officials 
themselves, so as to promote accountability. 

The Department concurs with the GAO recommendation. The Department
currently conducts GMRs and GREATs to assess bureaus, office and posts
compliance with the Departments policies and procedures. As noted in 
the report, these reviews have identified documentation deficiencies 
and the Department's Grants Policy Directives provide checklists of 
required documentation for files. The Department will increase the 
emphasis on file documentation and will expand the extent of file 
reviews. 

3) Develop processes to help ensure follow up systematically on
recommendations from State's internal reviews of its grants
management. 

The Department concurs with the GAO recommendation. The Department will
require a formal response to all GMR and GREAT recommendations and will
require status updates on resolution. The Department will conduct 
follow up reviews as resources permit. 

[End of section] 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contact: 

David Gootnick, (202) 512-3149 or GootnickD@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, James B. Michels (Assistant 
Director), Judith Williams, Katherine Forsyth, Jacob Beier, Debbie 
Chung, Oliver Culley, Martin De Alteriis, Jon Fremont, Farhanaz 
Kermalli, Anne McDonough-Hughes, Kimberly McGatlin, Shakira O'Neil, 
and Justin Fisher made key contributions to this report. Etana 
Finkler, Ernie Jackson, Julia Jebo Grant, and Cristina Ruggiero 
provided technical assistance. 

[End of section] 

Related GAO Products: 

Grant Workforce: Agency Training Practices Should Inform Future 
Government-wide Efforts. [hyperlink, 
]http://www.gao.gov/products/GAO-13-591. Washington, D.C.: June 28, 
2013. 

Cuba Democracy Assistance: USAID's Program Is Improved, but State 
Could Better Monitor Its Implementing Partners. [hyperlink, 
http://www.gao.gov/products/GAO-13-285]. Washington, D.C.: January 25, 
2013. 

Grants to State and Local Governments: An Overview of Federal Funding 
Levels and Selected Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-12-1016]. Washington, D.C.: September 
25, 2012. 

Grants Management: Action Needed to Improve the Timeliness of Grant 
Closeouts by Federal Agencies. [hyperlink, 
http://www.gao.gov/products/GAO-12-360]. Washington, D.C.: April 16, 
2012. 

Improper Payments: Remaining Challenges and Strategies for Government-
wide Reduction Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-12-573T]. Washington, D.C.: March 28, 
2012. 

2012 Annual Report: Opportunities to Reduce Duplication, Overlap and 
Fragmentation, Achieve Savings, and Enhance Revenue. [hyperlink, 
http://www.gao.gov/products/GAO-12-342SP]. Washington, D.C.: February 
28, 2012. 

Federal Grants: Improvements Needed in Oversight and Accountability 
Processes. [hyperlink, http://www.gao.gov/products/GAO-11-773T]. 
Washington, D.C.: June 23, 2011. 

Grants.gov: Additional Action Needed to Address Persistent Governance 
and Funding Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-11-478]. Washington, D.C.: May 6, 2011. 

Government Performance: GPRA Modernization Act Provides Opportunities 
to Help Address Fiscal, Performance, and Management Challenges. 
[hyperlink, http://www.gao.gov/products/GAO-11-466T]. Washington, 
D.C.: March 16, 2011. 

Iraq and Afghanistan: DOD, State, and USAID Face Continued Challenges 
in Tracking Contracts, Assistance Instruments, and Associated 
Personnel. [hyperlink, http://www.gao.gov/products/GAO-11-1]. 
Washington, D.C.: October 1, 2010. 

Contingency Contracting: Improvements Needed in Management of 
Contractors Supporting Contract and Grant Administration in Iraq and 
Afghanistan, [hyperlink, http://www.gao.gov/products/GAO-10-357]. 
Washington, D.C.: April 12, 2010. 

Iraq and Afghanistan: Agencies Face Challenges in Tracking Contracts, 
Grants, Cooperative Agreements, and Associated Personnel. [hyperlink, 
http://www.gao.gov/products/GAO-10-509T]. Washington, D.C.: March 23, 
2010. 

Electronic Government: Implementation of the Federal Funding 
Accountability and Transparency Act of 2006. [hyperlink, 
http://www.gao.gov/products/GAO-10-365]. Washington, D.C.: March 12, 
2010. 

Grants Management: Grants.gov Has Systemic Weaknesses That Require 
Attention. [hyperlink, http://www.gao.gov/products/GAO-09-589]. 
Washington, D.C.: July 15, 2009. 

Single Audit: Opportunities Exist to Improve the Single Audit Process 
and Oversight. [hyperlink, http://www.gao.gov/products/GAO-09-307R]. 
Washington, D.C.: March 13, 2009. 

Grants Management: Attention Needed to Address Undisbursed Balances in 
Expired Grant Accounts. [hyperlink, 
http://www.gao.gov/products/GAO-08-432]. Washington, D.C.: August 29, 
2008. 

Department of State: Human Capital Strategy Does Not Recognize Foreign 
Assistance Responsibilities. [hyperlink, 
http://www.gao.gov/products/GAO-07-1153]. Washington, D.C: September 
28, 2007. 

Foreign Assistance: U.S. Democracy Assistance for Cuba Needs Better 
Management and Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-07-147]. Washington, D.C.: November 
15, 2006. 

Grants Management: Enhancing Performance Accountability Provisions 
Could Lead to Better Results. [hyperlink, 
http://www.gao.gov/products/GAO-06-1046]. Washington, D.C.: September 
29, 2006. 

Grants Management: Grantees' Concerns with Efforts to Streamline and 
Simplify Processes. [hyperlink, 
http://www.gao.gov/products/GAO-06-566]. Washington, D.C.: July 28, 
2006. 

Auditing and Financial Management: Standards for Internal Control in 
the Federal Government. [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. Washington, D.C.: 
November 1, 1999. 

[End of section] 

Footnotes: 

[1] See, for example, Special Inspector General for Afghanistan 
Reconstruction, Selected Public Diplomacy Awards Mostly Achieved 
Objectives but Embassy Can Take Steps to Enhance Grant Management and 
Oversight, Audit 12-13 (Washington, D.C.: July 30, 2012); Department 
of State Office of Inspector General, Audit of Grant Closeout 
Processes for Selected Department of State Bureaus, AUD-CG-13-31 
(Washington, D.C.: June 2013); and Department of State Office of 
Inspector General, Audit of Bureau of Population, Refugees and 
Migration Oversight of Selected Cooperative Agreements in Support of 
Colombian Refugees in Ecuador, AUD-CG-13-35 (Washington, D.C.: July 
2013). 

[2] See GAO, Grants to State and Local Governments: An Overview of 
Federal Funding Levels and Selected Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-12-1016] (Washington, D.C.: Sept. 25, 
2012), which highlights and summarizes some of the grants management 
challenges GAO has identified over the years. In addition, see our 
more recent report--Cuba Democracy Assistance: USAID's Program Is 
Improved, but State Could Better Monitor Its Implementing Partners, 
[hyperlink, http://www.gao.gov/products/GAO-13-285] (Washington, D.C: 
Jan. 25, 2013). 

[3] U.S. overseas missions can encompass multiple locations, or posts, 
within a country. For example, the U.S. mission to Turkey comprises 
three posts, including an embassy in Ankara, and consulates in 
Istanbul and Adana. 

[4] We selected our sample in June 2013, when fiscal year 2012 data 
were the most complete data available. 

[5] The principal place of performance of these grants is the United 
States. The types of activities funded include the resettlement of 
refugees and the placement of foreign exchange students in schools and 
universities across the country. 

[6] For those grants of less than $25,000 where the program is short-
term and the cost can reasonably be determined at the time of the 
award, State uses a special assistance instrument called a fixed 
obligation grant. This type of assistance award has different, often 
less stringent, reporting and other requirements than grants and 
cooperative agreements. 

[7] These 27 bureaus and offices include the U.S. Mission to the 
United Nations. Regional and functional bureaus oversee the grant 
making at the three overseas missions in our sample. 

[8] As defined in the Federal Financial Assistance Management 
Improvement Act of 1999, "federal financial assistance" includes 
grants, cooperative agreements, loans, loan guarantees, insurance, 
interest subsidies, and other forms of assistance. Pub. L. No. 106-
107, §4(3), 113 Stat. 1486 at 1487 (Nov. 20, 1999), citing §31 U.S.C. 
7501(a)(5). In our evaluation, we have limited our assessment to 
grants and cooperative agreements and, for simplicity, refer to them 
as grants. 

[9] One bureau has established a bureau-specific grants assistance 
center, which serves as a repository of resources and grants-
management-related information. In addition, the Public Affairs 
Section in the embassy in Kabul, Afghanistan, has established a 
Comptroller's Office that has dedicated responsibility for assisting 
with grants oversight and management. The office has created standard 
operating procedures for grants management for all public affairs 
offices and provides training and financial management functions. 

[10] According to State officials, the Office of Acquisitions 
Management works on a fee-for-service basis, charging 1 percent of any 
dollar obligated. The office currently services about 16 bureaus and 
offices. 

[11] As grants officials change assignments and locations in State and 
around the world, they may shift management responsibility for the 
awards under their oversight to new grants officials. For 23 of the 61 
grant files we reviewed, grants officials transferred responsibility 
to new officers at least once during the life of the grant. 

[12] See, for example, [hyperlink, 
http://www.gao.gov/products/GAO-12-1016] and GAO, Iraq and 
Afghanistan: Agencies Face Challenges in Tracking Contracts, Grants, 
Cooperative Agreements, and Associated Personnel, [hyperlink, 
http://www.gao.gov/products/GAO-10-509T] (Washington, D.C.: Mar. 23, 
2010). 

[13] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[14] 22 CFR Parts 135 and 145. 

[15] In December 2013, OMB issued new guidance for all federal 
assistance, including State's grants. A/OPE is required to update its 
regulations to reflect these changes by June 2014 and implement the 
changes by December 2014. According to State officials, these changes 
will include a greater emphasis on risk assessment. The guidance can 
be found at 78 Federal Register 78, 590 (Dec. 26, 2013), as well as at 
2 CFR Chapter I, Chapter II, Parts 200, 215, 220, 225, and 230. This 
guidance supersedes and streamlines requirements from OMB Circulars A-
21, A-87, A-110, and A-122; Circulars A-89, A-102, and A-133; and the 
guidance in Circular A-50 on Single Audit Act follow-up. 

[16] For example, the Smith-Mundt Act authorizes assistance awards 
involving press, publications, radio, Internet, and other technology 
projects (see 22 U.S.C. § 1461(a)), and the Mutual Educational and 
Cultural Exchange Act of 1961 (22 U.S.C. § 2451 et seq.) authorizes 
exchange programs, such as the Fulbright Program, that increase mutual 
understanding between Americans and people of other countries. 

[17] While A/OPE's authority derives from the Foreign Affairs Manual, 
A/OPE articulates its guidance, procedures, and policy in its grants 
policy directives, its handbook, and the CFR. 

[18] A/OPE has issued 59 in total, but has retired 5 of them for a 
total of 54 active Grants Policy Directives. 

[19] Grants Policy Directive 59 (effective January 2012) provides 
guidance for Management of Contractors Supporting Grants 
Administration, citing our recommendation in our report GAO, 
Improvements Needed in Management of Contractors Supporting Contract 
and Grant Administration in Iraq and Afghanistan, [hyperlink, 
http://www.gao.gov/products/GAO-10-357] (Washington, D.C.: Apr. 2010) 
as the impetus for the policy. Grants Policy Directive 34 (effective 
October 2008) provides guidance for State's Grants Management Review 
program, stating that the program was initiated in response to a 
collection of recommendations made by us, State's Inspector General, 
and OMB. 

[20] Grant-making authorities range from level 1, for grants under 
$100,000, to level 7, which provides unlimited grant-making authority. 
Training requirements for GOs increase with each higher level of grant-
making authority, reaching 120 hours of required grant management 
training for level 7. 

[21] See GAO, Grant Workforce: Agency Training Practices Should Inform 
Future Government-wide Efforts, [hyperlink, 
http://www.gao.gov/products/GAO-13-591] (Washington, D.C: June 28, 
2013) for more information about State's grants management training. 

[22] A/OPE's Federal Assistance Policy Manual contains internal 
guidance, policies and standards for the award and management of 
State's assistance awards. 

[23] State's Office of the Procurement Executive, Grants Policy 
Directive Number 28, Revision 1. Subject: Roles and Responsibilities 
for the Award and Administration of Federal Assistance. Effective 
Sept. 21, 2010. 

[24] Our sample is nongeneralizable and did not allow us to determine 
whether there were any statistically significant differences by 
factors such as bureau and award size. 

[25] The Corruption Perception Index ranks countries around the world 
according to the degree of corruption that is perceived to exist among 
public officials and politicians on an annual basis. 

[26] Risk-level determination is one way to assess risks, but State 
has little guidance on how to determine any risk level other than 
high. Furthermore, the web-based grants management system that State 
has begun using for grants management does not require GOs to document 
the risk level they have assigned to a grant. The paper-based 
checklist that the web-based system is replacing in part also does not 
require GOs to document a risk-level determination. Only 12 of the 61 
grant files we reviewed included a risk-level determination: 4 grants 
had a high-risk recipient, 3 had a high-risk project, and 5 had a low-
or relatively low-risk recipient. Three additional grants were marked 
"Not a high risk recipient" although they did not include any final 
risk-level determination. Of the 49 grants without a final risk-level 
determination, we found that some had risk factors present, including 
a lack of experience in managing a U.S. government grant. 

[27] The Single Audit Act, as amended, requires each reporting entity 
that expends $500,000 or more in federal awards, including grants, in 
a fiscal year to obtain an annual "single audit," which includes an 
audit of the entity's financial statements, a schedule of the 
expenditure of federal awards, and a review of related internal 
controls. The report is prepared in accordance with OMB's implementing 
guidance in OMB Circular No. A-133, Audits of States, Local 
Governments, and Non-Profit Organizations, which provides guidance to 
auditors on selecting federal programs for audit and the related 
internal control and compliance audit procedures to be performed. This 
circular does not apply to non-U.S.-based entities expending federal 
awards received either directly as a recipient or indirectly as a 
subrecipient (OMB Cir. A-133 rev. 2007). 

[28] State's Grant Policy Directive Number 42: Monitoring Assistance 
Awards indicates that the monitoring plan templates are illustrative 
and may be tailored for use. 

[29] Our file review did not assess the accuracy of the information in 
the checklist. However, we made note of any required information that 
was missing, such as the grant purpose, grant amount, or project 
period. 

[30] State's Grant Policy Directive Number 5: Competition Requirements 
for Assistance Awards encourages competition in awarding grants and 
cooperative agreements and lists permitted exceptions to this rule. It 
also provides a blank copy of the required memos for documenting 
decisions to use limited or no competition in certain circumstances. 

[31] See GAO, Department of State: Human Capital Strategy Does Not 
Recognize Foreign Assistance Responsibilities, [hyperlink, 
http://www.gao.gov/products/GAO-07-1153] (Washington, D.C: September 
2007) for more information about grants officers' workloads. 

[32] In March 2014, State's Office of Inspector General (IG) issued a 
Management Alert on contract file management deficiencies. Through 
recent audits, investigations, and inspections, the IG has found that 
contract files also lack required documentation. To hold contracting 
officials accountable and require them to update contract files in 
accordance with federal and department policies, the Management Alert 
recommends that A/OPE develop and implement a process to randomly 
sample and verify the completeness of contract files, as well as 
provide the results of these reviews to the appropriate bureaus and 
offices. See Department of State and the Broadcasting Board of 
Governors, Office of Inspector General, Management Alert (Contract 
File Management Deficiencies), MA-A-0002 (Washington, D.C.: Mar. 20, 
2014). 

[33] The State Assistance Management System is a Department of Health 
and Human Services system, but State officials told us that State has 
created a steering committee to provide suggestions for improvements 
to the system. 

[34] Office of the Procurement Executive, Grants Policy Directive 
Number 34. Subject: Grants Management Reviews. Effective October 28, 
2008. 

[35] According to a senior A/OPE Office of Federal Assistance 
official, the office consists of nine staff and, in addition to 
conducting these compliance reviews, those nine staff are responsible 
for developing policies and guidance for all of State's grant 
programs, ensuring compliance with this guidance, implementing 
training for grants management officials, and appointing warranted 
grants officers to approve grants. 

[36] The two bureaus A/OPE reviewed prior to establishing the GMR 
program--between 2001 and 2008--were AQM and PRM. The 10 bureaus and 
offices at which A/OPE completed GMRs between 2008 and February 2014 
were: the Bureau of Democracy, Human Rights, and Labor; the Bureau of 
Diplomatic Security; ECA; INL; the Bureau of International Security 
and Nonproliferation (ISN), Office of Exports Control Cooperation; 
Office to Monitor and Combat Trafficking in Persons; NEA/MEPI; the 
Office of Overseas Schools; the Bureau of International Information 
Programs; and PM/WRA. As of March 2014, A/OPE had completed GREATs in: 
Accra, Addis Ababa, Ankara, Baghdad, Bangkok, Berlin, Bucharest, 
Buenos Aires, Cairo, Dushanbe, Frankfurt, Guatemala City, Jerusalem, 
Kabul, Kinshasa, Kuwait City, London, Luxembourg, Mexico City, 
Montevideo, Moscow, Nairobi, New Delhi, Ottawa, Panama City, Paris, 
Quito, Rome and the Holy See, San Salvador, Santo Domingo, Sarajevo, 
Sofia, Tel Aviv, Tunis, Warsaw, Yerevan, and Zagreb. There were 44 
bureaus and posts covered by 50 reviews because A/OPE conducted 6 
follow-up reviews. Specifically, A/OPE conducted two GMRs at AQM, and 
two GREATs in each of the following: Moscow, Mexico City, San 
Salvador, Panama City, and Paris. 

[37] For a summary of findings in these 10 bureaus and posts, see app. 
II. 

[38] For the purposes of this report, the term "grants" refers to both 
grants and cooperative agreements. 

[39] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
Washington, D.C.: November 1999). 

[40] State issued 59 in total, but retired 5 of them. 

[41] U.S. overseas missions can encompass multiple locations, or 
posts, within a country. For example, the U.S. mission to Turkey 
comprises three posts, including an embassy in Ankara, and consulates 
in Istanbul and Adana. 

[42] We selected our sample in June 2013 when fiscal year 2012 data 
were the most complete data available. 

[43] The principal place of performance of these grants is the United 
States. The types of activities funded include the resettlement of 
refugees and the placement of foreign exchange students in schools and 
universities across the country. 

[44] For those grants less than $25,000 where the program is short-
term and the cost can reasonably be determined at the time of the 
award, State uses a special assistance instrument called a fixed 
obligation grant. This type of assistance award has different, often 
less stringent, reporting and other requirements than grants and 
cooperative agreements. 

[45] There were 14 bureaus involved in the management of the 61 grants 
in our sample, as well as three posts in Afghanistan, Cambodia, and 
Turkey. The 19 grants in Afghanistan involved the Kabul post; the 
Bureau of International Narcotics and Law Enforcement (INL); the 
Bureau of South and Central Asian Affairs; the Bureau of Political-
Military Affairs, Office of Weapons Removal and Abatement (PM/WRA); 
and the Office of Acquisitions Management (AQM) managing on behalf of 
the Bureau of International Security and Nonproliferation's (ISN) 
Office of Cooperative Threat Reduction. The 10 grants in Cambodia 
involved the Office of Overseas Schools; PM/WRA; the Bureau of East 
Asian and Pacific Affairs; and AQM managing grants for the Bureau of 
Counterterrorism and the Bureau of Democracy, Human Rights, and Labor. 
The 19 grants in Turkey involved the Bureau of European and Eurasian 
Affairs; the Bureau of Population, Refugees, and Migration (PRM); and 
AQM managing grants for the Bureau of Conflict and Stabilization 
Operations; Bureau of Counterterrorism; and the Bureau of Oceans and 
International Environmental and Scientific Affairs. And the 13 grants 
in the United States involved the Bureau of Educational and Cultural 
Affairs (ECA); PRM; and AQM managing for the Bureau of Democracy, 
Human Rights, and Labor and the Bureau of African Affairs. AQM and the 
Office of Overseas Schools are in the Bureau of Administration. 

[46] Regional and functional bureaus oversee the grant making at the 
three overseas missions in our sample. The 27 bureaus and offices are: 
the Bureau of African Affairs; the Bureau of Conflict and 
Stabilization Operations; the Bureau of Counterterrorism; the Bureau 
of Democracy, Human Rights, and Labor; the Bureau of Diplomatic 
Security; the Bureau of East Asian and Pacific Affairs; the Bureau of 
Economic and Business Affairs; ECA; the Bureau of Energy Resources; 
Bureau of European and Eurasian Affairs; the Bureau of Human 
Resources; the Bureau of Intelligence and Research; INL; the Bureau of 
International Organization Affairs; ISN; the Bureau of Near East 
Affairs (NEA); the Bureau of Oceans and International Environmental 
and Scientific Affairs; the Bureau of Overseas Building Operations; 
PM/WRA; PRM; the Bureau of Public Affairs; the Bureau of South and 
Central Asian Affairs; the Bureau of Western Hemisphere Affairs; the 
Bureau of Administration, which includes AQM, the Office of Overseas 
Schools, and A/OPE; the Office of the Secretary; the Office to Monitor 
and Combat Trafficking in Persons; and the U.S. Mission to the United 
Nations. 

[47] See table 1. 

[48] One bureau in our sample had multiple grants that we reviewed. 
Each grant had a monitoring plan, although most of those plans did not 
fully adhere to State's guidance on risk mitigation and monitoring. 

[49] For an overview of some of our file review findings, see app. II. 

[50] Some grants in our sample did not have a GOR or a program officer. 

[51] See appendix II for a summary of this analysis of the 10 reports. 

[52] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[53] State issued 59 in total, but retired 5 of them. 

[54] Control activities include establishment and review of 
performance measures and indicators-the monitoring that grants 
officials conduct on recipients. 

[End of section] 

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