Community Development

About one quarter of the Department of Housing and Urban Development's (HUD) budget--nearly $6 billion in fiscal year 1998-- is devoted to four formula block grant programs that support community development by financing projects and services for local residents. In 1995, HUD revamped its approach to managing these formula block grants. Under the Grants Management System, compliance monitoring of grants was deemphasized and grantees were required to enter information into HUD's Integrated Disbursement and Information System. Although the Grants Management System provides a logical, structured approach to managing the four programs, monitoring by HUD falls short of ensuring that the program's objectives are being met and that grantees are managing their funds appropriately. The five field offices GAO visited do on-site monitoring infrequently because of a shift to a more collaborative relationship with the grantees and because of a lack of resources. Moreover, on-site monitoring rarely targets the grantees that receive the poorest evaluations from the field offices, and this monitoring is neither uniform nor comprehensive because the field offices lack guidance. The reviews of some grantees by GAO and other have found significant problems in grantees' finances and performance, calling into question the integrity of the programs. For its part, the Integrated Disbursement and Information System does not provide HUD with the information it needs to accurately assess grantees' performance and thus does not compensate for breakdowns in monitoring. Fraught with major design flaws, the information system makes the process for establishing and maintaining accounts difficult and provides ample opportunity for major problems with entering data, does not allow problems to be corrected easily, cannot track the program income from the revolving fund that grantees establish, does not provide timely and accurate information, and has difficulty producing reports. Also, security controls for the information system are weak. This testimony summarizes the April 1999 GAO report, GAO/RCED-99-98.

GAO noted that: (1) while the Grants Management System provides a logical, structured approach to managing the four block grant programs, HUD's implementation of the system--including on-site monitoring of grantees and IDIS--does not ensure that the programs' objectives are being met and that grantees are managing their funds appropriately; (2) consequently, GAO's review and those by HUD's Inspector General have identified significant problems that call into question the integrity of the four block grant programs; (3) with respect to monitoring, the five field offices GAO visited (accounting for about 20 percent of all block grant funds in fiscal year 1998, or $1.18 billion) conduct on-site monitoring infrequently; (4) on-site monitoring seldom targets the grantees that receive the poorest evaluations from the field offices compared with other grantees, and this monitoring is not uniform or comprehensive because the field offices lack specific guidance; (5) for its part, IDIS does not provide the information the Department needs to accurately assess grantees' performance and thus does not compensate for the shortcomings in monitoring; (6) because of major design flaws, the information system makes the process for establishing and maintaining accounts difficult and provides ample opportunity for major problems with entering data, does not allow such problems to be corrected easily, cannot track the program income from the revolving funds that grantees establish, does not provide timely and accurate information, and has difficulty producing reports; and (7) compounding these problems, the system's security controls are weak and therefore do not ensure that the system is safe from fraud and abuse.