Over the past 20 years, federal grants to state and local governments have increased by $465 billion, close to one-fifth of the federal budget. The Government Accountability Office  has repeatedly found weaknesses in management of federal grants, placing billions of taxpayer dollars at risk.
Just 10 federal programs account for 94 percent of the $125.4 billion in estimated improper payments reported for 2010; five of those were grant programs. Medicaid topped out at $22.5 billion in estimated improper payments, followed by unemployment insurance with $17.5 billion, nutrition assistance programs with $2.2 billion, the school lunch program with $1.5 billion and Pell education grants with $1 billion.
The government currently requires audits for states, local governments and nonprofit organizations spending more than $500,000 in federal awards. But GAO says the federal oversight is not set up to monitor organizations through single audits and the time consuming nature of the audits does not identify immediate concerns. Furthermore, federal agencies do not systematically use audits to identify and understand grant programs problems and how funds are used. Several state auditors have complained about single audit findings remaining unaddressed by the recipient or federal agency years after the problems were first identified.
“Under the current time frames for identifying and correcting audit findings provided by the Single Audit Act…it could take years to correct significant deficiencies and material weaknesses that expose federal funds to misuse or fraud,” GAO said.
GAO found that agencies awarded grants without adequately documenting the award process. Agencies failed to perform pre-award reviews, which analyze whether an organization is capable of carrying out their planned responsibilities, or the reviews were performed after funds were already awarded. When done in a timely manner, pre-award reviews reduce the risk of funds being wasted or the program not meeting expected goals.
Past GAO reports, inspector general reviews and performance audits highlight a systemic lack of closeout procedures by federal grant-makers. Closeout procedures check that grant recipients have met their financial requirements, provided final reports and returned any unused funds. When federal agencies fail to conduct closeouts, it increases the risk that records will be lost and makes it more difficult for the agency to recoup unused funds.
Unused grant funds add up. In August 2008, about $1 billion remained unspent in expired grant accounts. Once the account expires, it can be difficult and time consuming to transfer funds for other uses, and puts them at risk for improper spending or accounting.
“Looking across the federal grants management and oversight processes, there is great potential for streamlining and simplifying while at the same time, improving accountability for how our federal dollars are spent,” the GAO said.
FAST FACT: In 2010, over 1,670 federal grant programs were offered by 23 departments and agencies. The top grant spenders in 2010 were the Departments of Health and Human Services, Transportation and Education.