Audit Finds $665 Million in Unused Funds Idle at E.D.

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WASHINGTON--At a time when educators nationwide are decrying budget constraints at the state and local levels, more than half a billion dollars worth of unspent grants is sitting idle at the Education Department.

According to a recent report by the department's inspector general, the agency carries on its books more than $665 million, the residue of an estimated 17,000 grants awarded over the past 16 years to education institutions and contractors. If the department closed out the grants, the money would revert to the federal treasury.

In some cases, the grantees simply failed to spend all the money the government awarded them. In others, the grants may have been used but remain on the books because records of the expenditures were lost in the bureaucracy.

Slightly more than 500 of the unused awards, worth nearly $70 million, are more than five years old and thus beyond the reach of federal rules that let the department recover funds if they were spent for purposes other than those spelled out in the grant.

Of this subset, 119 grants totaling $4.5 million were discretionary awards that conceivably could have gone to other institutions that were competing for them. Unspent grant funds in this category range from 48 cents to more than $380,000.

Case Examples

For example:

  • Hugh Smith, acting director of federal programs for the Virgin Islands Department of Education, said he did not know why the agency had not used $382,650 from a total of $704,016 in bilingual-education aid it received in 1982 and 1983. He said he was not with the department at the time in question.
  • The Detroit Board of Education received $190,147 in 1984 for its Follow Through program, but according to federal records used only $23,932. Jerry Clark, who supervises Follow Through for the district, said there were "extenuating circumstances," but declined to elaborate.
  • Blackfeet Community College in Browning, Mont., decided not to spend a $185,151 grant it was awarded in 1983 for a migrant-education program, a college spokesman said, after the school's trustees discovered that the grant writer, who is no longer with the college, had submitted false information on the grant application.
  • According to federal records, the Laurel (Miss.) Municipal School District used only $332,096 from two grants totaling $572,746 that it received from the department in 1983. Tom Geza, the district's assistant superintendent, said a January 1988 fire destroyed nearly all of the school system's records.
  • In 1983 the department awarded the Fort Smith (Ark.) Special School District a $463,774 bilingual-education grant, but the district spent only $226,731. District officials said they did not use the whole amount because the department gave them roughly twice as much as they were entitled to. Federal officials closed out the grant last February.
  • Department records indicate that Southeastern Massachusetts University failed to use a $178,517 Upward Bound grant that it received in 1983. University officials, however, say that the money was spent.

These examples, although not included in the report, were drawn from information provided by the Education Department and the inspector general.

'Longstanding Weakness'

In its report, the inspector general's office concluded that the department "needs to resolve its longstanding weakness of failing to systematically close out grants in accordance with prescribed timeframes."

Noting that department officials have been aware of backlogs since 1985, the report added, "If grants continue to remain open for years beyond their performance end date, [the department] runs the risk of losing millions of dollars through inappropriate draws of grant funds."

General Accounting Office investigators arrived at a similar conclusion in a report issued in late June. It noted that the Office of Management and Budget cited weaknesses in the department's grant management in June 1989, when the budget office listed programs throughout the federal government that it deemed vulnerable to fraud, waste, and abuse.

Paperwork Delays

Apart from 3 million Pell Grants, the department distributes more than 13,000 grants annually, according to officials' estimates. The length of time grantees have to use their awards varies, but is usually one or two years, according to a department spokesman.

The problem, according to the inspector general's report, is that the agency's grants and contracts service historically has been slow to complete the paperwork needed to close out a grant.

Typically, the service waits to amass a number of expired grants, and then retires them all at once. The report said this was done in 1983 and 1987.

In 1987, the service closed out more than 10,000 discretionary grants, but did not obtain required reports missing from grant files, thereby failing to secure knowledge that the grantees complied with the terms and conditions of the grants, the report said.

Between that mass close-out and the current fiscal year, 5,200 expired discretionary grants already have accumulated, it added.

"We couldn't find any logical explanation why these grants would stay open this long," said Charles J. Brennan, regional inspector general in charge of audits. "Now that they've awarded these grants, they ought to call [grantees] up every once in a while and say, 'How are you doing? What's going on? Use your grant yet?'"

"They make the award and walk away," he added.

Mr. Brennan said he had been told in recent meetings with department officials that the department intends to publish a notice in the Federal Register inf-forming grantees that they will have up to nine months after a grant has expired to submit final expenditure reports, or risk losing access to their grants.

Officials in the department's grants and contracts office declined through a spokesman to be interviewed, and said they were preparing a final response to the inspector general's report.

But John Murphy, chief of the department's program-financing branch, said grants are closely monitored, even if they are not closed out promptly.

"They can't just draw down that amount of money and keep it," he said. 'We review their accounts."

Mr. Murphy's office is charged with safeguarding federal funds, and therefore provides a back-up for the grants and contracts service by freezing grant dollars that should not be disbursed.

Education Department grant accounts, he said, operate like checking accounts--all grant awards for a particular grantee are transferred into one account and the grantees make claims against it.

If money from an expired grant were errantly let go, a review of the account would alert officials to the mistake, Mr. Murphy said. The grantee would then have to return the money, he said, or risk having the rest of its account frozen.

In its report, the G.A.o. indicated that the department had taken several steps to correct the problem, but concluded that it was too early to determine the effect of the reforms.

Changes include scheduling grant competitions to avoid awarding too many grants in the final quarter of a fiscal year, increasing travel funds to ensure more on-site observation of grantees, and an automated close-out system to eliminate some of the backlog of expired grants.

Vol. 11, Issue 01, Page 40

Published in Print: September 4, 1991, as Audit Finds $665 Million in Unused Funds Idle at E.D.
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