Management Challenge 9:
Protecting HHS Grants and Contract Funds from Fraud, Waste, and Abuse
Why This Is a Challenge
HHS is the largest grant-making organization in the Federal Government, and its funding of health and human services programs touches the lives of almost all Americans. In FY 2012, the Department awarded over 81,000 grants totaling approximately $347 billion. Of these, approximately 80,000 grants totaling approximately $90 billion were for programs other than Medicare or Medicaid. According to HHS's Tracking Accountability in Government Grants System, in FY 2013, HHS issued over 20,000 new awards totaling over $272 million. These grants include those added to the HHS grant portfolio by the ACA and the Recovery Act, thus expanding the oversight responsibilities of grant managers and project officers.
HHS is also the third largest contracting agency in the Federal Government; in FY 2013, HHS awarded over $19 billion in contracts across all program areas. Under ACA, contractors have played, and will continue to play, a vital role in building, maintaining, and fixing the computer systems that underpin the implementation of Marketplaces and the Data Hub. HHS faces a challenge to ensure proper management and oversight of these contracts. (See Challenge 1 for more information on ACA contractor management and oversight.) Additionally, several HHS Operating Divisions (OPDIVs) funded Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants and contracts. In calendar year 2012, HHS spent $755 million for grants and contracts in these programs. In contracts alone, HHS awarded $13 million in SBIR contracts and $463,000 in STTR contracts in FY 2013. HHS is the second largest payer under the SBIR and STTR programs (the Department of Defense is the first).
The size and scope of departmental awards make their operating effectiveness crucial to the success of programs designed to improve the health and well-being of the public. Yet OIG has noted weaknesses in the oversight of grantees, as demonstrated by late or absent financial and related reports, insufficient documentation on progress toward meeting program goals, and failure to ensure that grantees obtain required annual financial audits.
At the grantee level, a common problem uncovered by our reviews is that grantees lack robust financial management systems. Some grantees cannot even account for specific grants on a grant-by-grant basis. Without this basic ability, grantees cannot account for costs associated with specific grant awards. Accountability suffers as a result. Collectively, when combined with frequent significant findings of unallowable expenses, these conditions suggest the need for more purposeful oversight and consistency in oversight processes.
Additionally, OMB is in the process of finalizing extensive revisions to the grants management circulars and associated cost principles for Federal grant awards, which will result in implementation challenges for the Department, including changes to HHS regulations and potential adjustments to some grant oversight practices.
With respect to contracts, OIG raised concerns about HHS's use of appropriations to fund contracts as well as its efforts to monitor contractor performance. OIG audits of NIH contracts revealed instances of improper funding in 11 of 18 contracts. Follow-up audit work is underway to assess the effectiveness of the remedial actions outlined by the Department in its 2011 report of Antideficiency Act violations.
OIG has also identified weaknesses in contracting processes and contract management. An audit of CDC contracts revealed that CDC failed to meet Government requirements for contractor performance assessments. Failure to conduct these assessments and make contractor evaluations available through the Federal Awardee Performance and Integrity Information System (FAPIIS) deprives CDC's and other agencies' contracting officers of valuable performance information that should be used in determining whether a contractor is responsible and should receive another Federal award. During FY 2013 the Department focused on contractor performance assessments and posting performance information in the FAPIIS, resulting in an overall improvement from 7.91% (baseline FY 2009 - FY 2012) to 14.88% (FY 2009 - FY 2013).
With respect to misconduct involving grants or contracts, HHS faces various challenges pursuing criminal, civil or administrative actions. While HHS has established a suspension and debarment program, in FY 2013, the implementation of this tool to impose suspensions and debarments remains limited. HHS faces the challenge of educating its grant and contract officers on these administrative remedies and encouraging their use.
Progress in Addressing the Challenge
HHS is strengthening its program integrity efforts by working with its OPDIVs and Staff Divisions (STAFFDIVs) to implement a uniform risk management approach. The Department has established a Program Integrity Coordinating Council to look across programs for common challenges and solutions. Additionally, HHS has actively participated in the Government-wide grants reform guidance project, and is in the process of updating its own internal grants administration manual to foster greater program integrity, accountability, and transparency throughout the grants lifecycle.
With respect to systemic contract funding problems, the Department continues to provide its contracting workforce with an online reference tool for contract funding, formation, and appropriations law compliance. The Department conducts appropriations law compliance reviews of all contract actions exceeding $5 million or $10 million, depending on the type of requirement reviewed and the awarding OPDIV or STAFFDIV. HHS has also revised its contract funding guidance to more accurately describe appropriations law and policy; these revisions incorporated best practices and lessons learned. All Heads of Contracting Activities have developed guidance for their contracting workforce on contractor performance evaluation.
With respect to grant and contract misconduct, the Department has participated in training related to fraud, waste and abuse in the grant and contract area. OIG, a member of the President's Financial Fraud Enforcement Task Force Grant Fraud Subcommittee, collaborated to produce guidance to be used by all Federal agencies as a framework for grant training to reduce grant fraud risk and has offered to assist the Department in developing training specific to HHS OPDIVs.
In outreach efforts, OIG provided fraud, waste, and abuse training to SBIR/STTR program staff in multiple OPDIVs and to staff at CMS's Center for Medicare and Medicaid Innovation. OIG created an Intranet Web Page for HHS OPDIV officials to use to refer allegations of fraud or to submit questions about fraud to OIG.
With respect to suspension and debarment, the Suspension and Debarment Official (SDO) and her staff continue to have monthly coordination meetings with OIG, the Office of Research Integrity and the Office of the General Counsel. The SDO is also developing procedures and tools to assist HHS grants and contracts officials.
What Needs To Be Done
Sustained focus by the Department is needed to address vulnerabilities in its grant programs and contract administration. With respect to grant oversight, OPDIVs need continued vigilance in monitoring grant resources stemming from the ACA, the Recovery Act, and other grant programs. Implementation of planned program integrity initiatives, such as evaluating and mitigating risks, identifying and addressing cross-cutting issues, resolving grantee audit findings, and sharing best practices across the Department will better position HHS to integrate program integrity into all aspects of its operations and culture.
OIG is continuing to examine grants management practices across the Department. For example, OIG is reviewing the extent to which OPDIVs mitigate grantee risks and share information about high risk grantees. We are also reviewing OPDIVs' oversight of the SBIR program as it pertains to ensuring grantee compliance with program eligibility requirements.
With respect to contract funding, the Department has advised that it is focused on preventing new violations and that it is taking legally appropriate actions to ensure that there are no further violations of the Antideficiency Act among ongoing contracts. OIG continues to recommend that the Department correct the improper funding of contracts that resulted in appropriations violations and continue to ensure that appropriate officials attend mandated training, that future contracts are funded properly, and that policy guidance is consistently followed.
The Department and OIG should continue to provide training on identifying and pursuing misconduct in HHS grants and contracts. The Department also needs to continue to refine its Suspension and Debarment Procedures, including streamlining the referral and decision process, setting up a department-wide tracking system, training officials throughout the Department on suspension and debarment, and decreasing the processing time of suspension and debarment referrals.
Key OIG Resources
- OIG Spotlight on Grants Management and Oversight. February 2013
- OIG review of CDC's contract monitoring. July 2013
Management Challenge 10: Ensuring the Safety of Food, Drugs, and Medical Devices
Let's start by choosing a topic
Priority recommendations summarized.
FY 2016 Work Plan
OIG projects planned for 2016.
Significant OIG activities in 6-month increments.