How Federal Agencies Can Avoid "Pay and Chase"

Grant disbursements have continuously increased, year over year, in proportion to federal spending. From 2020-2022, the federal government provided ~$4.6 trillion to help the nation respond to and recover from the COVID-19 pandemic.¹ During this period, federal agencies were entrusted with the responsibility of quickly disbursing these grant funds, while balancing risks associated with payment integrity. In FY22 alone, ~$247 billion improper and unknown payments were reported by federal agencies. This overall amount may become a loss to the federal government.²

What is Pay and Chase?

Pay and Chase refers to a process where grant recipients are awarded and receive grant funds prior to the grant-making agency confirming eligibility. If fraud or improper payments are discovered during this review, the grant-making agencies may be required to ”chase” these funds in order to recoup the payment.

What Causes Pay and Chase?

Pay and Chase refers to a process where grant recipients are awarded and receive grant funds prior to the grant-making agency confirming eligibility. If fraud or improper payments are discovered during this review, the grant-making agencies may be required to "chase" these funds in order to recoup the payment.

There are multiple factors that can contribute to a Pay and Chase scenario. Grantors may not have the time, resources, or training necessary to review and verify grantee eligibility prior to funding an award. Once the award is funded, new rules, waivers, and requirements may be rolled out at various phases of the grant life cycle, which can revise previous eligibility and allowability standards.

Consequences of Pay and Chase

• Awarded funds being used outside of the intended purpose
• Concerns around the awarding agencies’ program integrity from regulatory bodies and compliance issues with regulations (e.g., OMB Circular A-123 Appendix A)
• Increased time and effort toward risk mitigation measures, which result in administrative burden and significant costs for the grantor
• Bad publicity/compromised reputation  amongst the U.S. population

Solutions to Mitigate Pay and Chase

The key to mitigating a Pay and Chase scenario is establishing repeatable processes and tools that can be applied quickly during the award phase. Some example methods include:

Standardized Risk and Control Matrix (RCM) — Establish a standardized set of risk factors and internal controls that cover areas such as eligibility determination, disbursement tracking, data reporting, and monitoring. In alignment with GAO-23-105876, the control activities should be preventative in nature and target the prepayment process.³ By adopting this approach, federal financial assistance staff will eliminate the effort used to construct and validate a new RCM each time one is required and can, instead, customize the standard RCM to meet specified needs.

Standard Operating Procedures (SOP) — Develop SOPs that include operational best practices from prior programs and cite examples of potential fraud schemes. For example, the SOP may walk the application reviewer through the process of validating applications against the Do Not Pay system, which checks various data sources to verify the eligibility of a vendor, grantee, loan recipient, or beneficiary to receive federal payments.⁴ Such SOPs help to enable federal financial assistance staff to independently complete their evaluation and compliance actions prior to awarding new funding. Additionally, these SOPs should be frequently reviewed to ensure the information is relevant and up to date.

Training — Maintain a standardized training method that concentrates on topics such as emerging guidance, new grant requirements, corrective action plans, and the appropriate use of current agency technologies such as grant systems, financial systems, etc. Agencies should seek to provide such training at the beginning of every new program to enable all federal financial assistance staff to perform their duties efficiently and effectively.

Technology and Automation — Utilize readily available technologies and tools to perform automated controls that assist in critical processes like determining applicant eligibility, validating entity and account information, and performing checks on publicly available databases to confirm the applicant is not flagged for malfeasance, inadequate performance, or other detrimental financial actions. For example, the automated tool may be used to detect incorrect financial information in an application by comparing the reported Adjusted Gross Income against other income documentation submitted with the application, such as tax returns or Form W-2s.  Grantors should reference the digital identity control guidance for government information systems published by the National Institute of Standards and Technology (NIST) and the SP 800-53, “Security and Privacy Controls for Information Systems and Organizations” for best practices when developing these automated controls.

Grantors should evaluate all aforementioned methods in conjunction with the U.S. Government Accountability Office Report “A Framework for Managing Improper Payments in Emergency Assistance Programs.”⁵

How Guidehouse Can Help

Guidehouse is well-positioned to help clients manage their awards, due to our:

• Deep expertise in a broad range of sectors that enables us to provide a tailored strategy based on knowledge of the industry and the specific needs of a client
• Proven track record working with federal awarding agencies, state and local entities, and grant recipients across the full grant’s life cycle
• Unique combination of technology and analytics, industry, risk, and compliance experience

Guidehouse employs a team of talented grants experts who have extensive experience working with and connecting all grant stakeholders to address their challenges through: 

• Implementing leading practices and technologies to reduce burden
• Increasing process automation and machine-readable data to improve transparency and increase reliability
• Understanding governmentwide requirements to develop standardized processes
• Developing and executing assessments to manage risk
• Providing analytics to “tell the story” of programs and measure impact

This article is authored by Vasanth Ganesan, Kenisha Malcolm, and Blake Monroe with contributions from Melissa Campbell and Chris Barrazotto.