[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

IMPROVING OVERSIGHT AND ACCOUNTABILITY IN FEDERAL GRANT PROGRAMS

=======================================================================

HEARING

before the

SUBCOMMITTEE ON TECHNOLOGY, INFORMATION
POLICY, INTERGOVERNMENTAL RELATIONS AND
PROCUREMENT REFORM

of the

COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

JUNE 23, 2011

__________

Serial No. 112-70

__________

Printed for the use of the Committee on Oversight and Government Reform

Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform

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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director

Subcommittee on Technology, Information Policy, Intergovernmental
Relations and Procurement Reform

JAMES LANKFORD, Oklahoma, Chairman
MIKE KELLY, Pennsylvania, Vice GERALD E. CONNOLLY, Virginia,
Chairman Ranking Minority Member
JASON CHAFFETZ, Utah CHRISTOPHER S. MURPHY, Connecticut
TIM WALBERG, Michigan STEPHEN F. LYNCH, Massachusetts
RAUL R. LABRADOR, Idaho JACKIE SPEIER, California
PATRICK MEEHAN, Pennsylvania
BLAKE FARENTHOLD, Texas

C O N T E N T S

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Page
Hearing held on June 23, 2011.................................... 1
Statement of:
Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma.. 65
Franzel, Jeanette, Managing Director, Financial Management
Assurance Team, Government Accountability Office; Natalie
Keegan, Analyst, American Federalism and Emergency
Management Policy, Congressional Research Service; Cynthia
Schnedar, Acting Inspector General, Department of Justice;
and Danny Werfel, Controller, Office of Federal Financial
Management, Office of Management and Budget................ 6
Franzel, Jeanette........................................ 6
Keegan, Natalie.......................................... 29
Schnedar, Cynthia........................................ 37
Werfel, Danny............................................ 46
Letters, statements, etc., submitted for the record by:
Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma,
prepared statement of...................................... 69
Connolly, Hon. Gerald E., a Representative in Congress from
the State of Virginia, prepared statement of............... 5
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 79
Franzel, Jeanette, Managing Director, Financial Management
Assurance Team, Government Accountability Office, prepared
statement of............................................... 9
Keegan, Natalie, Analyst, American Federalism and Emergency
Management Policy, Congressional Research Service, prepared
statement of............................................... 31
Schnedar, Cynthia, Acting Inspector General, Department of
Justice, prepared statement of............................. 39
Werfel, Danny, Controller, Office of Federal Financial
Management, Office of Management and Budget, prepared
statement of............................................... 48

IMPROVING OVERSIGHT AND ACCOUNTABILITY IN FEDERAL GRANT PROGRAMS

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THURSDAY, JUNE 23, 2011

House of Representatives,
Subcommittee on Technology, Information Policy,
Intergovernmental Relations and Procurement Reform,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:32 a.m., in
room 2154, Rayburn House Office Building, Hon. James Lankford
(chairman of the subcommittee) presiding.
Present: Representatives Lankford, Kelly, Meehan, Connolly,
Murphy, and Lynch.
Also present: Representative Cummings.
Staff present: Richard A. Beutel, senior counsel; Molly
Boyl, parliamentarian; John Cuaderes, deputy staff director;
Gwen D'Luzansky, assistant clerk; Linda Good, chief clerk;
Hudson T. Hollister, counsel; Mark D. Marin, senior
professional staff member; Peter Warren, legislative policy
director; Michael Whatley and Sang H. Yi, professional staff
members; Ronald Allen, minority staff assistant; Jaron Bourke,
minority director of administration; Adam Miles, minority
professional staff member; Mark Stephenson, minority senior
policy advisor/legislative director.
Mr. Lankford. The committee will come to order. This is a
hearing on Improving Oversight and Accountability in Federal
Grant Programs from the Oversight and Government Reform
subcommittee.
We exist to secure two fundamental principles: First,
Americans have the right to know that the money Washington
takes from them is well spent. Second, Americans deserve an
efficient, effective government that works for them. Our duty
on the Oversight and Government Reform Committee is to protect
these rights. Our solemn responsibility is to hold Government
accountable to taxpayers because taxpayers have a right to know
what they get from their Government. We will work tirelessly in
partnership with citizen watchdogs to deliver the facts to the
American people and bring genuine reform to the Federal
bureaucracy. This the mission of the Oversight and Government
Reform Committee.
In a time of growing Federal debt, it is essential that
every area of Government spending is fully transparent and
beneficial to the Nation. Executive branch agencies are
estimated to spend more than $50 billion annually on
discretionary grants.
As overall grant spending has continued to increase,
Federal agencies have worked to find ways to minimize
opportunities for waste, fraud, and abuse in the discretionary
grant programs. They are commended for that.
This hearing will initiate a series of hearings related to
transparency and the effectiveness of the grant process.
The subcommittee recognizes that grants are distributed
based upon authorizing legislation to advance a public purpose,
not to directly benefit the agency that is awarding the grant.
Thus an open contract model may not be appropriate. But the
grantee selection process must be transparent and consistent in
the pre-award and post-award phases.
According to OMB, from fiscal years 1990 to 2010, Federal
outlays for grants to state and local governments increased
from $135 billion to $608 billion, almost one fifth of the
Federal budget and a 350 percent increase since fiscal year
1990.
In fiscal year 2010, OMB identified 23 Federal grantmaking
departments in agencies that offered over 1,670 Federal grant
programs. The top three agencies in terms of grant dollars
outlaid during fiscal year 2010 were the Departments of Health
and Human Services, Transportation, and Education. But it
appears that there is a void of consistent grant guidelines
across all agencies beyond OMB circulars.
Currently agencies do not typically disclose to grant
applicants the criteria or factors they will use in deciding
how to distribute grant funding. When agencies do disclose the
criteria, they may not disclose the weighting of the various
criteria.
Because of the discretionary grant process, it is
impenetrably opaque. It is difficult, if not impossible, for
the public or oversight bodies to determine whether a Federal
grant award was based on merit, the discretion of the
department or agency, past or future employment, or political
or financial interest. Any of those areas we can't determine.
GAO and IG audits have examined discretionary grant awards
decisions. Typically they reveal that in financial selection
the decision was not documented and one cannot ascertain why
some grant applications were funded while others were not.
During this hearing we plan to ask many questions. After
the funds have been distributed to grantees, do agencies have
effective oversight and monitoring tools? Are there
vulnerabilities in the system and ways to ensure that the
Government's limited discretionary grant resources are used
effectively? If public funds are used to pay for research, is
the research deliverable publically available?
Should grants release the funds as the work is completed in
multiple stages, pay at the start, or pay at the end of a
project? Are there ways to protect against fraud, waste, and
abuse like inappropriate pay scales, ghost employees, work that
was never complete, etc.? How do we ensure that grant funding
is released to entities with the greatest need and ability
rather than simply the best grant writing skills?
Is there a way to see the successful and not successful
grant requests so future grant writers can see what was
contained in a successful grant application? Can we improve
communication throughout the grant process between the agencies
and the grant requesters?
Are grants being written in instances when it would be more
appropriate to use a contract? Is there a need to increase
recipient reporting requirements to allow more transparency?
This hearing will focus on asking the questions to
determine if there are new ideas that exist to help all
entities involved in the grant process accomplish their goals.
I look forward to discovering with all parties the ideas that
will help us in the future manage our Federal tax dollars the
best way possible. With that, I now recognize the distinguished
ranking member, Mr. Connolly, for his opening statement.
Mr. Connolly. Thank you, Mr. Chairman. Thank you for
holding this hearing which might at first glance appear
relatively mundane but actually raises some important questions
about the disbursement of Federal funding.
First, what is the relationship between transparency of
grant disbursement, auditing of grant recipients, and the
efficient allocation of resources to grantees who can make the
most of the funding? There may be a point at which additional
and especially duplicative reporting requirements constrain
grantees' ability to fulfil their own mission. There may be a
point at which additional reporting requirements frankly
discourage participation by smaller entities.
Finally, if we are disbursing discretionary grants to many
very small entities which require labor-intensive audits then
perhaps it is more efficient to spend the money directly
through the Federal agency itself. We should not leave
unexamined the assumption that grants necessarily represent the
best way to fund a particular program.
Second, what is the Federal Government doing to ensure
equitable distribution of grant moneys? I represent two
counties in Virginia, for example, of which one has a very
sophisticated grant application staff and one that is less so.
Both of these counties deserve fair, merit-based consideration
of their grant applications but one starts out with a distinct
advantage. Lest grant moneys flow disproportionately to wealthy
urban counties, agencies must go out of their way to ensure
that less sophisticated but equally deserving jurisdictions
receive fair consideration of their applications.
This kind of equitable process requires proactive outreach
just as selective colleges proactively reach out to
underrepresented communities which certainly contain talent but
do not always possess the familiarity or expertise with college
application processes.
I am interested in hearing more about the administration's
efforts to strengthen www.grants.gov and whether these efforts
include reforms that will make the platform more accessible to
all grant seekers.
Third, what is the Federal Government doing to avoid the
imposition of unfunded mandates and to reduce the reporting
burden on states, localities, and universities? I indicated
yesterday that I do have some queasiness about the legislation
this committee marked up with respect to that subject.
According to the American Association of Universities, for
example, fulfilling ARRA reporting requirements alone costs
$7,900 per grant award. That would translate to hundreds of
millions of dollars, potentially, in cost if ARRA-type
reporting requirements were established across the board for
all Federal spending.
At a time when states, localities, and universities are
facing dire fiscal challenges, we need to be cognizant to
ensure that any additional reporting requirements--for good
reasons, for transparency--avoid the imposition, however, of an
unfunded mandate and protect those entities' abilities to
deliver the services that our constituents need.
The efficiency and transparency of grant delivery is a
complex topic. I hope that as we develop legislation on this
topic we have additional hearings to consider the questions I
have raised. In a cost constrained environment, it is
imperative that we consider the efficient delivery of services,
which must be balanced against the need for transparency, and
include consideration of all of the tools beyond grants to
accomplish a given objective.
We say we are concerned about the burden of unfunded
mandates. We have had a number of hearings in this subcommittee
about them. We must make sure we do not even unwittingly add to
them.
I look forward to hearing the testimony this morning, Mr.
Chairman. Again, thank you for holding this hearing.
[The prepared statement of Hon. Gerald E. Connolly
follows:]

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Mr. Lankford. I agree with what you were saying on the
additional unfunded mandates. I completely agree on that.
Members have 7 days to submit opening statements and
extraneous material for the record. I will now welcome our
first panel.
Ms. Jeanette Franzel is the Managing Director of the
Financial Management and Assurance Team at GAO. Ms. Natalie
Keegan an Analyst at the Congressional Research Service
specializing in American Federalism and Emergency Management
Policy. Ms. Cynthia Schnedar is the Acting Inspector General at
the Department of Justice. The Honorable Danny Werfel is the
Controller at OMB's Office of Federal Financial Management.
I thank you all for being here. Pursuant to committee
rules, all witnesses are sworn in for the Oversight and
Government Reform Committee so I would ask you all to stand and
raise your right hands.
[Witnesses sworn.]
Mr. Lankford. Let the record reflect all witnesses answered
in the affirmative.
Thank you. You may be seated.
In order to allow time for discussion, I would ask that
each of you limit your testimony to 5 minutes. Your entire
written statement will of course be made part of the record. We
would like to recognize you for 5 minutes.
I know all of you have been around the hearings before at
different times and that you are familiar with your red,
yellow, and green lights there in front of you.
We would be very honored to receive your testimony.
Ms. Franzel.

STATEMENTS OF JEANETTE FRANZEL, MANAGING DIRECTOR, FINANCIAL
MANAGEMENT ASSURANCE TEAM, GOVERNMENT ACCOUNTABILITY OFFICE;
NATALIE KEEGAN, ANALYST, AMERICAN FEDERALISM AND EMERGENCY
MANAGEMENT POLICY, CONGRESSIONAL RESEARCH SERVICE; CYNTHIA
SCHNEDAR, ACTING INSPECTOR GENERAL, DEPARTMENT OF JUSTICE; AND
DANNY WERFEL, CONTROLLER, OFFICE OF FEDERAL FINANCIAL
MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

STATEMENT OF JEANETTE FRANZEL

Ms. Franzel. Thank you. Good morning, Chairman Lankford,
Ranking Member Connolly, and members of the subcommittee. Thank
you for the opportunity to be here to discuss issues related to
improving Federal grants processes.
Today I will highlight the results from a range of reports
that we have issued regarding weaknesses in Federal grants
management and accountability, including the single audit
process. The administration also recognizes concerns with these
processes and has included improving grants management as part
of its initiative to eliminate waste. It has various related
efforts underway.
Today I will discuss the significance of Federal grant
funding, the related risks and vulnerabilities, and
improvements needed to make the single audit process an
effective accountability mechanism.
The Federal Government's use of grants to achieve national
objectives and to respond to emerging trends in demographics
and threats to homeland security has grown significantly in the
last two decades. In fiscal year 2010, Federal grant awards to
states and local governments totaled over $600 billion
according to historical data from the President's budget. Also
in fiscal year 2010, over 1,670 grant programs were offered by
at least 23 Federal grantmaking departments and agencies. As
you mentioned, Mr. Chairman, the top three agencies in terms of
grant dollars are the Departments of Health and Human Services,
Transportation, and Education.
Our work over a number of years has pointed out risks and
vulnerabilities that exist in the Federal grants process. We
found weaknesses in the control systems of Federal awarding
agencies at all points in the grant life cycle.
Specifically, in the pre-award and award processes, our
audits found that agencies awarded grants without adequately
documenting the selection process. In some instances, we found
agencies did not perform pre-award reviews until after the
grants had been awarded. In other cases, the documentation was
not sufficient to show key decisions that were made in the
competitive award process, including decisions about evaluation
criteria and selection.
In the implementation phase, we found weaknesses in agency
monitoring of recipients' use of funds, including identifying
and managing grantee risks and properly overseeing grantee
financial practices and program management. We have also
reported the need for agencies to assist recipients in
improving sub-recipient monitoring when Federal funds are
passed through one entity to another.
Grant closeout procedures have also been a longstanding
problem. These procedures are used for detecting problems that
have occurred in recipient financial management and program
operations. Closeout procedures are intended to ensure that
recipients have met all financial requirements, provided
financial reports, and returned any unused funds to the Federal
Government.
We have also reported on Government-wide issues related to
grants, including undisbursed Federal funding in expired grant
accounts and improper payments in Federal grant programs.
Finally, I will discuss the audit mechanism for grants,
which is the single audit. Over the past several years we have
reported significant concerns with the single audit process and
have called for improvements to make single audits a more
effective accountability mechanism over Federal grant funding
while possibly simplifying and streamlining the process.
Single audit reports are on the financial statements and
internal controls over compliance with laws and grant
provisions for grantees that spend more than $500,000 of
Federal funding in a given year. The largest grantees subject
to these requirements are state and local governments.
Through our work we found that the Federal oversight
structure is not adequate to monitor the single audit process
and results and that the timeframes do not facilitate timely
correction of audit findings by grantees. In addition, single
audit stakeholders, including the states, have raised concerns
about the complexity and relative costs and benefits of the
single audit requirements as currently designed.
We also found that Federal agencies do not systematically
use audit findings to identify risks related to grant programs
and individual grantees.
We also identified concerns regarding the need for OMB to
issue its single audit guidance in a more timely manner in
order to help facilitate audit planning for the many states and
local governments that have fiscal year ends of June 30th.
It is important to note that complexities and weaknesses in
the Federal grant management and single audit processes have a
serious impact on state and local governments in addition to
presenting risks over the effective and efficient use of
Federal funding. Enhancing accountability and oversight at all
levels is important. Improvement and modernization efforts
should also be mindful of the scarce resources at all levels of
government and the shared intergovernmental responsibilities
that we have.
Mr. Chairman, this concludes my statement. I will be happy
to answer any questions that you or the subcommittee members
may have.
[The prepared statement of Ms. Franzel follows:]

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Mr. Lankford. Thank you very much.
Ms. Keegan.

STATEMENT OF NATALIE KEEGAN

Ms. Keegan. Good morning, Chairman Lankford, Ranking Member
Connolly, and members of the committee.
My name is Natalie Keegan and I am an analyst in American
Federalism and Emergency Management Policy at the Congressional
Research Service. Thank you for the opportunity to testify this
morning on improving oversight and accountability in Federal
grant programs. I have submitted my full statement for the
record.
I have three observations about how agency discretion
influences transparency at the pre-award phase of Federal
grants. Federal grantor agencies have the discretion to
disclose information about the grants administration process
yet for most Federal agencies and most grants there isn't a
clear picture of how grants are selected, the specific details
of grants applications are not disclosed, and it is unclear
exactly what is contained in grant formulas used to distribute
funds.
For grant applications and grant applicants, lack of
transparency may result in the inability to direct resources in
the most efficient manner when seeking Federal grants. For
Congress, lack of transparency makes it difficult to measure
grant program efficiency, effectiveness, and economy.
Let me expand on these observations. Pre-award oversight
activities include congressional grant program authorizations
and appropriations, determinations of eligibility and eligible
activities, review of announcements of funding availability,
and reviewing of panel scorings of eligible applications. While
recent congressional debate has involved post-award activities,
particularly recipient and agency reporting requirements,
consideration of agency discretion for the pre-award activities
may provide insight into improving oversight and accountability
in Federal grants.
My first observation is that there isn't a clear picture of
how grants are selected. Federal agencies generally have the
authority to establish the criteria for evaluating
discretionary grant applications. There appears to be no
consistency in the criteria within and across agencies.
Agencies are required to provide criteria when they publish the
notice of funds availability in the Federal Register, however
the information provided generally does not include a concise
list of evaluation factors and specifically how those factors
will be weighted during the scoring of the application.
In some cases, grant applications are reviewed by a panel
and scored on a scale of zero to 100. The scores are then used
to prioritize applications for funding. The agencies, however,
are not bound by the review panel's scores and the scores
generally are not disclosed to either the grant applicants or
the public.
My second observation is that the specific details of grant
applications are not disclosed. Almost always, grantor agencies
consider some of the information in the grant applications to
be proprietary information. As a result, generally agencies
will not disclose details in the grant applications without the
permission of the applicant. This applies to both funded and
unfunded applications.
My final observation is that it is unclear exactly what is
included in the grant formulas used to distribute funds. There
is currently no single source providing information on grant
formulas used to distribute funds, including information about
the formula factors and how they are weighted. This was not
always the case.
The General Services Administration is responsible for
maintaining and providing access to information on Federal
grants through a computerized information system. This access
is through www.cfda.gov.
At one time, the GSA Administrator was also required to
provide to Congress specific information on each grant
distribution formula in a report titled Formula Report to the
Congress. This report is no longer available. The report was
discontinued under the Federal Reports Elimination and Sunset
Act of 1995. There is no other comparable Federal report that
provides this level of detail on Federal grant formulas.
In conclusion, a closer examination of agency pre-award
grant activities and the amount of agency discretion in these
activities may assist in the determination of whether increased
agency discretion warrants increased transparency.
I thank you for the opportunity to testify and would be
happy to answer any questions the committee may have.
[The prepared statement of Ms. Keegan follows:]

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Mr. Lankford. Thank you.
Ms. Schnedar.

STATEMENT OF CYNTHIA SCHNEDAR

Ms. Schnedar. Mr. Chairman, Congressman Connolly, and
members of the subcommittee, thank you for inviting me to
testify today about improving oversight and accountability in
Federal grant programs. I will focus my remarks on the
Department of Justice but the findings we have made concerning
the Department of Justice are typical of those that are
described by the other panel members that are found across the
Government.
Grants management has long been a challenge for the
Department of Justice and the Department has faced heightened
challenges since 2009 because of the increase in grant funding
that it received under the Recovery Act. Given the large volume
of grant funding traditionally awarded by the Department, the
Department of Justice Office of the Inspector General has long
focused on providing oversight of the Department's activities
in this area.
Our audits have found that the Department has made a
concerted effort in the past 3 years to improve its regular
grant management practices. The Department has responded
positively to recommendations we have made in our audits and in
a best practices guide that we provided them called Improving
the Grants Management Process.
In particular, the Department made significant improvements
in its monitoring and oversight of grants particularly due to
its staffing of its Office of Audit, Assessment, and
Management. While OAAM was created by statute in 2005 to
improve the Department's oversight of its grants programs, we
reported in 2008 that the Department had not devoted sufficient
effort to staffing this Office so that it could perform its
mission. However, we found in an audit issued in March of this
year that they have made significant progress since 2008. That
Office is now fully staffed and it has implemented a reasonable
process for monitoring the high volume of grants that it is
responsible for monitoring.
While we believe that the Department has taken positive
steps toward improving its grants management practices, these
changes will take time to fully implement and to incorporate
into the Department's regular practices.
Our work has continued to identify areas where the
Department could further improve its management of grants,
particularly in terms of its process for awarding grants and
its oversight. For example, in recent audit reports we found
instances where the Department either used incorrect scoring
formulas or made scoring errors while reviewing grant
applications. We also found instances where the Department
treated applicants inconsistently, allowing some grant
applications to be given further consideration for awards even
though they were missing key documentation while denying other
applicants further consideration for the same deficiencies.
Our recent audits also found that some Department agencies
do not consistently document the rationale for discretionary
awards despite recommendations that they should do so and, in
some instances, do not explain why applications ranked lower by
peer reviewers received grants over those that were ranked
higher. We found that the Department should be taking
additional steps to ensure adequate screening for conflicts of
interest on the part of peer reviewers who are assessing the
grant applications.
The Department has agreed with the recommendations we made
and is working to implement procedures to help ensure these
issues do not reoccur.
In addition, our audits of individual grant recipients have
found deficiencies such as failing to segregate payroll duties
and failure to employ sufficient staff with the training and
experience to properly manage the grants. We have recommended
that the Department provide additional training and oversight
of these grant recipients.
We also believe that the Department should take further
action to address outstanding recommendations to resolve
questioned costs from our audits of grantees. While the
Department frequently is able to implement our audit
recommendations within a year or two, some of our audit
recommendations have lingered for years without being resolved,
despite our frequent reminders for the Department to do so.
While the Department works to improve its grant management
processes, we will continue with our important mission of
providing oversight of the Department's efforts in this area.
We also will continue with our leadership of the Grant Fraud
Committee, which is part of the Financial Fraud Enforcement
Taskforce.
Through the Grant Fraud Committee, we have issued a best
practices guide for all Federal grants managers. We also have
developed and are continuing to develop additional training
courses for agents, auditors, grant managers, and grantees.
In conclusion, we will continue to work with the Department
and external agencies to help reduce risks associated with
Federal grants. We believe the Department is demonstrating a
commitment to improving its grants management process and we
have seen significant signs of improvement in this area.
However, further improvements are needed and considerable work
remains to be done before managing the billions of dollars that
the Department awards annually in grants is no longer a top
challenge for the Department.
This concludes my prepared statement and I would be pleased
to answer any questions.
[The prepared statement of Ms. Schnedar follows:]

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Mr. Lankford. Thank you.
Mr. Werfel.

STATEMENT OF DANNY WERFEL

Mr. Werfel. Thank you, Chairman Lankford, Ranking Member
Connolly, and members of the subcommittee for the invitation to
discuss with you today the Federal grant management process and
how the Federal Government can improve its oversight and
accountability in Federal grant programs.
The Federal Government annually awards grants totaling
roughly $600 billion, which is one sixth of the total Federal
budget. The Federal Government therefore has a fundamental
responsibility to be effective stewards of these dollars.
The Office of Management and Budget, working with Federal
grantmaking agencies and non-Federal stakeholders, establishes
policies and initiates reforms to ensure that relevant program
requirements are being met; that strong internal controls for
reducing waste, fraud, and error are in place; and that
grantees are meeting their responsibilities for performance and
accountability for grant awards.
My written testimony provides background on relevant
policies such as cost allocation, single audit, improper
payment review, and Transparency Act reporting, all of which
are intended to drive accountability, integrity, and
transparency in the use of Federal grant dollars.
For example, when single audits are conducted effectively,
the audit results, which are available on a public Web site,
are instrumental in identifying and correcting noncompliance
with laws and regulations, including improper payments and
other financial management deficiencies. A good example of this
is in the Medicaid program where more than a billion dollars in
disallowed costs have been identified for recovery over the
past several years as a result of single audit activities.
In each of the areas I have identified, we have initiatives
in place to improve the overall impact of these policies. I
would like to highlight a few of these areas where, in some
cases, recent successes provided a critical foundation for
sustained progress moving forward.
First, in the area of improper payments prevention and
recapture, the Federal Government's error rate declined in
fiscal year 2010, helping agencies avoid roughly $4 billion in
improper payments. An important factor in this reduction was
improvement in the Medicaid error rate, the Government's
largest grant program.
Since the President took Office, eliminating improper
payments has been a major focus of his administration. In
November 2009, the President issued an executive order that
initiated a comprehensive approach to improving results in this
area, including transparency through a new Web site,
www.paymentaccuracy.gov, and the appointment of senior
accountable officials responsible for coordinating improper
payment efforts at their agencies.
A subsequent Presidential directive called for an increase
in improper payment recoveries from contractors. Federal
agencies responded by recovering $687 million in improper
payments, more than three times the amount from the previous
year.
In 2010, the recently enacted Improper Payments Elimination
and Recovery Act further strengthened accountability on all
aspects of improper payments and provided new authorities, in
particular providing Federal agencies new authorities to
recover improper grant payments. We are now working with
agencies to make sure they leverage these new authorities to
recover payments that have been improperly paid to grantees.
Second, though related to improper payments, OMB is working
with the Recovery Board and Federal agencies to utilize cutting
edge fraud detection capabilities to enhance accountability and
eliminate fraud in Federal award spending. As you know, the
Recovery Board has initiated very successful and effective
solutions for tracking fraud and error. We have initiated
pilots of these tools with other agencies.
I would like to highlight that the President recently
signed an executive order called Delivering an Efficient,
Effective, and Accountable Government which establishes a new
oversight and accountability board, the Government
Accountability and Transparency Board. This Board will help us
make sure that the tools and lessons learned from the Recovery
Board in areas such as fraud detection and transparency are
effectively carried forward to the rest of Government.
Last, in an area of transparency bolstered by the
successful transparency initiatives in the Recovery Act, OMB
has initiated requirements for the reporting of sub-award
information on all Federal spending. Www.usaspending.gov
provides the public with increased visibility into Federal
spending beyond the prime recipient level.
As I noted earlier, this is just a highlight of some of our
work to improve results in Federal grants. We look forward to
working closely with this committee to ensure the effective
implementation of current and future transparency and
accountability efforts to ensure that Federal grant programs
are accountable for taxpayer dollars.
Thank you again for the opportunity to testify today. I
look forward to answering your questions.
[The prepared statement of Mr. Werfel follows:]

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Mr. Lankford. Thank you to all of you.
I recognize myself for 5 minutes for question time.
Ms. Franzel, thank you for what you are bringing to us. Let
me just mention a couple of things. You mentioned the tracking
of the unused funds when a grant is complete and the closeout
procedures on that. Do we have any idea how often we have funds
returned to us? Say we requested $100,000 and we only used
$80,000; here is your $20,000 back?
Ms. Franzel. Actually, our work in that area was to look at
funds that had not been drawn down by the grantees. It had been
obligated by the Federal agencies for draw down and the grant
period had passed but for whatever reason the grant amount was
not closed out or drawn down. We don't know if the grantee
didn't finish the program or if there was some kind of a
problem, etc.
What this indicates, and we found this in 325 different
Federal programs, is it indicates a grant closeout problem. And
so part of getting unused Federal funds returned to the Federal
Government would also be part of the closeout process.
So no, I can't answer questions about how much maybe should
have been returned and wasn't. But I think we are fairly
confident in saying that there are some issues with the
closeout process. That is what would be included in the
closeout process.
Mr. Lankford. Thank you.
Ms. Keegan, you had mentioned a couple of things. You made
a comment about how there is no clear picture of how the grants
are selected in that process and how we go through that, that
review panel scores aren't necessarily used, and that type of
thing. Then you mentioned a formula report coming back to
Congress that was sunsetted in 1995. Obviously grants have
dramatically increased in that time period. Is it your
recommendation that you are making to this group that we do
have some kind of formula report coming back to Congress again?
Ms. Keegan. I think when considering the issue of
transparency in Federal grants, certainly an investigation into
what information is available and what information would be
useful is something for Congress to evaluate. The report did
provide a great deal of information about the specific
calculations in the formulas. There isn't anything available
now. It is really up to Congress to decide whether they need
that information or not.
Mr. Lankford. Mr. Werfel, there are a lot of circulars out
there and executive orders that give instructions to the
agencies. Do you see a need to be able to gather those
different circulars together and for consistency's sake,
administration to administration, codify some of those? Say
these have been either through several administrations or
through trial and error in our own administration determined to
be good ideas to get some baseline standards for grant writing?
Mr. Werfel. Let me start by saying, Mr. Chairman, that
generally I think the overall concept of cleaning up a variety
of different requirements that are out there--whether issued
through memorandum or circular, some of which are pushed into
the Code of Federal Regulations and some of which aren't--I
think is an important suggestion that we should consider. It is
a complex array of requirements that exists today and I think
there would be some benefit in reconciling some of that.
Mr. Lankford. Is there the possibility of being able to
gather together some of those things so you would say this is a
series of maybe 50 different ideas or whatever it may be, that
these should be looked at and examined as our top areas that we
suggest that we could get to this committee?
Mr. Werfel. Well, there is some of it that is legislative
and therefore I think we could tee it up for this committee as
being impactful. I mean there are a couple of dimensions, I
think, to this question.
On the one hand, we are trying to improve these policies
and make them more impactful. So, for example, in the area of
single audit, we have ongoing working groups that extend across
Federal agencies and into state governments into both
programmatic and audit communities within the state
governments. Asking the fundamental questions that GAO raised
in their testimony in terms of how can we make sure that these
single audits are getting to the right issues and the results
are being used.
There are other questions in terms of making sure that we
are presenting clear policies so we have the right policies.
Mr. Lankford. Right, but some of it is just a consistency
basis so that if you are agency to agency you know the standard
and criteria. I am not talking about creating a whole FARs
system for grants but some sort of consistent system so that we
know if you are going after a Federal grant, this is a given.
All of these factors have to go into the background on it.
Let me ask you a quick question. Has OMB done any kind of
studies or documents to be able to study the grant process that
you have in draft form or in a final form that this committee
could get to be able to see some of the work that you are doing
to be able to research grants and how grants are done?
Mr. Werfel. I don't think we have anything specifically off
the shelf but we have a lot of work. I don't think it would be
a big lift for us to put together something for you.
Mr. Lankford. If we could get that, even if it is in draft
form at this point, we could get a chance to take a look at it
and see some of the ideas that you are building as well with
your own research. I am sure OMB is tracking this as well. We
would be able to look at it and see what is being done and how
it is being handled currently.
Mr. Werfel. There are certainly particular areas right now
that we are very invested in trying to improve, including
single audit, www.grants.gov, and other areas.
Mr. Lankford. Great, we will follow up with you on
requesting those specific documents, may it be drafts or final
reports on that.
With that, I yield to Mr. Connolly.
Mr. Connolly. Thank you, Mr. Chairman.
Before my 5 minutes begin, if I might be given a point of
personal privilege? I know Mr. Kelly will join me in this, we
want to congratulate you on your recent win. Your dog, Liberty,
won the People's Choice at the Humane Society. My dog, Abigail,
is still in recovery from her loss to Liberty but she sends her
best wishes and congratulations.
Mr. Lankford. Well, I will pass that on to my dog Liberty.
Mr. Connolly. Ms. Keegan, your testimony is pretty
compelling about the fact that there seems to be no rhyme or
reason within the Federal Government for grant-giving. I mean,
each agency may have a reason, may have its own formula, and
may have its own process but we have no standardized
transparency system. We have no standardized set of criteria.
We have no standardized policy with respect to whether someone
can, in fact, look at whether they won or lost and why. You
frankly have more transparency in the contracting system than
you do in what you described in the grant-giving system.
We sort of are juggling, it seems to me, in this hearing
and this committee with two sets of responsibilities. One is on
the receiving end--are they accountable, are they using the
money for the purposes intended, and is it efficacious. But we
also need to focus on the grant-giving side, it seems to me.
You know, listening to you I am persuaded, gosh, we have to
be able to do better than that. That is not very professional.
But on the other hand, what I worry about is that in our desire
to be more transparent and to try to make sure that this is a
process that is accountable, as it should be, Government tends
to want one size fits all because that is easier. So we are
going to treat the grant to the lab bench scientist the same as
a grant to, you know, a local government to build a highway.
They aren't the same thing and we have to recognize the
distinction.
What is your reaction?
Ms. Keegan. I think that the interesting thing about your
point is that there are a great deal of variations across grant
programs.
I will give you a specific example. I cover the Department
of Homeland Security grants at CRS. One of the elements that I
mention in my testimony is regarding disclosure of information
in the grant applications themselves. Beyond the issue of
proprietary information, for the Department of Homeland
Security grants it could be argued that some of that
information may not ideally be disclosed in the interest of
national security.
It is really up to Congress to weigh that and decide which
programs, or all programs, or just certain selection of
categories of programs need that kind of uniformity and
transparency. It is up to Congress whether you need to balance,
you know, the particular intent of the programs and the
information that might be available with the overall goal of
transparency. I do agree that there is definitely a need to
create that balance.
You know, when you look at uniformity there are some things
that you can do where there might not be as many issues to
address as there are in others for uniformity. For instance,
there is reporting the scores or other things where there is
not so much detail that there is a risk to a national goal or
national security.
Mr. Connolly. Mr. Werfel, welcome back to this committee. I
almost think you are a member of our staff since you come with
such frequency. Thank you for being so responsive.
How will the Government address the issue of data integrity
in Federal spending related to acquisition management, grant
management, and the like?
Mr. Werfel. It is a huge issue because the value of the
information that is up on public Web sites such as
www.usaspending.gov and www.recovery.gov is so dramatically
diminished if we don't have confidence in the quality and the
reliability of the information.
I think in this regard the Recovery Act really positioned
us well to do a better job more globally. We had an information
collection system that had built-in controls over time. It got
better and better over time to make sure that information
reported in by recipients was more valid. A good example of
that is in the early part of the Recovery Act when the system
would accept any version of congressional district. Mistakes
were made. We got smarter and now if you type in the wrong
congressional district, it won't let you type that in.
I tell that story to say that the systems that capture the
information can be made better. The Recovery Act was a lessons
learned there.
We also had a very dedicated process during the Recovery
Act where Federal agencies over a short period of time really
focused on data anomalies and mistakes in the data to make sure
that the information going on www.recovery.gov was accurate. Of
course the public was very important in pointing out errors.
The key is can we do the same thing more broadly on
www.usaspending.gov and learn those lessons. We have already
started to do that.
One of the challenges is that you need to invest in systems
in order to make those improvements but we have to do
investments within our current resource constraints.
But in particular we are working with agencies to kind of
carry forward things that have worked well in the Recovery Act
in terms of data reliability and having them do a better job
reviewing their www.usaspending.gov spending information.
Mr. Connolly. Thank you.
Mr. Lankford. I am going to recognize Mr. Meehan for 5
minutes.
Mr. Meehan. Thank you, Mr. Chairman.
Thank you, each of you, for your tremendous work in this
area, which is something that Congress is just not paying
enough attention to. As we are dealing with the requirement to
be faithful stewards of Government moneys, I thank you for
taking the time to point out many of the places where some
opportunities arise.
I think I am stunned by the observation, Ms. Franzel, in
your report of close to $125 billion in improper payments that
are made. How do we begin to put our arms around that kind of a
number and look for ways in which we can capture that before
those dollars go out the door?
Ms. Franzel. The estimate that you cite covers various
Federal programs. Not all of them are grant programs but in the
top 10, 5 of them are in fact grant programs. So grant programs
are certainly included in the estimate of improper payments
Government-wide.
We and OMB have been certainly working closely on this
matter. We are really at a point where we need to get to the
next step on improper payments. Over the past several years the
Government has made a lot of progress in terms of monitoring
and measuring the amount of improper payments out there. At
this point, we really need to get at the causes of those
improper payments so that those causes could then be remedied
in order to prevent improper payments from happening.
Mr. Meehan. Could you give me an example of something you
would point to that people would understand is a cause that we
aren't following up on?
Ms. Franzel. Certainly. There are many different types of
improper payments. In fact, sometimes something is categorized
as an improper payment because there is no documentation
available to verify that the payment should have been made. In
that case, we are really not sure if the payment should have
been made or not. So in those cases it is important to figure
out why. Why is there not documentation?
In other cases, a program might be giving payments to
ineligible recipients. Then it is important to ask why and how
that is happening. In some cases it may be weak controls at the
agency or organization that is really signing up recipients for
a program. In other cases it could be that the program design
is so difficult to implement that, in fact, sometimes it is not
always clear if somebody is eligible.
So there can be a wide range of causes. I think across
agencies and programs the Federal Government needs to get a
handle on these causes so that the problems can be fixed and so
that improper payments can be prevented.
Mr. Meehan. We were talking just the other night,
Congressman Lankford and myself, about this opportunity. These
are the kinds of things that we need to work with you on so
that we can have some sort of measure of accountability as we
go along.
We do an awful lot of pay and chase. I used to do work as a
corporate attorney. In a lot of the contract field there would
be requirements that would have to be met before we would pay
the next installment. Do we do enough of that in Government
contracting now or in other kinds of grant programs where there
has to be an accountability that is almost contemporaneous with
the release of the next line of funding?
Ms. Franzel. It really is a delicate balance. For instance,
in Medicaid the payments do need to get out so that medical
services can continue to be provided. So there needs to be a
good balance of controls up front along with getting payments
out.
In fact, we at GAO are starting some work in the near
future on looking at the Medicaid program. We are also
currently working on foster care to really drill down and take
a look at what are some of the causes of improper payments and
then matching that up with some of the initiatives that are
ongoing. There are many initiatives ongoing in Government but
we really need to match all of this up.
Mr. Meehan. You hear oftentimes from physicians and others
that there are late payments for them. They perform the service
and then they carry for a long period of time.
Let me ask one last question of anybody on the panel. When
I was a prosecutor in the U.S. Attorneys' Office, we used to
make a lot of use of the Qui Tam laws in which people were
awarded a percentage of a recovery that they brought to the
attention of the Government. This goes all the way back, of
course, as you well know to the Civil War era. Do we make use
of that in the kind of programs that we have, not the big-
ticket Government programs where we have found our benefit?
How do we use that capacity to be able to have others be
eyes and ears to help us identify some of the remarkable $125
billion in wrongful payments? That is to any panelist.
Mr. Werfel. Thank you, Congressman, for the question and
the opportunity to respond.
Dating back to 2002, Congress created a provision that
enabled Federal agencies to basically hire contingency-based
contractors to go and help them find their improper payments
and recover them. It was limited to improper payments to
vendors. The way it would work is let us say an agency made $10
million in payments to contractors in a given year. They would
hire a specialized audit firm to come in. They wouldn't have to
pay that audit firm, only pay them out of the percentage of
improper payments that they identify were made to the
contractor.
That has been a very successful program. It was so
successful that the Medicare program initiated it. So now we
are moving beyond contractors. Medicare can hire these
specialized auditors to go into hospitals and pull out these
improper payments and get paid out of a portion of that. Now
that has been expanded to Medicaid and with the recent
enactment of new improper payments legislation we have it for
all activities.
So we are right at this cusp moment where we are trying to
build on the successes we have had preliminarily with
contractor improper payments and transition it to grant
improper payments and elsewhere.
Mr. Meehan. Mr. Chairman, I know I am over my time but may
I just ask one more question on that point?
Mr. Lankford. Yes, you may.
Mr. Meehan. Are we able to utilize current technology to
see outliers on what our patterns of payments are? I use again
a Medicare or Medicaid situation in which you would see
somebody who is doing an inordinate amount of billing for a
particular issue in a geographic or demographic area that is
suspect just by its very number?
Mr. Werfel. Absolutely, Congressman. There is good news and
bad news there.
The very good news is that we, for the first time, have had
a significant breakthrough. The Recovery Board took technology
that was generally used in law enforcement and intelligence and
also used by credit card companies to look for payment
anomalies and they deployed it for the first time that I am
aware of in a very systemic way over all Recovery Act dollars.
They have been able to do things that in my 14 years of Federal
service I had never seen and a lot of agencies had never seen.
So we are piloting that solution.
The bad news is that we are in the embryonic phase of this
across Government and that agencies are going to have to ramp
up. We are low on the learning curve right now in terms of
deploying these types of technologies.
But the Recovery Board's deployment was a significant
breakthrough and I think it is going to give us some momentum
for programs like Medicare and Medicaid.
Mr. Meehan. Thank you.
Thank you for your courtesy, Mr. Chairman. I yield back.
Mr. Lankford. Thank you.
I recognize Mr. Kelly for 5 minutes.
Mr. Kelly. Thank you, Mr. Chairman.
I would like to thank the panel for appearing.
Mr. Werfel, you describe www.usaspending.gov as a way of
increasing public visibility on the grants spending. Describe
that a little bit. How does that work? How does that increase
the visibility for folks?
Mr. Werfel. It is, in my experience, one of the more
critical ways in which the citizenry can have an understanding
of what is going on with taxpayer dollars.
They way it works is that all payments, essentially,
greater than $25,000 are submitted into this warehouse and
pulled onto this Web site so that they are searchable. So you
can type in Yale University or ABC Co. or the State of Arizona
and see all the payments that these various entities have
received. You can look at them in different categories and have
an understanding with a description of how that money is being
used.
It enables people to understand within their local
communities where the Federal dollars are going and how they
are being used. And www.recovery.gov just took that to the next
level. It provided way more granularity and detail than we had
seen before.
Mr. Kelly. So on the Web site you can see where the grant
was made but does it track the progress that is being made?
Mr. Werfel. It does not. It is more of a capture of who got
the money and what was the intended use of the money. It
doesn't necessarily tell you progress, whereas www.recovery.gov
goes a little bit deeper into progress points, in particular
job impacts in terms of job creation.
Mr. Kelly. Okay, so it would be helpful, I think, if we
could also track the spending and get more of a universal
recipient tracking.
You mentioned earlier about the President's executive order
on the Government Accountability and Transparency Board. But
under that, their only responsibility really is to write a
report and release it 6 months from now. The DATA Act is going
to shed more light on it and be a much better tracking vehicle.
Help me with that a little bit, if you would, with the Board
itself and what its function is.
Mr. Werfel. I think there are a couple of fundamental
purposes of the new Board that the EO created.
One is that we have right now a Recovery Board in place
that has a lot of lessons learned and a lot of infrastructure
technology skills that they have developed. We have to figure
out how to marshal that through to the future. Currently the
Recovery Board is set to expire September 30, 2013. So as good
stewards of the taxpayer dollar and good public policy
personnel, we want to make sure that we have a plan for how we
are going to transition past September 30, 2013 to make sure
that these practices don't go to waste and are carried forward.
This Board is going to help us marshal the types of steps that
we need to take to conduct that transition.
The other, I think, primary purpose of this group is to
help us provide more integrated, strategic leadership on
transparency and accountability by bringing together the best
and brightest of the CFO, management, and Inspectors General
communities for a dedicated, Presidentially directed purpose
around how we can enhance transparency and accountability. It
is going to help give us that strategic roadmap. We may need
Congress' help in developing legislation that helps us execute
on that strategic roadmap, but I think it is important that we
get started on planning and figuring out what the right next
steps are.
Mr. Kelly. And I think the DATA Act adds an awful lot of
credibility to that whole process.
I just wanted to go back to Ms. Franzel and Ms. Keegan. The
pre-award process concerns me greatly because I am not exactly
sure how these agencies determine whether a contract or grant
is the appropriate vehicle. What are the implications of this
decision? The pre-award phase seems to be critical.
Ms. Franzel. I will start and I will let Ms. Keegan finish.
First of all, not all grants are competitive so there are
some grant programs out there that are not competed. For those
that are competitive, it is important to determine whether the
grantee has the financial management capabilities to track the
use of the Federal funds as well as the programmatic
capabilities to actually successfully carry out the program.
Then each grant program also has its own specific requirements.
It is really the up front determination that a particular
candidate would be successful in carrying out a Federal program
with Federal funds.
Ms. Keegan. Congressman, I also think that it is important
to point out that the purposes of grants and contracts are a
little bit different. Grants are generally to support a public
purpose or a national goal through the authorization of funds
to a particular grant program. Contracting, has a little bit of
a different purpose. So I think because the intent of the
different vehicles is different, the approach to what should be
funded with the different vehicles is different.
Mr. Kelly. I noticed in my private life that when we put
together and we structure these RFPs, as it were, it is
critical that we have exact language in there that really leads
people to be able to either get a grant or a contract.
I worry sometimes as we talk about all of this that there
is such an inconsistency in the way we do all of this. It
really doesn't make sense to a lot of us as to how we actually
get to these ends.
Ms. Keegan. Congressman, at one point in my career I was a
grants writer as well for local governments. It is a challenge
when you are trying to direct the resources as best you can as
a small entity, whether a public entity or a non-profit, and to
be able to best identify what the criteria are that are going
to be considered, what was funded in the past, and what the
real goal of the grant program is in very specific detail. All
of that information is helpful for grant writers in order to
best use their resources.
Mr. Kelly. Thank you.
Mr. Lankford. I would like to take a couple of moments just
for a few followup questions and then we are going to
transition to our second panel. I do appreciate you all coming
and getting a chance to hear you.
Mr. Werfel, I wanted to be able to follow up on something
Mr. Kelly mentioned about contracts versus grants. How
comfortable are you that the agencies are not using a grant
when they should use a contract because the grant process is
easier than the contracting process? But we are receiving a
deliverable, whether that be a research report or something
else. When we really should be doing a contract rather than a
grant on that. Are you comfortable on that?
Mr. Werfel. First of all, I think that there is sufficient
guidance that I have used and helped advise coming out of OMB.
And I think there are some Comptroller General positions that
are in the literature that help an agency determine whether
this situation is appropriately awarded as a grant versus a
contract. I think Congress can often be helpful there in terms
of signaling its congressional intent for how the money can be
spent.
Mr. Lankford. We just had a dramatic increase in the number
of grants. I am just trying to probe and see if you are
comfortable at this point that we are not just seeing people
that should be writing contracts writing grants instead.
Mr. Werfel. I am not aware of any systemic issue in that
area.
Mr. Lankford. On the www.grants.gov site, obviously that is
building up and adding in some of the www.recovery.gov elements
into it, the self reporting and, again, what Mr. Kelly was
talking about before about trying to get into the details of
how it is going.
Also, if there is a deliverable at the end of it, we need
to not only know that it was awarded and how much was awarded
but if there was some report or if there was some response back
to it. Is it possible to have that at the end as well so that
Americans, whoever they may be, could look over the shoulder in
the years to come and say we awarded to this for this amount
and this was the deliverable at the end?
Mr. Werfel. Absolutely. I think an important step that
Congress recently took was the passage of the GPRA
Modernization Act which updated requirements that we have to
report on performance goals. The last time that law was
enacted, I think, was first enacted in the early 1990's. We
obviously live in a very different world in terms of technology
and how information can be provided in more real time.
Our challenge right now as the Federal Government is to
synthesize all of these various efforts and technologies. We
have more information on where the dollars are going and who is
getting them than we have had before. The technologies we have
to report that information and make it searchable and usable
are good. We need to improve the quality and, as you said, we
need to figure out how to find the right synergy so that when
you are reading this information you are not just learning that
XMY University got a grant, you are learning what the impact
has been. That is really taking, I think, spending transparency
to the next level and we need to move in that direction.
Mr. Lankford. Right, and that is what we have talked about
before, just a single portal for this, a single portal where
people can go to be able to do their research on it.
I have two quick things and then we are going to switch to
the next panel.
But with the payment time period, a couple of you have
brought up how we make payments, whether it is as we go along
or whether it is at the beginning or at the end. I have spoken
to people that are in very small communities and are maybe
getting a grant for, let us say, water treatment to do some of
the certification. That grant payment comes at the end.
So a very small community in a very poor area has to come
up with $250,000 on the promise that the Federal Government
will pay at the end. But they are having to go get bank loans
and literally go put their city park on collateral for
something that will be paid at the end when the process is
complete. That kind of ordering is something I would think
needs to be examined in the grant process as well.
Then, Mr. Werfel, you brought up the issue of trying to
deal with fraud after the fact by what could affectionately be
called fraud bounty hunters. They can go out there after
different companies and be able to find areas where there is
fraud. Then they are paid a percentage of what they find. The
benefit of it is obviously that they are going to go find
fraud. The challenge of it is that they are in an adversarial
role from the moment they walk through the door.
Immediately when they walk through the door, for whatever
entity they are evaluating, they are going to be paid if they
find something wrong. So they are going to stay until they find
something wrong. That puts every single grant recipient in a
very difficult position because you will have human error at
some point and they will stay until they find it.
Now you have an adversarial role. Instead of the Federal
Government being your ally, now suddenly the Federal Government
is your enemy walking through your doors. Instead of serving
that company, we are at odds with them based on the bounty
hunter that we said is going to go find something.
So we have to be able to resolve that process. I have
numerous people back in my district that are very frustrated
with those companies that step in, that they know are paid to
find the issues and that will stay until they do, no matter how
small. They will find them to the maximum that they can
possibly do it. So that is just an issue we are going to need
to work through in the days to come.
With that, do you have further comments?
Mr. Connolly. If I could just add, Mr. Chairman, that I
want to reemphasize that just as we are looking at the
transparency and accountability on the receiving end of grants,
I think Ms. Keegan's testimony really underscores that we have
to look at the possibility of waste at the front end. Some more
accountability if not standardization within the Federal family
may very well help us reduce improper payments at the front end
rather than having to collect them at the receiving end.
Thank you.
Mr. Lankford. With that, I thank this panel very much for
not only the time that you spent in preparing your written
statements but for coming here for the oral statements and
questions as well.
We will now take a short recess so we can transition to our
second panel.
[Recess.]
Mr. Lankford. I now welcome our second panel.
Dr. Tom Coburn is a U.S. Senator from the State of
Oklahoma.
Dr. Coburn, we really appreciate you taking so much time
out of your busy schedule as well to be able to appear before
the subcommittee today. Your entire written statement will
obviously be made a part of the record.
You have done extensive work in grant research. We are very
grateful for your testimony today would be very honored to be
able to receive that now.

STATEMENT OF HON. TOM COBURN, A U.S. SENATOR FROM THE STATE OF
OKLAHOMA

Senator Coburn. Thank you. It is a pleasure to be before
you. I was just observing the members in here. Not one of you
were in the House with me, which was not all that long ago. I
left in 2000. So it is a privilege and a pleasure to come
before you.
I want to say something at the outset about your last
panel. I worked with Danny Werfel for 7 years and he is
phenomenal. I am glad he is where he is now. When you talk
about IGs, they are key to us knowing what is going on. The
Government Accountability Office is key. I could not work in
the Senate without the Congressional Research Service. They are
excellent.
So we have the tools to solve the problems in front of us.
The problem is that not enough people know what the problem is.
I would say that if you are looking for a model agency on
how they handle grants, go look at the Institute of Museum and
Library Services. First of all, there is not a grant that they
put out that they don't follow up. There is not a grant that
they don't check to see if they are meeting the requirements of
the grant that was submitted. They have 100 percent follow up.
Consequently, the expectation has changed in terms of
Museums and Libraries that if you get a grant from the Federal
Government, you had better perform. In other words, they have
created the expectation. We don't even hardly look at them
anymore because they really do a great job. So they are a great
model.
If you wanted to follow up on this, bring them up and ask
what they are doing. I can guarantee you it is not being done
in the rest of the Government the way they do it.
Mr. Werfel talked about www.usaspending.gov. Myself and
President Obama were the authors of that. They are basically in
violation of that bill because they were supposed to have sub-
grants and sub-contractors on that at this time and they have
chosen not to put the resources in to get there. But if we had
sub-grantees and sub-contractors on it, you could actually find
them.
You can search that site by anything. It is like a Google
site. You put in the name fish and you will see every penny we
spend on fish. In other words, it is a good site. It just
hasn't been fully blended out. The granularity in there is
because we don't put the sub-contracts and sub-grants in there.
And it is important to know throughout the grant process
who is getting the money and for what. It is not just to look
at the money, but to look at what is being done with it to see
if it is really a purpose that we intend.
As you noted, my statement will be made part of the record
so I will be very brief.
We have done several reports on grants and agencies through
my Office. I could not do that without GAO, CRS, and the IGs as
well. They make it easy for us to put together the information.
But let me talk about the National Science Foundation. I am
a big supporter of NSF. They do key, legitimate Government work
with a priority to keep us ahead of the curve. But even the
agencies that I love are wasteful. What we did was a report,
and you can't really reflect that on the present management
because the present Director has only been there 6 months so
this report that we put forward actually reflects what happened
before he got there. But we had some pretty significant
findings.
When grants aren't utilized, you are supposed to give the
money back. We found $1.7 billion in money that should be ours
that wasn't pulled back. That is 25 percent of their annual
budget. So we found that money that they should have been
pulling back that was growing every year. All of that is
management, paying attention when something expires and getting
rid of it.
We also found a significant amount of low priority
projects, which means they weren't paying attention. There was
an $80,000 study on why the same teams dominate March Madness.
Well, the same teams don't dominate it so the premise of the
study in the first place fails. And I am not sure what that
lends to us as a country in terms of creating leading science
technology. The point is if we have great oversight, and I am
on the Oversight Committee on the other side of the Hill, the
purpose ought to be to call attention to where we are missing
the mark in terms of what our goals are.
So what are some other things? There was $1 million for an
analysis of how quickly parents respond to trendy baby names.
As a scientist, I have trouble finding out how that, as a
country and especially in a constricted budget environment, is
going to help us. What is the positive thing that is going to
come out of that research? Maybe there is something, but is it
a priority? Does a cost-benefit analysis say for what we are
going to get we could have spent the money somewhere else to
get much better leading edge technologies?
There was $315,000 to study whether FarmVille on Facebook
helps adult relationships and $581,000 to study whether online
dating users are racist in their dating habits. Maybe there is
value in those but the point is that it is all about
priorities. The reason that in a lot of grants you are not
seeing priorities is because we are not looking at it. We are
not holding the agencies accountable. Here is a mission
statement, here is what we are supposed to be doing, and then
they kind of get off track.
The reason they can get off track is because they are not
before the Congress every year with somebody going over their
grants with them. Aggressive oversight is one of the most
important things we can do. It doesn't mean we are right about
our assessment of what they are doing. But knowing that they
have to come before us and explain their grants will limit a
lot of questionable grants that go out there for things that
don't have great cost-benefit analyses to them.
We found significant fraud and inappropriate expenditures
at the National Science Foundation. We also found significantly
poor contracting practices.
Let me comment on something the other panel said. There
shouldn't be, other than in rare instances, any grant that
isn't competitive. There should not be any contract that isn't
competitive. We know we have problems in our Government. For
example, we have $64 billion a year in IT and $32 billion of
that is at risk. In other words, it is never going to get
accomplished. We will have blown 50 percent of our IT budget
and we do it every year. We blow it because of the way we
contract and the way we oversee it.
There is a lot of money that we can spend more wisely and
also get greater value for the American public if we make sure,
one, that we competitively bid all of these things, and two,
that we know what we want before we contract.
That is a big problem in the Defense Department. It is a
big problem in the large agencies. They don't know what they
want and they write a contract anyway. What they should be
doing is waiting until they figure it out or create a research
only contract to say what is it that we want. It is a giant
problem that has $100 billion a year worth of waste in the
Federal Government.
Let me just talk for a second about the poor contracting
practices and then I will stop.
We found that NSF in 2010 spent $422 million for contracts,
$283 million of which were not competitively bid. They were
cost-plus. They were paid whether the work was completed or
not. Seventy percent, or $204 million, went to contracts
permitting advanced payments to just three groups.
None of these contractors had an approved disclosure
statement. So what happened was the agency couldn't identify or
document the actual costs, which is a problem with the contract
at the beginning. In other words, they didn't do it right at
the beginning. Then, when they found that they couldn't get
what they wanted, they didn't have the tools to find out
whether or not they got good value because they couldn't get
the information.
One of the things we have to do as a Congress with all of
the grants is to deal with the tremendous amount of
duplication. I will give you an example in NSF. NSF is one of
15 programs, 72 sub-agencies, and 12 independent agencies
engaged in research and development. In other words, we don't
just have NIH, Department of Defense research, and NSF. We have
72 sub-agencies, 15 Federal departments, and 12 independent
agencies.
We are all interested in education. We are interested in
getting more scientists, more technologists, more engineers,
and more math. Well, we now have in the Federal Government some
105 science, technology, engineering, and math programs.
Twenty-eight of them are coming through the National Science
Foundation at a cost of $1.2 billion. None of them are cross
referenced to see if they are duplicating anything else that
the rest of the Federal Government is doing. Not one of them
has a metric on it as to whether or not it is accomplishing the
purpose.
So the whole idea is when you begin to look at grants then
you start looking at a bigger area. We need to focus down and
put somebody in charge of science, technology, and math but not
12 different agencies that are spending over $2.5 billion a
year with no measurements in terms of what their results are.
There is methodology in how the agencies utilize grants but
we are responsible for allowing all of the duplication that has
come because we have passed the legislation and appropriations
bills that have actually caused it.
With that, I will take any questions you might have.
[Note.--The Report of the National Science Foundation:
Under the Microscope, may be found in committee files.]
[The prepared statement of Hon. Tom Coburn follows:]

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Mr. Lankford. Thank you, Dr. Coburn, very much for being
able to come.
I am just going to bounce a couple of things off you just
for additional information. Let me start with the last
statement you were making about duplication. A lot of the
stories we have heard and we have seen some of the reports that
are coming out on it.
How do you get there? How do you actually start combining
those? I understand that legislatively we ultimately have the
responsibility but we are talking about killing one program and
moving that money, or whatever percentage it may be, to another
and combining multiple agencies. Realistically, how do we get
there?
Senator Coburn. I think you have to have leadership where
you have cross jurisdiction among committees to come together.
Let us say science, technology, engineering, and math. You take
the committees in the House and the Senate that are responsible
for those; have some experts; and ask what is it we really want
to accomplish in that, what are the 105 programs we have today
that are doing that, where are they directed, and what is it
that we really need. Then split that up and come to a consensus
that we are going to have a combined committee that is going to
address that and agree to it.
None of these are partisan issues. It is just a matter of
silliness and the right hand not knowing what the left hand is
doing. So it is a great question. First of all you have to know
there is a problem there to address it, and then you have to
build a consensus within each body to say let's get together
and form a joint committee to address science, technology,
engineering, and math. Let us have one set of bureaucracy
running this rather than 20.
What we did with the last debt limit was we went to GAO and
CRS and we asked them this question: We would like a list of
all the programs in the Federal Government. They both told us
to take a hike, there is no way you can do it. Both of them
did. I understand that. It is a massive project. There is only
one agency that lists all of their programs. That is the
Department of Education. You can go to any head of any agency
and they can't tell you all of their programs. They don't even
have them written down.
So what we have over the next 2 years is the rest of the
Federal Government coming though GAO to where we are going to
be see every program at every agency. In the Senate, I am
trying to attach to every bill that goes through there a
mandate that each agency has to list each year their programs
just so they know what they are and so we can know what they
are.
The problem is so big and so massive that you have to start
by knowing what the programs are. Last year, two times in one
other committee, and I won't name which committee, we had
members of the Senate offer amendments to do well-intentioned
things without knowing that we already had a program and a
department doing exactly what they were writing, already and
exactly. Of course, the amendment was withdrawn when they were
made aware of that but the fact is that most of us as Members
of Congress aren't aware. So you have to aggressively pursue
it.
Mr. Lankford. We had been working on that on this committee
as well, looking for areas just to get disclosure out there in
the public, even to have a Web site that lists not only the
agency but all the programs that are within that agency. Then
anyone can get a chance to look and see where their dollars are
spent, what programs are available, and how much goes into that
program as well as how many staff are dedicated to that. It
gives people a basic look.
Let me ask you a question about some of these grant
programs that you mentioned before that are coming up like
developing a relationship through FarmVille. I don't remember a
bill that was related to that. How do grants like that come
into existence?
Senator Coburn. Well, it is because we are lazy
legislators. What we decide is we will pass a bill and grant
maximum flexibility to the bureaucracy. In fact, we are
transferring our own authority as Congress to the bureaucracy.
I just came from a hearing in the Senate on regulations.
Regulations are killing our country. That is not partisan. It
was happening under the Bush administration; it is happening a
little more now. It is more important now because we are in the
midst of a slow economic time and we need the regulations to go
down so business can grow.
But when we give up our responsibility to actually direct
the agency specifically in terms of what we intend, that is how
you get that. We do that because, one, we are not thorough, and
two, a lot of times we don't know what we want when we write a
piece of legislation. That should be a caution to us.
If you don't know what you want, you are not any different
than the agency that is passing a grant out there. You need to
know what you want before you write it, what you intend and
what you expect. Then you need to follow up.
When was the last time every agency in the Federal
Government was overseen? With 535 Members of Congress, we could
do that every 2 years if we would do it. You know what? We
would see a marked change in the bureaucracy.
Mr. Lankford. On the transparency side, not only coming
back to Congress to be able to denote that, but also we need to
be able to get it out just to the general public. Then any
individual could get a chance to look in and see the grants,
how they are spent, and what they are spent on so that anyone
could look over their shoulder.
You would have the possibility of a newspaper out there
going through all the details of each and every grant. So it is
not only a congressional committee but it is also that media
source that is out there asking the same questions.
Senator Coburn. You can do that on www.usaspending.gov
right now.
Mr. Lankford. Yes, if it was populated with all of the
information.
Senator Coburn. Well, for example, in Museum and Library
Sciences I think you could go there and you could see every
grant. They are very compliant. Now they are small but they
have also been extremely aggressive to make sure they are great
stewards with that money.
Mr. Lankford. That is terrific.
I would like to recognize Mr. Connolly for 5 minutes.
Mr. Connolly. Thank you so much, Mr. Chairman, and welcome
Senator Coburn.
Senator Coburn. Thank you.
Mr. Connolly. Thank you for your vigilance in protecting
the U.S. tax dollar and shedding some light on research and
grant funding. Let me just share with you concerns, though, I
have maybe on the other side.
I heard you say that you thought all of these grants
ideally ought to be competitively bid. Respectfully, I guess I
would want to see the ability of the Federal Government in
awarding research and development grants preserved. I would
remind us of the fact that, for example, the successful crash
effort to make sure the United States had the atom bomb before
the Nazis was not competitively bid.
I spent 20 years of my life in the private sector for
organizations that did Federal research and I saw firsthand
where there was value in preserving flexibility for the Federal
agency to look at expertise and say, I don't want to reinvent
the wheel since you have that expertise. We want to fund that
because that can develop something that is going to help our
economy or help medicine or whatever it may be.
So this is just a word of caution. I think you are right
and I am not unsympathetic with the idea that by and large we
ought to have a really good reason why something isn't
competitively bid. But to go to a rigid formula where
everything is competitively bid, especially in the research
field, I think could be risky, frankly, and could choke
innovation unwittingly.
Senator Coburn. Let me respond to that. If you only have
one company or one institution that is capable of doing what
you are wanting to do, I think that is true.
But I would put out to you that the reason we have seven
major weapons programs in the Department of Defense today that
are vastly over budget and are at risk is because we had cost-
plus contracting on the research and development and no capital
risk exposure by those companies that were involved in it.
Human nature is to say whatever you want, since it is cost-
plus, we will do it for you.
We have three problems in the Federal Government in terms
of that contracting. One is that we are losing our contracting
experts. We have a real problem with contract managers. We are
short on them and we are short on experienced contract
managers. There is great wisdom in them because they have the
experience and they have known these businesses. They know who
can actually do what. So I tell you that is the first thing.
The second thing is that in a lot of agencies, including
the Pentagon, we don't have an adult in the room as far as
requirement creep.
The third problem we have across agencies when we do cost-
plus contracting is it is low-balled on purpose. They know it
is going to cost a whole lot more but they want to get it
started because they know once they get it started and once we
get a lot of money invested in it we will be more reticent to
pull the plug on it.
I think you could address all of those three. I agree with
you if we have a unique level of expertise. But I would tell
you if there are two of them that have that level of expertise,
we ought to have them compete. If there is nobody that has that
level of expertise, then I am fine with that.
Mr. Connolly. I agree and I am glad you brought up
acquisition expertise in the Federal Government.
By the way, I commend to you Susan Collins' bill. I
introduced it here in the House. Susan Collins has a companion
bill on the Federal Acquisition Institute trying to upgrade
those capabilities.
But we have to hire more people to manage contracts. And
you are right, we need continuity. Requirement creep often
occurs because you have multiple project managers over the life
of a contract, many of them.
One more point I would like to make if I can. And you did
not do this; I don't mean to imply you did. But one of the
things that sometimes concerns me is that in the political
arena we make fun of research. I can remember in my campaign
last year my opponent went on and on and on about funding
research on monkeys. Well, it happened to be HIV research and
monkeys were the best analog to humans.
Senator Coburn. Yes, they are primates.
Mr. Connolly. It was frankly to me a despicable thing but
it became the political arena.
There is one that came up recently, Mr. Chairman, in the
Science and Technology Committee. The Golden Fleece award,
which was issued by a Democrat from Wisconsin at the time, was
given to an odd sounding study called The Sexual Behavior of
the Screw-Worm Fly. Why would we waste $250,000 on that? Yet
that research, which cost $250,000, saved millions of
livestock. It is estimated that it saved and enhanced the
cattle industry profits by $20 billion and lowered the cost of
beef at the supermarket by 5 percent. Other than that, yes, it
was a frivolous piece of Federal research.
So it is easy to demagogue research sometimes, especially
with the public not spending time on research directly. I would
hope that all of us in the political arena would show a little
bit more respect for what we are trying to do, as you say.
Senator Coburn. No, I agree. We don't know the depths and
the intents. But that is the other thing that ought to be put
in the grant. What are we trying to accomplish here? When you
read a grant proposal and you don't see the endpoint in it and
you don't see what they are actually going for, then we ought
to be asking a question about every one of those.
It is the same thing with the pine beetle out West right
now. If we would have had good research on hurting its
reproductive capability, we wouldn't have half the forests in
Colorado and Wyoming turning brown right now.
Look, I am a two time cancer survivor. I believe in
science. It is why I am still alive. But the point is that even
our good agencies like NSF need to be overseen so that when
they are not paying attention, they will pay attention. That is
my whole point.
Mr. Connolly. Thank you.
Mr. Lankford. I have enjoyed multiple rounds of
conversation with this but you have a vote coming up very
shortly on the Senate side. We appreciate your time and very
much value your input on this. We look forward to getting a
chance for our committees to be able to work together in the
future.
Senator Coburn. Thank you very much.
Mr. Lankford. With that, this committee hearing is
adjourned.
[Whereupon, at 11:56 a.m., the subcommittee was adjourned.]
[The prepared statement of Hon. Elijah E. Cummings and
additional information submitted for the hearing record
follow:]

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