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General government

Tracking undisbursed balances in expired grant accounts could facilitate the reallocation of scarce resources or the return of funding to the Treasury

Why Area Is Important

According to Office of Management and Budget (OMB) estimates, federal grant awards to nonfederal entities, such as states and nonprofit organizations, increased from $300 billion in 2000 to over $500 billion in 2009. If even a small fraction of the federal government's total grant funding is not spent in a prudent and timely fashion, it can prevent the reallocation of scarce resources or the return of funding to the United States Treasury.

Undisbursed funding is funding the federal government has obligated through a grant agreement, but which the grantee has not entirely spent. An expired grant account is an agency-level account for which the period of availability to the grantee has ended.

What GAO Found

The existence of unspent funds can hinder the achievement of national objectives in various ways, such as leaving projects incomplete or making federal funds more susceptible to improper spending or accounting as monitoring diminishes over time. Closeout procedures help ensure grantees have met all financial requirements, provided final reports, and that unused funds are de-obligated. However, past audits of federal agencies by GAO and Inspectors General, and agencies' annual performance reports have suggested grant management challenges, including failure to conduct grant closeouts and undisbursed balances, are a long-standing problem. The audits generally attributed the problems to inadequacies in awarding agencies' grant management processes, including regarding closeouts as a low management priority, inconsistent closeout procedures, poorly timed communications with grantees, or insufficient compliance or enforcement.

GAO found that when federal agencies took corrective actions, there were improvements in grant closeouts and resolution of undisbursed funding. Using federal payment systems to track undisbursed funding in expired grant accounts and including the status of grant closeouts in annual performance reports could raise the visibility of the problem both within the agency and governmentwide, and lead to improvements in grant closeouts and reduce undisbursed balances.

In August 2008, GAO reported that during calendar year 2006, about $1 billion in undisbursed funding remained in expired grant accounts in the Department of Health and Human Services' Payment Management System (PMS)—the largest civilian grant payment system. In 2006, PMS made payments for about 70 percent of all federal grants awarded by nine federal departments and three other federal entities. The expired but still open grant accounts found in PMS were associated with thousands of grantees and over 325 different federal programs. While GAO has not updated this figure, it illustrates the potential financial benefits to be gained by improving oversight of undisbursed grant funding. Better tracking of grant accounts maintained in all federal payment systems could identify the expired grants with undisbursed balances and make funds available for other assistance projects or facilitate the return of these funds to the Treasury. GAO recommended that the Director of OMB instruct executive departments and independent agencies to annually track the amount of undisbursed grant funding remaining in expired grant accounts and report on the status and resolution of such funding in their annual performance plans and Performance and Accountability Reports (PAR). As of January 13, 2011, OMB had not issued governmentwide guidance regarding undisbursed balances in expired grant accounts.

As an example of how agencies could be instructed to provide this information, section 537 of the Consolidated Appropriations Act of 2010 (Public Law 111-117), signed into law on December 16, 2009, required that the Director of OMB instruct departments, agencies, and other entities receiving funds under the Commerce, Justice, Science and Related Agencies Act of 2010 to track undisbursed balances in expired grant accounts and include in its annual PARs details on the (1) actions the department, agency, or instrumentality will take to resolve such balances; (2) methods used to track such balances; (3) identification of balances that may be returned to the U.S. Treasury; and (4) the number of such accounts for the preceding 3 years. In October 2010, OMB issued the instructions to the federal entities funded by this appropriations act, as required. GAO reviewed available fiscal year 2010 PARs and found three entities reported they had undisbursed and/or unobligated balances remaining in expired grant accounts over the last 3 or 4 years. The most recent balances that these agencies reported were as follows: Department of Justice, fiscal year 2010—$2.9 million; National Aeronautics and Space Administration (NASA), fiscal year 2009—$58 million; and National Science Foundation, fiscal year 2010—$1.7 billion. Of these three agencies, only NASA grant accounts were included in the total undisbursed balances GAO reported in 2008.

In a recent example of how to identify, resolve, and quantify the savings resulting from resolving undisbursed funding in expired grant accounts, the U.S. Department of Agriculture's Office of Inspector General reported in 2009 that the Agricultural Research Service (ARS) did not timely de-obligate unused funds from 32 of 121 cooperative agreements that expired in fiscal years 2005 and 2006. The inspector general cited GAO in recommending that the ARS de-obligate the $2.75 million remaining on the 32 expired agreements to make the funds available for other research projects and prevent the potential misuse of funds. The ARS reported to the inspector general, in April 2009, that it had de-obligated the $2.75 million, as recommended.

Actions Needed

Better tracking of grant accounts maintained in all federal payment systems could identify the expired grants with undisbursed balances. Ongoing, systematic resolution of these undisbursed grant balances could potentially make these funds available for other assistance programs or facilitate the return of these funds to the Treasury. In August 2008, GAO recommended that OMB instruct all executive departments and independent agencies to track undisbursed balances in expired grant accounts and report on the resolution of this funding in their annual performance plan and PARs. While OMB has not issued governmentwide guidance regarding undisbursed balances in expired grant accounts, GAO continues to believe its recommendations should be implemented.

Framework for Analysis

The analysis above was based on a prior GAO product, GAO-08-432, listed under the "Related GAO Products" tab.

Area Contact

For additional information about this area, contact Stanley J. Czerwinski at (202) 512-6520 or czerwinskis@gao.gov.