Summary

Congress has shown strong interest in consolidating narrowly defined categorical grant programs into broader purpose block grants. A total of 15 block grant programs with funding of $35 billion were in effect in fiscal year 1994, constituting a small portion of the total federal aid to states. If Medicare and Aid to Families With Dependent Children are added, however, block grant spending could rise substantially--to as much as $138 billion or about 58 percent of total federal aid to states. This report summarizes information on how accountability for financial management program performance can be designed to fit a block grant approach, and the potential consequences flowing from such provisions. To provide an overview and summary of GAO's evaluations of past block grant programs, GAO reviewed nearly two decades of reports, testimony, and other GAO correspondence on accountability issues related to intergovernmental programs. GAO also consulted with experts on block grants, performance budgeting, and financial accountability.

GAO found that: (1) building accountability into the newly proposed block grant approach is an important and difficult task, requiring trade-offs between federal and state control over program finances, activities, and administration; (2) well designed accountability provisions will help clarify the financial and programmatic relationship between the federal government and the states and is important in sustaining the maturity of the block grant approach; (3) the financial accountability provisions implemented through single audits provide a foundation for ensuring that states apply the appropriate financial management and internal controls; (4) developing and implementing guidelines for comparable data will not be easy under the results-oriented approach that states use in achieving their program objectives; and (5) it is important for federal policymakers to be aware of existing state spending and programmatic commitments in block-granted areas.