THE PRESENT SYSTEM OF AUDITING FEDERAL GRANTS DOES NOT GUARD AGAINST MISUSE OF FUNDS, AS DEMONSTRATED IN A GENERAL ACCOUNTING OFFICE (GAO) REVIEW OF 73 GRANT RECIPIENTS WHICH FOUND THAT 80 PERCENT OF THEIR FEDERAL FUNDS WERE NOT AUDITED BY GRANTOR AGENCIES AND THAT THE NARROW FOCUS OF AUDITS PREVENTED AUDITORS FROM DETERMINING WHOSE FUNDS OR ASSETS THEY WERE REVIEWING. MANY RECIPIENTS WERE AUDITED REPEATEDLY WITH NO ADDITIONAL BENEFIT TO THE GOVERNMENT. THE CONGRESSIONAL SUBCOMMITTEE ATTRIBUTED GRANT AUDITING PROBLEMS TO THE PRACTICE OF EACH AGENCY AUDITING ITS OWN GRANTS RATHER THAN COORDINATING WITH OTHER AGENCIES WHO PROVIDED FUNDS TO THE SAME RECIPIENT. INCONSISTENT LAWS AND REGULATIONS CONTRIBUTED TO DIFFICULTIES ALONG WITH INADEQUATE AUDIT RESOURCES. WITNESSES DURING THE HEARINGS SUPPORTED THE CONCEPT OF SINGLE, COORDINATED AUDITS OF GRANT RECIPIENTS ON A GOVERNMENTWIDE BASIS FOR ALL GRANTEES. FURTHERMORE, THEY AGREED THAT THE OFFICE OF MANAGEMENT AND BUDGET (OMB) SHOULD IMPLEMENT THIS APPROACH BY DESIGNATING FEDERAL AGENCIES THAT WILL HAVE RESPONSIBILITY FOR THE SINGLE AUDIT OF SELECTED GRANT RECIPIENTS. OMB IS ALSO WORKING WITH FEDERAL AGENCIES AND GAO TO DEVELOP A STANDARD AUDIT GUIDE WITH PARTICULAR ATTENTION TO COMPLIANCE FACTORS. A CENTRALIZED SYSTEM TO IDENTIFY MULTIFUNDED RECIPIENTS IS ALSO NEEDED. OMB AND OTHER AGENCIES SHOULD MAKE MAXIMUM USE OF AUDITS CONDUCTED BY STATE, LOCAL, AND INDEPENDENT AUDITORS. OMB DID NOT CONCUR WITH GAO'S RECOMMENDATION THAT PAYMENTS FOR AUDITS NOT MEETING FEDERAL AUDITING GUIDELINES BE WITHHELD, BUT DID AGREE THAT SOME TYPE OF SANCTION WAS NEEDED. SINCE WITNESSES CONTENDED THAT FEDERAL RESOURCES ARE INADEQUATE, IT MUST BE DETERMINED IF FEDERAL AUDITING ORGANIZATIONS ARE CAPABLE OF IMPLEMENTING THE SINGLE AUDIT CONCEPT. THE COMMITTEE EMPHASIZED THAT IMPROVEMENTS IN AUDITING FEDERAL GRANTS CANNOT BE ACHIEVED UNLESS OMB PROVIDES STRONG LEADERSHIP AND DIRECTION. (AUTHOR ABSTRACT MODIFIED)