The Department of Justice’s Grant Closeout Process

Audit Report 07-05
December 2006
Office of the Inspector General

The text in this Appendix was prepared by the auditee and uncorrected by the OIG.

U. S. Department of Justice Office of Justice Programs Office of the Assistant Attorney General Washington, D.C. 20531 December 1, 2006

MEMORANDUM TO:	Glenn A. Fine Inspector General United States Department of Justice
THROUGH:	Guy K. Zimmerman Assistant Inspector General for Audit Office of the Inspector General United States Department of Justice
FROM:	Regina B. Schofield Assistant Attorney General
SUBJECT:	Response to Draft Audit Report – The Department of Justice’s Grant Closeout Process

This memorandum provides a response to the Office of the Inspector General’s (OIG’s) draft audit report entitled, “The Department of Justice’s Grant Closeout Process.” The report contains 14 recommendations and $290,497,683 in questioned costs and $64,570,926 in funds put to better use directed to the Office of Justice Programs (OJP).

The Office of Justice Programs agrees that timely closeout of grants has been a long-standing issue. However, much of the data reviewed as part of the OIG’s audit pertains to the backlog of expired grants that existed as of December 31, 2005. As explained to your staff during the exit conference, OJP has made significant strides to ensure that grants are timely closed. For example, during Fiscal Year (FY) 2006, OJP closed over 9,000 grants. As of October 1, 2006, there were approximately 4,800 expired grants, 2,700 (56%) of which were in the final financial reconciliation and closeout process.

The Office of Justice Programs does not agree with the OIG’s interpretation that OJP’s practice of allowing grantees to drawdown grant funds more than 90 days after the end date of the grant period violates Federal regulations (28 C.F.R. §66.23 and §66.50). The Code of Federal Regulations, specifically 28 C.F.R. §66.23(b),¹ states that “a grantee must liquidate [²] all obligations incurred under the award not later than 90 days after the end of the funding period…to coincide with the submission of the annual Financial Status Report (SF-269).” The section of 28 C.F.R. that details guidance regarding drawdown of grant funds is 28 C.F.R. §66.50(d) (Cash Adjustments), which states that the Federal agency will make prompt payment to the grantee for allowable reimbursable costs.

Obligations incurred during the grant period and liquidated within 90 days after the end date of the funding period are allowable expenditures. Since the obligations are appropriately incurred, it is consistent with the clear statutory intent of the appropriation for the grantee to be permitted to draw down grant funds to reimburse itself for costs incurred during the grant period.

Where appropriate, in response to the recommendations, further details are provided regarding OJP’s interpretation of these requirements. For ease of review, the 14 recommendations directed to OJP are restated in bold and are followed by OJP’s response.

4. Fully implement the revisions to the grant closeout policies and procedures based on the recommendations included in the Business Process Improvement Recommendations report to ensure that expired grants are closed within 6 months after the end date.

The Office of Justice Programs agrees with the recommendation. It is anticipated that full implementation of the Business Process Improvement (BPI) Recommendations will occur by April 2007. The table included as Attachment 1 details the current status of OJP’s efforts to implement the BPI Recommendations.

5. Establish a system to track progress towards eliminating the backlog within the established timeframe.

The Office of Justice Programs agrees with the recommendation. As directed by the Deputy Assistant Attorney General for Operations and Management, the Office of the Comptroller (OC) developed closeout reports to track the progress of the grant closeout process. Once the format of the reports was finalized, in August 2006, OC began posting the reports on the OJP portal. As an example, a copy of the most recent closeout tracking reports available is included as Attachment 2.

16. Ensure that grantees are not allowed to draw down funds more than 90 days after the grant end date without requesting and receiving an extension not to exceed 90 days.

The Office of Justice Programs agrees, in part, with the recommendation as it relates to no-cost extensions of the liquidation period. Per OJP’s revised grant closeout policies and procedures (see Attachment 3), once the grant period ends, grantees may not initiate a request for a no-cost extension.³ No-cost extensions after the grant end date must be initiated by the Grant Manager. If a no-cost extension is not approved, grantees are required to complete closeout requirements within 90 days after the end date of the grant. In turn, the Grant Manager has 30 days (i.e., within 120 days after the end date of a grant) to submit a standard or administrative⁴ closeout package to OC. Once the closeout process is initiated, a Grant Adjustment Notice (GAN) is processed to place a hold on any remaining funds that exceed total Federal expenditures as reported on the final Financial Status Report.

17. Ensure that the current grant payment system includes a control to prohibit grantees from drawing down funds after the 90-day liquidation period.

The Office of Justice Programs agrees, in part, with the recommendation. As previously stated on page 1, OJP does not agree that grantees should be prohibited from drawing down funds after the 90 day liquidation period. As discussed during the exit conference with your staff, OJP is in the process of converting its accounting system and anticipates changing its current payment system. Therefore, OJP does not believe it would be cost effective to re-program the current payment system.

The Grants Management System (GMS) Grants Closeout Module, once implemented, will enable OJP to automatically process a GAN to temporarily hold funds once the closeout process is initiated.⁵ If it is determined during the financial reconciliation of the grant that the grantee is entitled to drawdown additional funds to cover allowable expenditures incurred during the grant period, the hold will be removed to allow the grantee to make a final drawdown. A copy of the relevant pages of the system design requirements are attached at Attachments 4 and 5.

The Office of Justice Programs does not believe that it is necessary for the grantee to submit a separate no-cost extension request to enable them to make their final drawdowns. By allowing funds to be drawn down to cover otherwise allowable expenditures incurred during the grant period, OJP has effectively acceded to the request for a late drawdown. Further, while 28 CFR Part 66 provides that a grantee may request an extension of time to draw down funds for allowable expenditures incurred during the grant period, it does not specify the format that must be used for such a request. Such decisions are clearly within the administrative discretion of the agency.

18. Remedy the $290,055,575 in questioned costs related to drawdowns occurring more than 90 days past the grant end date.

The Office of Justice Programs does not agree with the finding related to this recommendation. As previously stated on page 1, OJP does not agree that grantees should be prohibited from drawing down funds after the 90 day liquidation period. Obligations incurred during the grant period and liquidated within 90 days after the end date of the funding period are allowable expenditures. Since the obligations are appropriately incurred, it is consistent with the clear statutory intent of the appropriation for the grantee to be permitted to draw down grant funds to reimburse itself for costs incurred during the grant period.

19. Ensure that the current grant payment system includes a control to prohibit negative award balances, e.g., total payments in excess of the net award amount.

The Office of Justice Programs does not agree with the finding related to this recommendation. The current grant payment system, the Phone Activated Paperless Request System (PAPRS), includes automated controls to ensure that the total funds paid do not exceed the award amount. However, there are a small number of grant records in the Integrated Financial Management Information System (IFMIS), OJP’s accounting system, that contain errors related to the conversion to IFMIS from the prior accounting system, ATOMIC. The reporting errors relate only to IFMIS, and OC and the Office of the Chief Information Officer are working with the IFMIS developer to resolve the issue.

20. Remedy the questioned costs totaling $442,108 related to grants for which the drawdowns exceeded the total award amount.

The Office of Justice Programs does not agree with the finding related to this recommendation. As stated in response to Recommendation 19 above, the errors noted relate to the conversion to IFMIS from the prior accounting system. To address the questioned costs, by January 31, 2007, OJP will provide documentation that supports that the grantees noted were only able to draw down funds up to the award amount.

21. Ensure that grantees are not allowed to draw down funds for unallowable expenditures obligated after the grant end date.

The Office of Justice Programs agrees with the recommendation. During the final financial reconciliation process, OC ensures that drawdowns are made only for expenditures reported as obligated within the grant award period. However, OJP will consider incorporating post-closeout monitoring of grants to its risk-based financial monitoring methodology to detect unallowable expenditures obligated after the grant end date.

22. Ensure that grantees are not allowed to draw down excess funds for unsupported expenditures.

The Office of Justice Programs agrees with this recommendation. However, it is important to note that it is not, and has never been, OJP’s practice to allow grantees to draw down any funds for unsupported expenditures (or report/claim expenditures that are unsupported on the Financial Status Reports). Grant recipients are required to comply with the applicable Office of Management and Budget Circulars and the OJP Financial Guide. As part of its fiduciary responsibility, OJP has a comprehensive financial monitoring program, which includes on-site, desk monitoring, and excess cash reviews of grantee compliance with these requirements and other specific grant requirements. In addition, OC follows up and ensures resolution of all issues, including questioned costs identified during OIG grant audits and Office of Management and Budget Circular A-133 audits transmitted through the OIG.

23. Immediately discontinue the practice of allowing grantees to drawdown excess funds for unsupported expenditures.

The Office of Justice Programs does not agree with this recommendation. As stated in response to Recommendation 22, it is not, and has never been, OJP’s practice to allow grantees to draw down any funds for unsupported expenditures (or report/claim expenditures that are unsupported on the Financial Status Reports).

37. Ensure that all remaining funds on grants are deobligated within 180 days after the expiration of the grant and regranted, or returned to the general fund.

The Office of Justice Programs agrees with the recommendation. The revised grant closeout process will ensure that grants are closed within 180 days, and as necessary, remaining grant funds are timely deobligated. In addition, implementation of the GMS Grants Closeout Module, will further assist OJP in monitoring grants to ensure that grants are timely closed. As previously stated, we anticipate full implementation of the GMS Grants Closeout Module by April 2007.

38. Deobligate and put to better use the $61,082,443, in remaining funds related to expired grants that are more than 90 days past the grant end date.

The Office of Justice Programs does not agree with the finding related to this recommendation. As previously stated on page 1, OJP does not agree that grantees should be prohibited from drawing down funds after the 90 day liquidation period. Obligations incurred during the grant period and liquidated within 90 days after the end date of the funding period are allowable expenditures. Since the obligations are appropriately incurred, it is consistent with the clear statutory intent of the appropriation for the grantee to be permitted to draw down grant funds to reimburse itself for costs incurred during the grant period.

Based on OJP’s preliminary review of the questioned costs related to this finding, a substantial portion of the questioned costs relate to grants that have been closed or are in financial reconciliation phase of the closeout process. By January 31, 2007, OJP will provide a current status on the grants identified.

39. Ensure that remaining grant funds are deobligated prior to closure.

The Office of Justice Programs agrees with the recommendation. In April 2006, OC implemented a new organizational structure which results in the assignment of Team Leaders/Project Leaders for all staff that process closeouts. The new process includes quality control reviews and a confirmation process to ensure that the financial reconciliation is correct, and that all systems are updated correctly. The Office of the Comptroller will revise its current grant closeout policy statement to include the new processes in February 2007.

40. Deobligate and put to better use the $3,599,483 in remaining funds related to grants that were reported as closed.

The Office of Justice Programs agrees with the recommendation. Based on OJP’s preliminary review of the questioned costs related to this finding, most of the funds identified were as a result of refunds of grant funds stemming from audits that occurred after the grants were closed or from subgrantees returning grant funds. In April 2006, OC implemented a process to ensure that refunds on closed grants are properly processed. The Office of the Comptroller will revise its current grant closeout policy statement to include the new processes in February 2007. To address the questioned costs, by January 31, 2007, OJP will provide documentation that supports that the funds identified have been deobligated.

Thank you for your continued cooperation. If you have any questions regarding this response, please contact LeToya Johnson, Director, Program Review Office, on 202-514-0692.

Attachments (6)

cc:	Beth McGarry Deputy Assistant Attorney General    for Operations and Management Marcia K. Paull Comptroller LeToya A. Johnson, Director Program Review Office Richard P. Theis Audit Liaison Department of Justice

1. This regulation is only applicable to state, local, and tribal governments.

2. Liquidation refers to the process whereby a grantee pays obligations. The obligations must have been incurred prior to the end date of the grant.

3. No cost extensions are processed through the Grants Management System’s Grant Adjustment Notice module.

4. Standard closeouts are closeouts where all required final documents are received from the grantee (including, but not limited to, a final progress/performance report and a final Financial Status Report). Administrative closeouts are closeouts where a grantee has not or will not complete closeout requirements within 120 days after the end date of the grants. An administrative closeout is initiated by OJP to resolve administrative matters which require the closing of the grant with or without consent of the grantee.

5. As stated in response to Recommendation 16, grantees are expected to complete closeout requirements within 90 days after the end date of the grant (standard closeout), or the Grant Manager may initiate an administrative closeout within 120 days after the end date of the grant.