I would also like to make it clear that TCS does not solicit or accept federal grants. Obviously, however, a lot of other organizations do. According to the Heritage Foundation, in FY 2001, the federal government distributed more than $325 billion in grants. As you know, roughly half - $4.2 billion in FY02 - of the Environmental Protection Agency's (EPA) more than $8 billion budget is awarded in the form of assistance agreements or grants. The agency awards grants to more than 3,300 recipients including tribes, non-profits, state and local governments and universities to implement programs and projects intended to further EPA's goals. Given the size of the program, EPA's success depends significantly on how well it manages these grants. Unfortunately, for the last decade EPA's grants program has perhaps been best known for mismanagement or simply failure to manage.

The EPA Inspector General (IG), the General Accounting Office (GAO), the Office of Management and Budget (OMB), this committee and it's parallel in the House of Representatives have all pointed out for years that the grants program was failing the agency and federal taxpayers. After several false starts under consecutive administrations, EPA appears to have instituted reforms that could lead the agency toward responsible management of its grant portfolio. But, time will tell whether the agency has truly turned the corner. TCS recommends that additional measures to help buttress EPA's reform efforts, including development of grants management evaluation criteria for program officers, annual progress reporting to Congress, and rapid deployment and centralizing of proposed grant database systems.

The Program

Of the $4.2 billion in grants the EPA awarded in FY02, $3.5 billion, or 85%, was allocated to non-discretionary programs such as the drinking and wastewater state revolving funds and a few other programs that are typically formula grants and earmarks. The remaining amount, $719 million, was awarded in discretionary grants to state and local governments, tribes, non-profits, and universities.

The Catalog of Federal Domestic Assistance (CFDA), administered by the General Services Administration, lists more than 70 different EPA assistance programs both discretionary and non-discretionary. However, the bulk of these are program grants or discretionary. Discretionary grant programs have received a great deal of scrutiny and well-earned criticism over the past few years. We applaud the committee for its role in reviewing these programs, and urge the committee to look more closely at the non-discretionary programs to ensure that they are meeting the nation's goals at an appropriate cost.

Program Problems

In his June 2003 testimony, Mr. John Stephenson of the GAO clearly articulated four major areas EPA's grants program needs to address. TCS strongly agrees with these comments. The four key areas EPA has to improve are:

- Award discretionary grants competitively and solicit from a large pool of applicants - Sole source or directed grants fail to ensure that the taxpayer is receiving the best available product at the best price. If EPA deviates from competition, it should be the exception, not the rule, and the rationale must be fully documented. According to the GAO, although required, these decision memorandums are not always completed. Additionally, if grant opportunities are more broadly published, we are more likely to receive competitive terms.

- Effectively oversee grantees' progress and compliance with terms - The EPA does not require enough financial and progress information from grantees and does not consistently ensure that grantees comply with regulations; the EPA either does not conduct enough monitoring of contracts, or, if it does, the monitoring is not documented.

-Manage grants so they are effective in achieving desired results - In some cases, the agency does not have a clear vision of either the goals of particular programs or how to measure results against its goals; either case significantly reduces the possibility of a grant helping the agency meet overall goals.

-Hold staff accountable for performing duties, ensure staff are properly trained and have the right information - It is simple. EPA' grants program is only going to be as successful as its grant administrators and program officers. Adequate resources, training and accountability need to be directed at frontline grant personnel if EPA grants programs are to be successful.

The EPA IG' March 2003 analysis of pre-award reviews, summed up the last point very clearly:

Project officers are responsible for ensuring Federal funds are protected and prudently awarded. However, Agency leadership had not always emphasized the importance of project officer duties, nor held project officers accountable for conducting complete pre-award reviews. It is crucial that management create an environment that considers the management of assistance agreements and the project officer function vital to the Agency's mission.

A key message from this EPA IG report is that the agency must clearly define missions and goals expected from its grant program so that the taxpayer can be sure that every dollar spent is helping EPA realize its goals and mission.

In the IG's random sample of 116 EPA assistance agreements, it found that in 19% program officers had not determined the link between the grant work plan and agency objectives. In 31%, program officers had not determined the technical feasibility of the grant applicant completing the work. In 79% of the applicable agreements, required cost reviews of whether costs are eligible and reasonable were not completed. In 42%, there were no environmental outcomes negotiated. In 24%, milestones or deliverables were not included.

Rather than simply laying these failures at the feet of program officers, higher leadership at the EPA must address these training, incentive, and accountability needs. Staff will only be able to perform what they are trained to do, is demanded of them and they are evaluated on. It is incumbent on senior EPA officials to retrain agency norms if their reform approaches are to succeed.

EPA’s Recent Reform Efforts

After constant criticism from the EPA IG, GAO, and OMB, EPA issued the first policy to govern the competitive award of grants in September 2002. This established several criteria governing competition: a $75,000 threshold; detailed justification for noncompetitive awards; standard procedures for steps in the application process; and a new Grants Competition Advocate to oversee the program. However, there are exceptions for unsolicited grants and "managed competition". Clearly, a shift to a competitive grant process represents a significant change in agency culture. To be effective, active measurement and oversight of these new objectives will be essential.

In December 2002, EPA issued a new grant oversight policy, intended to increase in-depth monitoring of grantees, in part by requiring all compliance activities be entered into a database; and requiring all transactions be tested for unallowable expenditures during on-site reviews.

Finally, the agency issued its Grants Management Plan for 2003-2008 in April 2003. This plan outlined five goals in response to much of the criticism EPA had received. These goals are:

1. Enhance the Skills of EPA Personnel Involved in Grants Management

2. Promote Competition in the Award of Grants

3. Leverage Technology to Improve Program Performance

4. Strengthen EPA Oversight of Grants

5. Support Identifying and Achieving Environmental Outcomes

These reforms appear to be on the mark. However, any EPA plan must be evaluated based on both the fine print and the follow through. The Grants Management Plan outlines several objectives for training grants personnel, and requires that 100% of grants be managed by certified project officers. However, the 2003 baseline is 85%. Considering the problems documented by the EPA IG shortly before this plan was released, the certification process itself may be flawed. Promoting competition for grant awards clearly comes down to agency commitment. If EPA cracks down on allowing sole source and similar grants, competition will flourish, plain and simple. If the Integrated Grants Management System (IGMS) is fully deployed it could significantly help in grant tracking. Strengthening oversight on achieving outcomes requires a commitment by EPA at both the national and regional level to look over grantees shoulders and demand the basic information grantees are supposed to supply.

Additional Reforms and Constant Vigilance

We support the reforms the EPA has proposed, but there are some additional improvements that can be made. To truly inculcate responsible grant management throughout the agency, EPA must develop performance standards for EPA grant management staff. Reform will only be effective if program officers and grant management personnel embrace these efforts. If personnel are not evaluated on grant management performance, it will be perceived as a lower priority and we will be back discussing grant management failures at EPA every few years.

Similarly, senior EPA officials have to commit to making reforms stick. To concentrate their attention, we believe it is vital that the EPA report to Congress annually on its progress and that this committee, the GAO, and the EPA IG exercise the vigorous oversight that has gotten us this far in the reform process.

Finally, we strongly believe that centrally and publicly available grant and tracking data will make reform efforts more enforceable and efficient. We urge the EPA to deploy the IGMS system as quickly as possible, but again, any system will only be as effective as the people inputting the data. To that end, we urge the EPA to investigate centralizing and streamlining grant management to fewer, more highly trained individuals.

Although it is apparent that there has been much done to increase accountability in the EPA grants system, there is much more to do. However, we do believe that with vigilant oversight, EPA has turned the corner on reforms. We are in difficult budget times. With a $521 billion deficit, we have to be sure that every dollar we spend is being spent cost-effectively to further our nation's goals.

Thank you for the opportunity to testify and I would be happy to answer any questions you might have.