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GAO reviewed the Department of Health and Human Services' (HHS) grant payment operations, focusing on the: (1) effectiveness of HHS attempts to correct serious problems GAO had previously identified; and (2) problems HHS reported in its Federal Managers' Financial Integrity Act report.

GAO found that: (1) HHS replaced its Departmental Federal Assistance Financing System with the Payment Management System (PMS), which the Federal Assistance Financing Division (FAFD) operates; (2) PMS conducts automated edits to identify potential duplicate payments, payments which exceed available fund authority, and recipients with excess funds; (3) PMS requires recipients to report cash disbursements; and (4) PMS has eliminated cash pooling for 83 percent of grants payments. GAO also found that, while HHS grant payment operations have improved considerably, some problems remain, since PMS does not: (1) account for substantial amounts of receivables due from recipients; (2) adjust cash advance estimates to reflect actual amounts before charging them to HHS appropriations; and (3) have controls in place to ensure timely grant closeout, causing unnecessary delays in returning unused grant funds.