Homeland Security First Responder Grants:

Cash Management Improvement Act Exemption and Cash Advance Funding Require Additional DHS Oversight

GAO-07-68: Published: Dec 22, 2006. Publicly Released: Dec 22, 2006.

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A key provision of the Cash Management Improvement Act (CMIA) of 1990 (P.L. 101-453), as amended, requires the federal government and the states to minimize the time between transfer of federal funds and payments made by states for federal grant program purposes. Concerns were expressed by representatives of local government subgrantees that more flexibility was needed in the receipt of federal funding for first responders. Congress exempted certain first responder grants from this CMIA provision in the Department of Homeland Security's (DHS) fiscal years 2005 and 2006 appropriations acts. Under the exemption, grantees can receive cash advance funding and hold such funds for extended periods of time prior to payment. GAO was asked to (1) assess whether this CMIA provision, prior to its exemption in fiscal year 2005, had prevented DHS grant recipients from receiving first responder grant funds when such funds were needed; and (2) identify any key fiscal and accountability implications of the exemption.

GAO found no substantial evidence that the CMIA provision that limits the extent to which grantees can hold federal funds before making program payments, prior to its exemption for certain first responder grants in fiscal year 2005, prevented first responders from receiving DHS grant funds when such funds were needed. The vast majority of the officials of State Administrative Agencies (SAA) and national associations contacted neither cited the CMIA as a contributing factor to funding delays nor provided information that demonstrated that the CMIA prevented state grantees or local government and other subgrantees from receiving first responder grant funding when such funding was needed. Rather, the officials generally attributed delays in first responder operations to factors other than the CMIA, such as vendor delays in delivering goods and services and problems related to a lack of human resources to deal with the large influx of grant awards after the September 11, 2001, attacks. The information GAO obtained from these officials was consistent with the findings of DHS's Homeland Security Advisory Council's Task Force on State and Local Homeland Security Funding, which found that numerous factors other than the CMIA contributed to funding delays for first responders. According to DHS, as of March 2006, state grantees and local government subgrantees had used the CMIA exemption and DHS's corresponding 120-day cash advance funding provision, which DHS established to implement the CMIA exemption, only to a minimal extent. DHS's Office of Grant Operations is working with SAAs and local government entities to determine the extent to which the CMIA exemption may be used and the impact extensive use could have on DHS. According to a DHS official, extensive use of the CMIA exemption and DHS's 120-day cash advance funding provision could create management oversight difficulties for DHS. Concerns about oversight difficulties are warranted, as DHS currently lacks the policies and procedures to track and report on specific cases of cash advance funding. Such advances are not subject to Treasury's oversight through its administration of the CMIA program. While states' single audits are a tool for oversight, such audits are not designed to replace program management's oversight responsibilities, and GAO found that they may not cover all first responder grants because of the relatively small size of the grants. Importantly, case-by-case cash advance funding can be allowed by Treasury regulations implementing the CMIA and other applicable regulations. Such funding could enable DHS to focus its oversight efforts on grantees and subgrantees that have a demonstrated need for such funding. However, regardless of whether cash advance funding is available under the CMIA exemption and DHS's corresponding 120-day cash advance funding provision, or on a case-by-case basis, proper oversight is critical to ensure that interest due the federal government resulting from cash advance funding is accurately recorded and promptly paid.

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

    Recommendations for Executive Action

    Recommendation: The Secretary of the Department of Homeland Security should direct the Executive Director of the Office of Grants and Training to develop policies and procedures to handle requests for cash advance funding, including the ability for DHS to track specific cases of cash advance funding to state grantees and the related interest liabilities.

    Agency Affected: Department of Homeland Security

    Status: Closed - Implemented

    Comments: To address GAO's recommendation that DHS direct the Office of Grants and Training to develop policies and procedures to handle requests for cash advance funding, FEMA's Accountability, Management, and Oversight Branch (AMO) identified the need for a more detailed cash management policy and procedure at the regional level. To address the issue of some grantees having excess cash on hand, AMO developed updated site visit protocols and the monitoring report template that FEMA regional offices use. The new protocols and template highlight CMIA act requirements and encourage the monitoring of cash on hand and interest accrual.

    Recommendation: To improve oversight of cash advance funding and associated interest liabilities for homeland security first responder grants, the Secretary of the Department of Homeland Security should direct the Executive Director of the Office of Grants and Training to complete ongoing monitoring efforts involving state grantees that receive DHS first responder grant funding and use information obtained from such monitoring to, based on the results of the monitoring efforts, take appropriate actions, which could include making either legislative or operational recommendations, to improve first responders' ability to receive and use DHS grant funds when needed and DHS's oversight of such funds.

    Agency Affected: Department of Homeland Security

    Status: Closed - Implemented

    Comments: FEMA reported that following FY 08 monitoring efforts, the agency took several operational actions to improve drawdown and dispersement of funds and their oversight ability. First, FEMA regionalized three major grant functions: financial monitoring, cash management, and closeout activities. FEMA reports that the regionalization yields several benefits, notably; moving stakeholder relationship responsibilities close to the actual stakeholders has contributed to improved response times to stakeholder inquiries and greater coordination between programmatic and financial elements of grants management. FEMA also reports implementing the ND Grants System, which when fully implemented will provide FEMA with a single system that will allow FEMA to retrieve current data to respond to data reporting needs. FEMA notes that taking preemptive actions to address unavoidable additional lag time for varying state and local jurisdiction matters may expedite the earliest possible date that funds can be drawn down. Further, FEMA plans to take additional actions to encourage more transparency and stringent controls to lessen the delay in drawdown of funds. GAO's work on this matter helped FEMA to recognize that operational changes were necessary to help alleviate delays in the drawdown and disbursement of funds.

    Recommendation: To improve oversight of cash advance funding and associated interest liabilities for homeland security first responder grants, the Secretary of the Department of Homeland Security should direct the Executive Director of the Office of Grants and Training to complete ongoing monitoring efforts involving state grantees that receive DHS first responder grant funding and use information obtained from such monitoring to determine whether case-by-case cash advance funding provides a reasonable alternative to the CMIA exemption and DHS's 120-day cash advance funding provision.

    Agency Affected: Department of Homeland Security

    Status: Closed - Implemented

    Comments: FEMA's Accountability, Management, and Oversight Branch determined that a case-by-case cash exemption would be the most reasonable alternative, largely because DHS and FEMA found that the majority of states do not choose to invoke the 120-day cash advance exemption. According to FEMA, this would allow the small number of localities that have experienced hardship in managing States' reimbursement processes due to limited resources or other factors to take advantage of the cash advance option.

    Recommendation: To improve oversight of cash advance funding and associated interest liabilities for homeland security first responder grants, the Secretary of the Department of Homeland Security should direct the Executive Director of the Office of Grants and Training to complete ongoing monitoring efforts involving state grantees that receive DHS first responder grant funding and use information obtained from such monitoring to assess the impact the CMIA exemption and DHS's 120-day cash advance funding provision could have on DHS's ability to provide adequate oversight if state grantees and local government subgrantees were to use them extensively.

    Agency Affected: Department of Homeland Security

    Status: Closed - Implemented

    Comments: DHS agrees with the recommendation and has completed action on it. The Office of Grants and Training (G&T) did an impact assessment of the CMIA exemption during FY2005 and a final assessment is to be completed by FY2008. At this point, it appears grantees will not use the exemption due to (1)interest owed DHS not being exempted and (2) state reluctance to allow localities to spend federal grant dollars without adequate oversight. If the trend in "CMIA exemption reluctance" is reversed, however, more G&T resources will be needed. No further action will be taken on this recommendation.

    Recommendation: To improve oversight of cash advance funding and associated interest liabilities for homeland security first responder grants, the Secretary of the Department of Homeland Security should direct the Executive Director of the Office of Grants and Training to complete ongoing monitoring efforts involving state grantees that receive DHS first responder grant funding and use information obtained from such monitoring to determine the impact of the CMIA exemption on first responders in their ability to obtain and use grant funds to meet program needs.

    Agency Affected: Department of Homeland Security

    Status: Closed - Implemented

    Comments: FEMA determined that the CMIA exemption has little impact on first responders' ability to draw down grant funds. FEMA reported that its Accountability, Management, and Oversight Branch (AMO) reviewed fiscal year 2008 monitoring visits and found that the 120-day advance exemption had very little impact on first responders' ability to drawdown and disperse FEMA funds. According to FEMA, this option was made available to states by DHS for those localities that require subgrantees to have funds on hand before purchases or expenses are initiated. However, FEMA found that the majority of states and subgrantees are allowed to make purchases without having the funds on hand, and therefore do not choose to invoke the 120-day advance option as a means to expedite funds. Rather, they instead choose to draw down on a reimbursement basis. Moreover, AMO found no correlation between implementation of the 120-day advance exemption and documented cash on hand.

    Recommendation: To improve oversight of cash advance funding and associated interest liabilities for homeland security first responder grants, the Secretary of the Department of Homeland Security should direct the Executive Director of the Office of Grants and Training to complete ongoing monitoring efforts involving state grantees that receive DHS first responder grant funding and use information obtained from such monitoring to identify the significant issues that have resulted in delays in the drawdown and disbursement of DHS grant funds.

    Agency Affected: Department of Homeland Security

    Status: Closed - Implemented

    Comments: FEMA convened two task forces to examine why federal funds were not reaching local governments and first responders in a timely fashion. Their review identified several issues that contribute to the delay of drawdown and disbursement of funds such as budgetary and procurement processes that vary by state and local jurisdiction. Also, grantee project plans, which are determined at the state or local level, are not required to include procurement time, and can cause unforeseen delays in the drawdown process. FEMA reported that although the local variances in budgetary and procurement processes are largely out of their control, the agency is monitoring these issues in order to make improvements. By identifying several issues contributing to delays in the drawdown and disbursement of funds, FEMA implemented this recommendation and we are closing it.

    Recommendation: The Secretary of the Department of Homeland Security should direct the Executive Director of the Office of Grants and Training to develop policies and procedures to work with the SAA for any state that requests and receives cash advance funding to ensure that adequate policies and procedures are in place at the state grantee level to provide proper oversight of advances made to subgrantees, including the accurate recording of interest accruals on the advances and prompt payment of such interest to the federal government.

    Agency Affected: Department of Homeland Security

    Status: Closed - Implemented

    Comments: FEMA's Accountability, Management, and Oversight Branch (AMO) implemented several new practices intended to improve overall grants management. Starting in fiscal year 2010, AMO now provides external grantee training sessions that focus heavily on financial monitoring, providing an overview of site visit protocols, report templates, and official correspondence samples. Further, FEMA requires that its regional grants management specialists complete quarterly financial analysis activities, including a full cash-on-hand analysis, to encourage better cash management practices across regions and grantees. AMO also reports developing written procedures on monitoring and reviewing grant programs by analyzing grant financial reports and has included steps related to financial analysis and cash management in all protocols used at the regional level.

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