Head Start:

Comprehensive Approach to Identifying and Addressing Risks Could Help Prevent Grantee Financial Management Weakenesses

GAO-05-176: Published: Feb 28, 2005. Publicly Released: Mar 18, 2005.

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In fiscal year 2004, Congress appropriated $6.8 billion to serve 919,000 poor children through 1,680 Head Start grantees nationwide. Recent reports of financial improprieties at a number of Head Start programs raised questions about the effectiveness of the oversight by the Department of Health and Human Services' (HHS) Administration for Children and Families (ACF) in identifying and resolving financial management weaknesses in Head Start grantees. In this report, GAO provides information on whether (1) ACF can consistently identify financial management weaknesses, if any, in Head Start grantees and (2) ACF ensures that grantees effectively resolve any problems, in a timely manner, when detected.

While ACF uses many processes to collect and analyze information on Head Start grantees, it has not designed its processes and integrated this information to consistently identify Head Start grantees' financial management weaknesses. For example, ACF has not developed a comprehensive risk assessment to identify weaknesses that could limit the program's ability to achieve its objectives. Furthermore, ACF has no process in place to ensure that its on-site reviews are conducted in accordance with the framework it has designed to assess grantee compliance with program and financial management requirements. Moreover, financial reports and audits are not effectively used in day-to-day monitoring activities to identify high-risk grantees and resolve their problems. Head Start grantees who were judged out of compliance in a review by ACF in 2000 with one or more of the program's financial management standards were about as likely to remain out of compliance as attain full compliance over the succeeding 3 years. ACF's failure to ensure that more grantees promptly resolve such problems creates opportunities for financial losses or instability that affect services to children and families. After working with one grantee to correct severe financial management problems for 3 years--including failure to account for over $400,000 in grant funds that were not spent on Head Start services to children and their families--ACF notified the organization that it no longer would receive funding. While ACF may terminate grantees with serious financial weaknesses such as recurring failure to comply with federal management standards, this process is rarely used: ACF most often encourages grantees to voluntarily relinquish their grants. In a small number of cases, ACF must proceed with formal termination, which can be difficult and lengthy owing, in part, to grantees' right to continued funding during its appeal, regardless of merit, and their ability to finance appeals with grant funds.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: Because of ACF's uncertainty about the scope of its authority to implement GAO's recommendation to make greater use of its authority to recompete Head Start grants, Congress may wish to clarify ACF's authority to recompete grants if ACF determines that the current grantee fails to meet Head Start's program or financial management requirements.

    Status: Closed - Implemented

    Comments: The improving Head Start Act of 2007 (HR 1429) was passed by the House on May 2, 2007. The Senate passed The Head Start for School Readiness Act (S. 556) by voice vote on June 19, 2007. Both bills include provisions that would increase competition for Head Start grants by limiting the period for which any grantee may receive grant funds to five years before recompetition may be required. On December 12, 2007, the Head Start Act was reauthorized with the enactment of the Improving Head Start for School Readiness Act of 2007 (P.L. 110-134). Under the new law, Head Start agencies will be designated as grantees for a 5-year period (previously there was not a designated time period). At the end of the 5-year designation period, grantees will need to demonstrate that they are delivering high quality and comprehensive services, or else the grant will be opened for re-competition. The Secretary of HHS is charged with establishing an expert panel to make recommendations for the development of this new system for grantee designation renewal.

    Recommendations for Executive Action

    Recommendation: To improve oversight of the Head Start program and the financial management of Head Start grantees, the Assistant Secretary for Children and Families should produce a comprehensive risk assessment of the Head Start program that incorporates information from the various components of ACF with oversight responsibilities for Head Start grantees and assesses actual or potential risks of mismanagement. This assessment should be updated periodically to provide reasonable assurances to Head Start management that the program's grantees are financially sound and that program objectives are being met.

    Agency Affected: Department of Health and Human Services: Administration for Children and Families

    Status: Closed - Implemented

    Comments: In March 2008, ACF implemented its Risk Management Process. It centers on a series of meetings with program staff and management, technical assistance providers, and the grantees. As of August 2009, ACF reports that all of its grantees have been through the process at least once and many have been involved in more than one meeting. While the process was originally focused on assuring risks were addressed before grantees submitted applications for additional funding, ACF says that the process has been extended to include other emergent issues such as chronic underenrollment. ACF's Risk Management Process is planned, implemented, and tracked within the new Head Start Enterprise System (HSES). The HSES compiles information from the grantee, monitoring reports, and a grants administration database.

    Recommendation: To improve oversight of the Head Start program and the financial management of Head Start grantees, the Assistant Secretary for Children and Families should ensure that ACF develops plans to collect data on and estimate the extent of improper payments made for unallowable activities, payments to grantees whose programs are significantly underenrolled or other unauthorized payments. ACF currently collects data on the extent to which over-income families are enrolled in Head Start programs and has estimated the number of such families nationwide. Additional efforts should be made to collect data on other types of improper payments and to use the data to more comprehensively assess the program's risks.

    Agency Affected: Department of Health and Human Services: Administration for Children and Families

    Status: Closed - Not Implemented

    Comments: As of August 2007, ACF continues to collect data on the extent to which over-income families are enrolled in Head Start programs but has no plans to track other improper payments. Citing resource constraints, ACF reported it had not allocated additional funds to track other sources of improper payments. According to the Deputy Director of Administration for ACF, the Office of Head Start (OHS) methodology for tracking improper payments has been approved by OMB and OMB has not asked ACF to develop strategies for tracking other types of improper payments in the Head Start program.

    Recommendation: To improve oversight of the Head Start program and the financial management of Head Start grantees, the Assistant Secretary for Children and Families should ensure that training and certification for all PRISM reviewers, including federal team leaders, is provided to enable the reviewers to perform their responsibilities in accordance with the review framework developed by the Head Start Bureau.

    Agency Affected: Department of Health and Human Services: Administration for Children and Families

    Status: Closed - Implemented

    Comments: The Administration for Children and Families (ACF) agreed that PRISM reviewers need regular training. In the last several months, ACF provided PRISM training to federal team leaders, fiscal monitors, and early childhood consultants. ACYF-IM-HS-05-02, issued August 31, 2005, announced the Bureau's attention to revise training and experience criteria for reviewers. ACF trained the national pool of Federal Team leaders (FTLs) for Head Start reviews in December 2005. The FTLs were trained in a uniform approach to on-site monitoring, evidence-based information gathering, and leadership of review teams to ensure objectivity and clarity of findings. In addition, ACF strengthened its oversight of the cadre of subject matter expert reviewers. For example, ACF strengthened its criteria for selection as a Head Start reviewer. As a result of the new standards, 1,031 reviewers were selected from an applicant pool of 3,612. Almost 700 of those selected also received training in subject matter protocols to increase the uniformity of how performance standards in all Head Start service areas were reviewed.

    Recommendation: To improve the processes it currently uses to collect and analyze information on program risks, the Assistant Secretary for Children and Families should ensure that ACF develops an approach that can be applied uniformly across all of ACF's regional offices to assess the results of the PRISM reviews and ensure consistent treatment of grantees with similar problems when determining whether grantees should be deemed deficient.

    Agency Affected: Department of Health and Human Services: Administration for Children and Families

    Status: Closed - Implemented

    Comments: In April 2006, ACF designed and implemented its new quality control process to ensure the accuracy and completeness of findings and consistent determinations of non-compliance and deficiencies. Through this process a random sample of grantees were revisited this year to ensure that the original review team did not miss critical deficiencies that could pose unacceptable risks to program quality or operations. These re-reviews will also be used by ACF to improve its quality assurance framework and the design of its annual on-site reviews.

    Recommendation: To improve oversight of the Head Start program and the financial management of Head Start grantees, the Assistant Secretary for Children and Families should implement a quality assurance process to ensure that the framework for conducting on-site reviews is implemented as designed, including holding ACF's regional management accountable for following this framework and for the quality of the reviews.

    Agency Affected: Department of Health and Human Services: Administration for Children and Families

    Status: Closed - Implemented

    Comments: In April 2006, the Administration for Children and Families (ACF) implemented a new process to help ensure the quality and integrity of its oversight framework. Each year, ACF revisits a random sample of grantees that received an on-site review to ensure that the original review was conducted in accordance with ACF's framework and that critical deficiencies were not missed.

    Recommendation: To enhance the usefulness of the data ACF collects through its annual PIR survey, the Assistant Secretary for Children and Families should ensure that information it collects is accurate. This may require independently verifying key data submitted through the annual survey or ensuring that the grantee has a system in place to collect and report accurate, verifiable data.

    Agency Affected: Department of Health and Human Services: Administration for Children and Families

    Status: Closed - Implemented

    Comments: In April 2006, the Administration for Children and Families (ACF) began a PIR validation study. ACF visited a random selection of Head Start grantees to discuss their PIR data and how the data were compiled. In addition, ACF conducted independent evaluations of the grantees' records. Where there were discrepancies, ACF is working to understand the reasons in order to improve the data collected through this survey in the future.

    Recommendation: To more quickly identify financial risks associated with mismanagement of federal funds, the Assistant Secretary for Children and Families should make greater use of the information collected on the status and use of federal funds. For example, ACF should reconcile all grantees' reported expenditures with their actual withdrawals more frequently to ensure that grantees are not drawing down excess funds at the beginning of their grant period and have enough funds to provide services to eligible children and their families for the entire year.

    Agency Affected: Department of Health and Human Services: Administration for Children and Families

    Status: Closed - Implemented

    Comments: The Administration for Children and Families (ACF) agreed that improving ACF's reconciliation of "funds drawn" to "funds expended" could be improved. In 2006, ACF deployed its new Head Start Enterprise System (HSES) that brings all Head Start management systems under one architecture. Through the HSES, ACF will be able to make more complete use of all data sources available to ensure timely identification of risks.

    Recommendation: To improve oversight of the Head Start program and the financial management of Head Start grantees, the Assistant Secretary for Children and Families should, prior to refunding a grant, ensure that ACF take steps to obtain competition for the grant if it has determined that the current recipient of those grant funds fails to meet program, financial management, or other requirements. In these instances, ACF should use its existing authority to conduct such competitions without giving priority to the current grantee, while ensuring that the grantee is afforded all applicable statutory protections, including reasonable notice and an opportunity for a full and fair hearing.

    Agency Affected: Department of Health and Human Services: Administration for Children and Families

    Status: Closed - Implemented

    Comments: The Improving Head Start Act of 2007 (HR 1429) was passed by the House on May 2, 2007. The Senate passed The Head Start for School Readiness Act (S. 556) by voice vote on June 19, 2007. Both bills include provisions that would increase competition for Head Start grants by limiting the period for which any grantee may receive grant funds to five years before recompetition may be required. In December 2007, the Head Start Act was reauthorized with the enactment of the Improving Head Start for School Readiness Act of 2007 (P.L. 110-134). Under the new law, Head Start agencies are designated as grantees for a 5-year period (previously there was not a designated time period). At the end of the 5-year designation period, grantees will need to demonstrate that they are delivering high quality and comprehensive services, or else the grant will be opened for re-competition. HHS has been authorized and is creating an expert panel to make recommendations for the development of this new system for grantee designation renewal.

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