IN FISCAL 1979, FEDERAL GRANTS WILL TOTAL ABOUT $85 BILLION. THE GOVERNMENT ACCOUNTING OFFICE (GAO), IN ITS INVESTIGATION OF GRANT AUDITS, FOUND THAT FEDERAL AGENCIES' APPROACHES TO GRANT AUDITING ARE NOT COORDINATED AND DO NOT PROVIDE EFFECTIVE SURVEILLANCE OF THESE PUBLIC FUNDS OR OPTIMIZE THE USE OF AUDIT RESOURCES. THE GENERAL INEFFECTIVENESS OF PAST EFFORTS TO IMPROVE GRANT AUDITING IS CAUSED BY SEVERAL MAJOR FACTORS. INFLEXIBILITIES AND INCONSISTENCIES IN GRANT AUDIT LAWS AND AGENCY REGULATIONS ARE ONE OF THESE. ANOTHER IS GRANT AUDIT LAWS AND AGENCY REGULATIONS. FEDERAL APPROACHES TO GRANT AUDITING THAT ALLOW EACH FEDERAL AGENCY TO ISSUE GUIDELINES AND CONDUCT SPECIFIC GRANT AUDITS TO MEET ITS OWN NEEDS WITHOUT COORDINATING THE WORK WITH OTHER AGENCIES. THE POOR USE AND POSSIBLE SHORTAGE OF AUDIT RESOURCES COMPLICATES THE PROBLEM, AS DOES THE FAILURE OF THE GOVERNMENT TO SEE THAT ITS GUARANTEES MAKE OR HAVE AUDITS MADE THAT SATISFY FEDERAL NEEDS. GAO BELIEVES THAT THE CONTINUING PROBLEMS IN GRANT AUDITING WILL ONLY BE SOLVED BY AN OVERHAUL OF EXISTING FEDERAL LAWS, POLICIES, AND PRACTICES. A MORE FLEXIBLE APPROACH NEEDS TO BE ESTABLISHED AND NEW STRUCTURES NEED TO BE DEVELOPED FOR THE CONDUCT OF COORDINATED SINGLE AUDITS OF GRANTEE INSTITUTIONS. CONGRESS SHOULD ENACT NEW GRANT AUDIT LEGISLATION, AND THE OFFICE OF MANAGEMENT AND BUDGET (OMB) SHOULD STRENGTHEN ITS POLICIES TO INSTITUTE THIS APPROACH. FOOTNOTES AND A LIST OF ABBREVIATIONS ARE INCLUDED. APPENDIXES CONTAIN MATERIAL ON OMB COMMENTS, A LIST OF PROGRAMS FROM WHICH GAO SELECTED RECIPIENTS TO TEST AUDIT COVERAGE, AND A CHART SHOWING GRANT AUDIT RESPONSIBILITIES AND STAFFING. (AUTHOR ABSTRACT MODIFIED--PRG)