Community Development Block Grants
Program Offers Recipients Flexibility but Oversight Can Be Improved Gao ID: GAO-06-732 July 28, 2006The Community Development Block Grant (CDBG) program provides funding for housing, economic development, and other community development activities. In fiscal year 2006, Congress appropriated about $4.2 billion for the program. Administered by the Department of Housing and Urban Development (HUD), the CDBG program provides funding to metropolitan cities and urban counties, known as entitlement communities, and to states for distribution to nonentitlement communities. This report discusses (1) how recipients use CDBG funds, including the extent to which they comply with spending limits, (2) how HUD monitors recipients' use of CDBG funds, and (3) how HUD holds recipients that have not complied with CDBG program requirements accountable. To address these objectives, we visited 20 recipients, analyzed HUD data, and interviewed HUD staff.
HUD data show that CDBG recipients spend the largest percentage of their grants on public improvements (such as water lines and streets) and housing, but HUD does not centrally maintain the data needed to determine compliance with statutory spending limits. Due to the lack of centralized data, GAO was not able to determine the extent to which all recipients have complied with statutory spending limits on public services (such as health and senior services) and administration and planning. However, data provided by HUD for the 100 most populous entitlement communities, which received about one-third of the CDBG funds allocated in fiscal year 2006, showed that not all of these entitlement communities complied with the limits. Of the 100 communities, 3 exceeded their public service spending limit, and 1 exceeded the administration and planning spending limit. Given that entitlement communities collectively spend at or close to the limits, it is important for HUD to be able to report on the extent of their individual compliance with these limits. HUD uses a risk-based approach to monitor CDBG recipients; however, it has not developed a plan to replace monitoring staff or fully involved its field staff in plans to redesign an information system they use to monitor recipients. HUD's monitoring strategy calls for its field offices to consider various risk factors when determining which recipients to review because it has limited monitoring resources, and its workload has increased as its staffing levels have decreased. For example, 13 of the 42 field offices that oversee CDBG recipients do not have a financial specialist to evaluate the financial operations of each recipient, and 39 percent of CDBG monitoring staff is eligible to retire within the next 3 years. Despite these statistics, HUD has not developed a plan to hire staff with needed skills or manage upcoming retirements. Finally, although the Integrated Disbursement and Information System (IDIS) is a tool that HUD field staff use to monitor, HUD headquarters has solicited little input from them on efforts to redesign IDIS. Although it has issued a clear policy stating what actions it will take when entitlement communities fail to meet the statutory requirement that funds be spent in a timely manner, HUD has not developed similar guidance establishing a consistent framework for holding CDBG recipients accountable for deficiencies identified during monitoring. For deficiencies other than being slow to expend funds, HUD has the flexibility to institute sanctions ranging from issuing a warning letter to advising the recipient to return funds. Although its field offices have great flexibility when taking sanctions, HUD has not issued guidance establishing a framework to ensure that they are treating recipients that commit similar infractions equitably. We found instances in fiscal year 2005 where treatment seemed inconsistent. For example, several field offices found that recipients had not documented that a funded activity met any one of the program's three national objectives, but took different actions. In the continued absence of guidance, HUD lacks a means to better ensure consistency in the sanctioning process.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-732, Community Development Block Grants: Program Offers Recipients Flexibility but Oversight Can Be Improved
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Report to Congressional Committees:
July 2006:
Community Development Block Grants:
Program Offers Recipients Flexibility but Oversight Can Be Improved:
GAO-06-732:
GAO Highlights:
Highlights of GAO-06-732, a report to congressional committees
Why GAO Did This Study:
The Community Development Block Grant (CDBG) program provides funding
for housing, economic development, and other community development
activities. In fiscal year 2006, Congress appropriated about $4.2
billion for the program. Administered by the Department of Housing and
Urban Development (HUD), the CDBG program provides funding to
metropolitan cities and urban counties, known as entitlement
communities, and to states for distribution to nonentitlement
communities. This report discusses (1) how recipients use CDBG funds,
including the extent to which they comply with spending limits, (2) how
HUD monitors recipients‘ use of CDBG funds, and (3) how HUD holds
recipients that have not complied with CDBG program requirements
accountable. To address these objectives, we visited 20 recipients,
analyzed HUD data, and interviewed HUD staff.
What GAO Found:
HUD data show that CDBG recipients spend the largest percentage of
their grants on public improvements (such as water lines and streets)
and housing, but HUD does not centrally maintain the data needed to
determine compliance with statutory spending limits. Due to the lack of
centralized data, GAO was not able to determine the extent to which all
recipients have complied with statutory spending limits on public
services (such as health and senior services) and administration and
planning. However, data provided by HUD for the 100 most populous
entitlement communities, which received about one-third of the CDBG
funds allocated in fiscal year 2006, showed that not all of these
entitlement communities complied with the limits. Of the 100
communities, 3 exceeded their public service spending limit, and 1
exceeded the administration and planning spending limit. Given that
entitlement communities collectively spend at or close to the limits,
it is important for HUD to be able to report on the extent of their
individual compliance with these limits.
HUD uses a risk-based approach to monitor CDBG recipients; however, it
has not developed a plan to replace monitoring staff or fully involved
its field staff in plans to redesign an information system they use to
monitor recipients. HUD‘s monitoring strategy calls for its field
offices to consider various risk factors when determining which
recipients to review because it has limited monitoring resources, and
its workload has increased as its staffing levels have decreased. For
example, 13 of the 42 field offices that oversee CDBG recipients do not
have a financial specialist to evaluate the financial operations of
each recipient, and 39 percent of CDBG monitoring staff is eligible to
retire within the next 3 years. Despite these statistics, HUD has not
developed a plan to hire staff with needed skills or manage upcoming
retirements. Finally, although the Integrated Disbursement and
Information System (IDIS) is a tool that HUD field staff use to
monitor, HUD headquarters has solicited little input from them on
efforts to redesign IDIS.
Although it has issued a clear policy stating what actions it will take
when entitlement communities fail to meet the statutory requirement
that funds be spent in a timely manner, HUD has not developed similar
guidance establishing a consistent framework for holding CDBG
recipients accountable for deficiencies identified during monitoring.
For deficiencies other than being slow to expend funds, HUD has the
flexibility to institute sanctions ranging from issuing a warning
letter to advising the recipient to return funds. Although its field
offices have great flexibility when taking sanctions, HUD has not
issued guidance establishing a framework to ensure that they are
treating recipients that commit similar infractions equitably. We found
instances in fiscal year 2005 where treatment seemed inconsistent. For
example, several field offices found that recipients had not documented
that a funded activity met any one of the program‘s three national
objectives, but took different actions. In the continued absence of
guidance, HUD lacks a means to better ensure consistency in the
sanctioning process.
What GAO Recommends:
GAO recommends that HUD centrally maintain the data needed to determine
compliance with statutory spending limits, develop a plan for replacing
an aging workforce, solicit additional input from its field staff on
user requirements for IDIS, and consider developing guidance on
sanctioning CDBG recipients. In responding to a draft of this report,
HUD stated that, overall, it agreed with GAO‘s findings, conclusions,
and recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-732].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William Shear at (202)
512-8678 or shearw@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Recipients Fund a Variety of Activities, but HUD Lacks Centralized Data
Showing Compliance with Statutory Spending Limits:
Although HUD Uses a Risk-Based Approach to Monitor CDBG Recipients, It
Lacks a Plan to Replace Monitoring Staff and Has Not Fully Involved
Field Staff in Its Plans to Redesign IDIS:
HUD Has Implemented a Clear Timeliness Policy, but Has Not Issued
Similar Guidance on Other Enforcement Actions:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Selected States' Methods of Distributing Funds:
Appendix III: Activities Funded by the Recipients That GAO Visited:
Public Improvements:
Housing:
Public Services:
Economic Development:
Acquisition:
Appendix IV: Comments from the Department of Housing and Urban
Development:
GAO Comments:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Categories of Eligible CDBG Activities:
Table 2: Percentage of CDBG Recipients Monitored, FY 2001-2005:
Table 3: Number of Times CDBG Recipients Were Monitored, FY 2001-2005:
Table 4: Sanctions Taken against CDBG Recipients, FY 2003 - 2005:
Table 5: 20 Recipients That GAO Visited:
Table 6: Information on How 10 States Distribute Their CDBG Funds:
Figures:
Figure 1: CDBG Appropriations, 1990 - 2006:
Figure 2: FY 2005 CDBG Expenditures, All Recipients:
Figure 3: FY 2005 CDBG Expenditures, Entitlement Communities and
States:
Figure 4: Activities Funded by Recipients That We Visited:
Figure 5: FY 2005 CDBG Expenditures, by National Objective:
Figure 6: Number of Recipients Eligible to Use Alternative Criteria for
Defining Low-and Moderate-Income Areas:
Figure 7: Sanctions Taken as Result of FY 2005 Monitoring Reviews, by
Type:
Figure 8: Boys and Girls Club in West Point, Georgia:
Figure 9: Renovated Briggs Playground Pool in Attleboro, Massachusetts:
Figure 10: Corron Farm Park in Kane County, Illinois:
Figure 11: Single Family Housing Rehabilitation in Greeley, Colorado:
Figure 12: Loaves and Fishes Community Food Pantry in Naperville,
Illinois:
Figure 13: Heartland Financial Building in Dubuque, Iowa:
Abbreviations:
CDBG: Community Development Block Grant Program:
CPD: Office of Community Planning and Development:
ESG: Emergency Shelter Grants Program:
GAO: Government Accountability Office:
GMP: Grants Management Process System:
HOME: HOME Investment Partnerships Program:
HOPWA: Housing Opportunities for Persons with AIDS Program:
HUD: Department of Housing and Urban Development:
IDIS: Integrated Disbursement and Information System:
OMB: Office of Management and Budget:
PART: Program Assessment Rating Tool:
July 28, 2006:
The Honorable Robert Ney:
Chairman, Subcommittee on Housing and Community Opportunity:
Committee on Financial Services:
House of Representatives:
The Honorable Michael R. Turner:
Chairman, Subcommittee on Federalism and the Census:
Committee on Government Reform:
House of Representatives:
The Honorable Tom A. Coburn:
Chairman, Subcommittee on Federal Financial Management, Government
Information, and International Security:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Community Development Block Grant (CDBG) program is the federal
government's principal community development program. It provides
funding for housing, economic development, neighborhood revitalization,
and other community development activities. In fiscal year 2006,
Congress appropriated approximately $4.2 billion for the program.
Administered by the Department of Housing and Urban Development (HUD),
the CDBG program provides funding to metropolitan cities and urban
counties, known as entitlement communities, and to states for
distribution to nonentitlement communities. The program provides annual
grants on a formula basis that takes into account population, poverty,
housing overcrowding, the age of the housing, and any change in an
area's growth in comparison with that of other areas. The activities
undertaken with program funds must (1) principally benefit low-and
moderate-income persons, (2) aid in the prevention or elimination of
slums or blight, or (3) meet urgent community development needs.
The CDBG program has undergone few fundamental changes since Congress
created it in 1974. However, the administration's fiscal year 2006
budget proposed consolidating the program with other community and
economic development programs in the Department of Commerce and
reducing overall funding. Congress did not act on this proposal, but
the administration proposed additional program reforms and a 27 percent
funding reduction in its fiscal year 2007 budget. Because of these
proposed changes, you requested that we review the use of CDBG funds
and how HUD oversees the program. Specifically, this report discusses
(1) how recipients have used CDBG funds, including the extent to which
they have funded activities that meet national program objectives,
complied with spending limits, and reported accomplishments achieved
with funds; (2) how HUD has monitored recipients' use of CDBG funds;
and (3) how HUD has held recipients that have not complied with CDBG
program requirements accountable for their actions.
To address these objectives, we visited 20 recipients--4 states, 2
urban counties, and 14 cities.[Footnote 1] We selected these recipients
based on factors such as geographic dispersion, funding level, and
need.[Footnote 2] During these visits, we interviewed staff, toured
funded projects, and reviewed 144 recipient files. We also visited four
nonentitlement communities. We analyzed Integrated Disbursement and
Information System (IDIS) data on expenditures and Grants Management
Process (GMP) System data on the extent of HUD monitoring. We
determined that the data were sufficiently reliable for the purposes of
this report. Finally, we reviewed HUD's program regulations and
guidance and interviewed headquarters and field staff. We performed our
work from July 2005 to July 2006 in accordance with generally accepted
government auditing standards. Appendix I provides additional details
on our scope and methodology.
Results in Brief:
HUD data show that CDBG recipients spend the largest percentage of
their grants on public improvements (such as water lines and street
improvements), housing, and administration and planning, but HUD does
not centrally maintain the data needed to determine compliance with
statutory spending limits on public services (such as health and senior
services) and on administration and planning. In terms of the
activities most often funded, some differences exist in how entitlement
communities and states have used their funds. In fiscal year 2005, HUD
data showed that entitlement communities--cities and urban counties--
spent 27 percent of their funds on housing, 24 percent on public
improvements, and 17 percent on administration and planning. Other
activities they funded to a lesser extent included public services,
acquisition of property, and economic development. During that same
time period, HUD data showed that the nonentitlement communities funded
by states spent 54 percent of their funds on public improvements, 17
percent on housing, and 15 percent on economic development. Because
HUD's information systems do not maintain a record of data adjustments
needed to calculate compliance, we were not able to determine the
extent to which all recipients have complied with the statutory
spending limits on public services and administration and planning.
However, data collected by HUD from its field offices for the 100 most
populous entitlement communities showed that not all complied with the
limits.[Footnote 3] These 100 entitlement communities received about
one-third of the CDBG funds allocated in fiscal year 2006. Of the 100
entitlement communities, 3 exceeded their public service spending
limit, and 1 exceeded the administration and planning spending limit.
Given that HUD data show that entitlement communities collectively
spend at or close to the limits, it is important for HUD to be able to
report on the extent of their individual compliance with these limits.
HUD uses a risk-based approach to monitor CDBG recipients; however, it
has not developed a plan to ensure that it has enough staff with the
skills needed to conduct monitoring or fully involved its field staff
in plans to redesign an information system they use to monitor
recipients. Consistent with our internal control standards, HUD has
developed a formal risk analysis process for its field offices to
follow when determining which recipients to review.[Footnote 4] The
factors considered include the size of the recipient's grant, the
complexity of the activities that a recipient undertakes, and how long
it has been since the department last reviewed a recipient. HUD's field
offices generally followed this process when determining which
recipients to review in fiscal year 2005. Our analysis of the extent of
HUD monitoring showed that HUD reviewed most, but not all, CDBG
recipients at least once in the 5-year period from fiscal year 2001
through fiscal year 2005. Specifically, HUD reviewed all but 255
recipients in fiscal years 2003 through 2005. These 255 recipients
received about $525 million in fiscal year 2005 funding. During the 5-
year period from fiscal year 2001 through 2005, HUD did not monitor 84
recipients that received a total of about $132 million in fiscal year
2005. HUD uses a risk-based approach because it has limited staff to
devote to CDBG monitoring and its CDBG workload has increased as its
staffing levels have decreased. For example, 13 of the 42 field offices
overseeing CDBG recipients do not have a financial specialist to
evaluate the financial operations of each recipient, and 39 percent of
CDBG monitoring staff is eligible to retire within the next 3 years.
Despite these statistics, HUD has not developed a plan to hire staff
with needed skills or help manage upcoming retirements. Further, IDIS-
-the system that HUD uses to conduct on-site and off-site monitoring--
does not contain all of the information that HUD needs to monitor
recipients' performance. For example, HUD field staff told us that the
data in IDIS are not always current because some recipients do not
update it quarterly, as HUD recommends. HUD is currently redesigning
IDIS, but it has solicited limited input from its field staff on its
development plans.
Although it has issued a clear policy stating what actions it will take
when entitlement communities fail to meet the statutory requirement
that funds be spent in a timely manner, HUD has not developed similar
guidance establishing a consistent framework for holding CDBG
recipients accountable for deficiencies identified during monitoring.
HUD has set a timeliness standard for entitlement communities and
established a grant reduction policy for recipients that exceed the
standard. For deficiencies other than being slow to expend funds (such
as funding an ineligible activity or failing to document that an
activity meets one of the program's national objectives), HUD has the
flexibility to assess sanctions ranging from issuing a warning letter
to advising the recipient to return CDBG funds. Although its field
offices have great flexibility when making sanctions, HUD has not
issued guidance establishing a consistent framework to ensure that
these offices are treating recipients that commit similar infractions
equitably. In conducting our work, we found instances in fiscal year
2005 where findings that appeared to be similar were associated with
different enforcement actions. For example, several field offices found
that recipients had not documented that a funded activity met a
national objective, but took different actions. One office advised the
recipient to pay back funds. If the recipient could not provide further
documentation, the second office planned to advise the recipient to
provide written assurance that it would not fund that type of activity
again, while the third office stated that it might disallow the
expenditures. Treatment can continue to appear inconsistent in the
absence of guidance to better ensure consistency and transparency in
the sanctioning process.
This report contains four recommendations designed to improve HUD's
processes for monitoring communities' use of CDBG funds. We recommend
that HUD centrally maintain the data needed to determine compliance
with statutory spending limits, develop a plan for replacing an aging
workforce, solicit additional input from its field staff on the user
requirements for IDIS, and consider developing guidance on sanctioning
CDBG recipients. We provided a draft of this report to HUD for its
review and comment. In response, HUD provided a letter with comments
that are technical in nature. In addition, we received oral comments
from the Office of Community Planning and Development's Comptroller
stating that, overall, HUD agrees with our findings, conclusions, and
recommendations.
Background:
The Housing and Community Development Act of 1974 combined seven
categorical programs to form the CDBG program. The objective of the
program is to develop viable urban communities by providing decent
housing and a suitable living environment and expanding economic
opportunities, principally for persons of low and moderate income.
Program funds can be used on housing, economic development,
neighborhood revitalization, and other community development
activities. As shown in figure 1, CDBG appropriations have fluctuated
over time.
Figure 1: CDBG Appropriations, 1990 - 2006:
[See PDF for image]
Source: HUD appropriations data.
Note: The formula allocation represents the portion of CDBG funds that
is available for distribution to entitlement communities and states
after Congress sets aside funds for special purposes.
[End of figure]
After funds are set aside for special purposes such as the Indian CDBG
program and allocated to insular areas, the annual appropriation for
CDBG formula funding is split so that 70 percent is allocated among
eligible metropolitan cities and counties (referred to as entitlement
communities) and 30 percent among the states to serve nonentitlement
communities.[Footnote 5] Entitlement communities are (1) principal
cities of metropolitan areas, (2) other metropolitan cities with
populations of at least 50,000; and (3) qualified urban counties with
populations of at least 200,000 (excluding the population of entitled
cities).[Footnote 6] Currently, 1,128 entitlement communities receive
CDBG funds, which is up from 866 entitlement communities in fiscal year
1990; 50 states also receive CDBG funds.[Footnote 7] HUD distributes
funds to entitlement communities and states based on the higher yield
from one of two weighted formulas that consider factors such as
population, poverty, housing overcrowding, the age of the housing, and
any change in an area's growth in comparison with that of other areas.
HUD ensures that the total amount awarded is within the available
appropriation by reducing the individual grants on a pro rata basis.
Entitlement communities may carry out activities directly or may award
funds to subrecipients to carry out agreed-upon activities.
Subrecipients can be governmental agencies such as public housing
authorities or park districts; private nonprofits such as private
social service agencies, community development corporations, or
operators of homeless shelters; and certain private, for-profit
entities that facilitate economic development. Whenever an entitlement
community uses a subrecipient, it must enter into a signed, written
agreement with that subrecipient that includes a statement of work--
which describes the work to be performed, the schedule for completing
the work, and the budget--and the recipient's recordkeeping and
reporting requirements.
Every activity funded by entitlement communities and states must meet
one of three national program objectives. Activities undertaken must
(1) principally benefit low-and moderate-income persons, (2) aid in the
prevention or elimination of slums or blight, or (3) meet urgent
community development needs. Recipients must use at least 70 percent of
their funds for activities that principally benefit low-and moderate-
income people over a period of 1, 2, or 3 years, as specified by the
recipient. Generally, an activity is considered to principally benefit
low-and moderate-income people if 51 percent or more of those
benefiting meet the definition. However, the CDBG statute includes an
exception that enables certain entitlement communities to utilize CDBG
funds for "area benefit activities" in census tracts having a low-and
moderate-income population of less than 51 percent.[Footnote 8] Area
benefit activities are activities that benefit all of the residents in
a particular geographic area, such as a park, community center, or
streets. Entitlement communities that may utilize this exception are
those that have a limited number of census tracts with a majority low-
and moderate-income population, and the exception extends to the 25
percent of census tracts within the entitlement community's boundaries
having the highest percentages of low-and moderate-income persons.
Recipients can only use their CDBG funds on 26 eligible activities. For
reporting purposes, HUD classifies these eligible activities into eight
broad categories, as defined in table 1. Some of the activities that
can be funded, such as loans for housing rehabilitation, generate
program income for recipients that must be used to fund additional
activities. There are statutory limitations on the amounts that
recipients may spend in two specific areas. Pursuant to provisions in
annual appropriations laws, recipients may only use up to 20 percent of
their annual grant plus program income on planning and administrative
activities. Recipients may also only use up to 15 percent of their
annual grant plus program income on public service activities.[Footnote
9] Entitlement communities comply with these requirements by limiting
the amount of funds they obligate for these activities during the
program year, while states limit the amount they spend on these
activities over the life of the grant.
Table 1: Categories of Eligible CDBG Activities:
Category: Acquisition;
Description: Includes the acquisition of real property, clearance and
demolition, and relocation.
Category: Administration and planning;
Description: Includes planning, general program administration, and
indirect costs.
Category: Economic development;
Description: Includes financial assistance to for-profit businesses and
the rehabilitation of publicly or privately owned commercial or
industrial property.
Category: Housing;
Description: Includes the rehabilitation of residential properties,
direct homeownership assistance, and code enforcement.
Category: Public improvements;
Description: Includes public facilities such as homeless shelters and
neighborhood facilities and improvements to water and sewer lines and
streets.
Category: Public services;
Description: Includes health services, senior services, child care
services, and employment training.
Category: Repayments of Section 108 loans;
Description: Repayments of loans obtained using current and future CDBG
allocations as collateral.
Category: Other;
Description: Includes nonprofit organization capacity building and
assistance to institutions of higher learning.
Source: HUD data.
[End of table]
Recipients must submit a strategic plan that addresses the housing,
homeless, and community development needs in their jurisdictions at
least once every 5 years. The plan covers CDBG and three other formula
grant programs administered by HUD--the HOME Investment Partnerships
(HOME) Program, the Emergency Shelter Grants (ESG) Program, and the
Housing Opportunities for Persons with AIDS (HOPWA) Program.[Footnote
10] Annually, recipients must submit an action plan that identifies the
activities they will undertake to meet the objectives in their
strategic plans.[Footnote 11] At the end of each year, recipients must
submit to HUD an annual performance report detailing progress they have
made in meeting the goals and objectives outlined in their strategic
and action plans. HUD staff use detailed checklists to review
recipients' strategic and annual actions plans as well as their annual
performance reports.
HUD's Office of Community Planning and Development (CPD) administers
the CDBG program through program offices at HUD headquarters and 42
field offices located throughout the United States. The headquarters
offices set program policy, while staff in the 42 field offices monitor
recipients. Each field office is headed by a CPD director. CPD has a
total authorized staff of approximately 800--about 200 at headquarters
and 600 in the field. CPD field offices are responsible for a broad
range of grant management activities that include annual review and
approval of entitlement grantee action plans, preparation and execution
of grant agreements, review of entitlement grantee annual performance
reports, managing homeless program competition to include reviewing
over 4,500 applications; preparing conditional award letters; reviewing
and approving technical submission for conditionally approved grants;
setting up budgets for each grant in Line of Credit Control System;
executing grant agreements and grant closeout activities, providing
technical assistance to entitlement and competitive grantees, and
recapturing unobligated/unexpended grant funds, as well as monitoring
activities.
In September 2005, CPD issued a new monitoring handbook. The handbook
states that monitoring is an integral management control technique and
that the goal of monitoring is to determine compliance, prevent/
identify deficiencies, and design corrective actions to improve or
reinforce program participant performance. It contains two chapters on
monitoring the CDBG program, and these chapters include 29 exhibits for
field office staff to use when monitoring CDBG recipients.
HUD staff use two major information systems to monitor the use of CDBG
funds--IDIS and GMP. Developed in fiscal year 1996, IDIS is a
management information system that consolidates planning and reporting
processes across HUD's four formula grant programs. The recipients use
this system to enter information on their plans, establish projects and
activities to draw down funds, and report accomplishments. The GMP
system, created in fiscal year 1997, records information such as HUD's
monitoring of recipients, provision of technical assistance, and review
of recipients' plans and performance reports. The system is designed
for use by HUD staff to ensure that funds are being expended properly
and to provide information on recipient progress.
In April 1999, we issued a report on HUD's oversight of CDBG and CPD's
three other formula grant programs.[Footnote 12] At that time, we found
that HUD's monitoring did not ensure that the programs' objectives were
being met or that recipients were managing their funds appropriately.
We also noted that IDIS did not provide the information necessary to
accurately assess recipients' performance and thus did not compensate
for HUD's breakdowns in monitoring. Specifically, we reported that IDIS
(1) provided ample opportunity for major problems with data entry and
did not allow such problems to be corrected easily, (2) did not provide
timely and accurate information, and (3) had difficulty producing
reports. Because of the actions HUD took in response to our
recommendations in this report, we removed CPD's programs from our high-
risk list in 2001.[Footnote 13]
We have issued standards for internal control in government that
agencies should follow.[Footnote 14] Internal control helps government
program managers achieve desired results through effective stewardship
of public resources. Internal control standards provide the overall
framework for establishing and maintaining internal control and for
identifying and addressing major performance and management challenges
and areas at greatest risk of fraud, waste, abuse, and mismanagement.
Two of the standards are (1) risk assessment, where risks are
identified and analyzed for their possible effect and (2) monitoring,
which assesses the quality of performance over time and ensures that
findings are promptly resolved. Another standard is control activities
that help ensure that management's directives are carried out. Examples
of such activities include managing an organization's workforce and
establishing and reviewing performance measures and indicators.
Recipients Fund a Variety of Activities, but HUD Lacks Centralized Data
Showing Compliance with Statutory Spending Limits:
While the data that HUD collects on CDBG expenditures show that CDBG
recipients fund a variety of activities, HUD does not centrally
maintain the data needed to determine if recipients are complying with
statutory spending limits. According to HUD's data, CDBG recipients
spend the largest percentage of their funding on public improvements
and housing activities. Further, recipients report that the vast
majority of activities they fund meet the national objective of
principally benefiting low-and moderate-income persons; however, 359
recipients are currently eligible for an exception that allows them to
expand the definition of low-and moderate-income areas. There are
statutory spending limits on public services and administration and
planning, but HUD's information systems do not maintain all the data
needed to determine the extent of compliance with these limits.
Finally, HUD has implemented a new performance measurement system to
improve its ability to obtain consistent data on accomplishments
attained with CDBG funds.
CDBG Recipients Use the Majority of Their Grants to Fund Public
Improvements and Housing Activities:
CDBG recipients spend the largest percentage of their funding on public
improvements and housing activities. In fiscal year 2005, recipients
spent about $4.8 billion in CDBG funds to address a wide range of local
needs. Approximately $508 million (or 10 percent) of these total
expenditures were from program income generated by previous CDBG
activities. As shown in figure 2, CDBG recipients spent 32 percent of
their total funds on public improvements and 25 percent on housing in
fiscal year 2005. Within the category of public improvements,
recipients spent the largest percentage of their funds on water and
sewer improvements. Under the housing category, the single activity
that received the most funding was single-unit residential
rehabilitation.
Figure 2: FY 2005 CDBG Expenditures, All Recipients:
[See PDF for image]
Source: GAO analysis of IDIS data.
Note: Other includes nonprofit organization capacity building and
assistance to institutions of higher learning.
[End of figure]
Although both entitlement communities and states devote large amounts
of funding to public improvements, figure 3 shows some differences in
how they use their CDBG funds. Entitlement communities spend the
largest percentage of their CDBG funds on housing activities. In fiscal
year 2005, entitlement communities spent 27 percent of their CDBG
allocations on housing activities, followed by 24 percent on public
improvements, and 17 percent on administration and planning activities.
In contrast, states distribute over half of their CDBG funds to public
improvements. In fiscal year 2005, states distributed 54 percent of
their funds to public improvements, 17 percent to housing activities,
and 15 percent to economic development. States and entitlement
communities use a similar process to identify CDBG needs, but states
also have to determine how they will distribute their funds to
nonentitlement communities. How states choose to distribute their funds
varies from state to state. For example, Georgia distributes most of
its CDBG funding through a competitive process that funds the best
projects regardless of activity type. Colorado also uses a competitive
process, but it distributes a third of its CDBG funding to housing, a
third to business financing, and a third to public facilities and
community development. Pennsylvania distributes most of its CDBG
funding using a formula method. For examples of how selected states
distribute their CDBG funds, see appendix II.
Figure 3: FY 2005 CDBG Expenditures, Entitlement Communities and
States:
[See PDF for image]
Source: GAO analysis of IDIS data.
[End of figure]
As a result of the flexibility inherent in the CDBG program, the types
of activities that entitlement communities and states fund within each
broad category vary considerably. During our site visits, many of the
recipients we interviewed stated that the flexibility afforded by CDBG
was one of the program's strengths. Figure 4 illustrates the variety of
activities funded by the recipients we visited. More detailed
descriptions of various activities funded by the recipients we visited
can be found in appendix III.
Figure 4: Activities Funded by Recipients That We Visited:
[See PDF for image]
Sources: GAO(top two photos); City of Beliot, Wisconsin (middle two
photos); Civil Technology, Inc. (bottom two photos).
[End of figure]
Almost All Funded Activities Benefit Low-and Moderate-Income People,
but the Criteria for Defining Target Areas Are Allowed to Vary:
Of the three national program objectives, recipients report that the
vast majority of activities they fund under the CDBG program meet the
objective of principally benefiting low-and moderate-income persons.
However, some recipients can use different criteria when defining low-
and moderate-income areas. As shown in figure 5, entitlement
communities reported that 91 percent of the activities they funded in
fiscal year 2005 principally benefited low-and moderate-income persons;
states reported that 96 percent of their activities met this national
objective. The remaining activities funded, excluding activities coded
for administration and planning, sought to eliminate slums or blight,
addressed urgent needs, or were missing a national objective code. For
the small percentage of activities missing a code, we could not
determine which national objective was met. According to a HUD
official, activities missing a national objective code were also
administration and planning activities, however, we could not verify
this statement based on our analysis of HUD's IDIS data.
Figure 5: FY 2005 CDBG Expenditures, by National Objective:
[See PDF for image]
Source: GAO analysis of IDIS data.
Note: Entitlement communities reported that 0.1 percent of the
activities they funded addressed urgent needs. Numbers do not add to
100 percent due to rounding. The figure excludes expenditures coded as
administration and planning, which are presumed to meet a national
objective.
[End of figure]
A special statutory exception allows certain entitlement communities to
count activities that benefit fewer than 51 percent low-and moderate-
income people as meeting the corresponding national objective. This
exception allows the recipient to use the first 25 percent of all
census tracts in its jurisdiction to qualify as meeting the national
objective. For example, if a city or county consists of 40 census
tracts, only 4 of which contain 51 percent or more low-and moderate-
income persons, that recipient can also consider the 6 census tracts
with the next highest percentages of low-and moderate-income persons as
low-and moderate-income census tracts.
Currently, 359 of the 1,128 cities and urban counties that receive CDBG
funds are eligible to use this exception. These recipients' exception
percentages range from a high of 50.9 percent to a low of 18.5 percent.
The exception percentage indicates the minimum percentage of low-and
moderate-income people that must live in an area for an activity funded
in that area to meet the low-and moderate-income national objective. As
shown in figure 6, the majority of recipients eligible for the
exception had an exception percentage higher than 40 percent; 39 CDBG
recipients had a percentage less than 30 percent. Although a recipient
is eligible to use this exception, it may not take advantage of it for
all of the activities it funds. First, the exception only applies when
the activity--such as a park, community center, or streets--serves an
identified geographic area. Many activities, such as public services,
benefit low-and moderate-income people, not an area. Also, in cases
where the recipient has both areas that contain a majority of low-and
moderate-income people and areas that qualify for the exception, it may
choose to fund only activities that are in its areas with a majority of
low-and moderate-income people.
Figure 6: Number of Recipients Eligible to Use Alternative Criteria for
Defining Low-and Moderate-Income Areas:
[See PDF for image]
Source: GAO analysis of HUD data.
[End of figure]
HUD Does Not Centrally Maintain the Data Needed to Determine Compliance
with Statutory Spending Limits on Public Service Activities and
Administration and Planning:
HUD does not centrally maintain the data needed to determine if
entitlement communities and states are complying with the statutory
spending limits on public services and administration and planning.
Information on manual adjustments needed to determine compliance can be
obtained from the field offices but is not readily available. By law,
CDBG recipients may only use up to 15 percent of their funds on public
service activities and up to 20 percent on administration and planning.
We attempted to use the data in IDIS to assess each entitlement
community's compliance with these spending limits but determined that
certain manual adjustments that are needed to complete the calculations
are not saved in IDIS.[Footnote 15] Entitlement communities enter these
manual adjustments into IDIS at the end of each program year for the
sole purpose of creating financial summary reports that show, among
other things, the two spending limit calculations. Entitlement
communities include these reports in the annual performance reports
that they submit to HUD's 42 field offices for review. After they are
prepared, the reports are saved in HUD's mainframe computer for only 5
days due to limited system capacity.
With respect to determining state compliance, data are even more
limited. IDIS does not currently generate reports that show the
spending limit calculations for states. The calculations that are used
to determine an entitlement community's compliance do not work for
states because a state's compliance is determined based on the
percentage of each grant that is spent on public services and
administration and planning instead of the percentage of each program
year's obligations, as is the case for entitlement communities.
Therefore, according to the HUD official that heads the state CDBG
program, field staff currently determine compliance with the spending
limits during on-site monitoring and when grants are fully spent.
However, the official noted that future design enhancements to IDIS
will allow HUD to more easily generate information on state compliance
with these spending limits.
Without a record of data adjustments needed to calculate entitlement
community compliance and data on state compliance, HUD cannot provide
timely assurance that recipients are adhering to the spending limits.
For example, when information on compliance with the administrative and
planning spending limit was recently requested from HUD for a House
report, HUD could not provide data that directly addressed the
request.[Footnote 16] The agency provided the data that were readily
available but noted that the data could not be used to determine
compliance with the spending limit. HUD stated that it would have to
collect additional information on certain manual adjustments to give
the committee a more accurate picture of compliance with the limit.
In the absence of centralized data on all recipients, we requested that
HUD contact its field offices to provide data on the extent to which
the 100 most populous entitlement communities had complied with the
statutory spending limits in program year 2004. These entitlement
communities received about one-third of the CDBG funds allocated in
fiscal year 2006.[Footnote 17] Our analysis of the limited data showed
that not all of these entitlement communities complied with the
statutory spending limits.[Footnote 18] Of the 100 entitlement
communities, 3 exceeded their public service spending limit, and 1
exceeded the administration and planning spending limit. HUD could not
provide similar data on the extent to which individual states have
complied with the spending limits because, as described earlier, IDIS
does not generate reports that track state compliance with the limits.
According to the head of the state CDBG program, compliance with the
limits has never really been a concern for states because they
collectively spend well below the statutory maximums.
Congress Has Provided Some Exceptions to the Public Service Spending
Limit:
Some recipients are allowed, due to a special provision, to use more
than 15 percent of their funds for public services. By law, entitlement
communities that used in excess of 15 percent of CDBG funds received
for public service activities in fiscal year 1982 or 1983 are allowed
to continue to use the higher of the actual dollar amount or percentage
of assistance in either of those years. Due to this provision, a total
of 41 entitlement communities are allowed to use more than the 15
percent they would have been allowed if they were subject to the cap.
For example, the city of Chicago, Illinois is allowed to use $41
million (48 percent of its fiscal year 2006 allocation) for public
services. The city of Seattle, Washington is allowed to use about 36
percent of its CDBG funds for public services. Congress has also
authorized temporary exceptions to the spending limit when warranted by
events affecting a specific community. These temporary exceptions are
for a limited period of time, such as 5 years, and a limited amount,
such as up to 25 percent of their grant amount, unless extended by law.
For instance, the city and county of Los Angeles were allowed to exceed
the limit for a set period of time in the aftermath of the 1992 Los
Angeles civil unrest. Also, in September 2005, HUD issued a suspension
of the limit to enable CDBG recipients to utilize CDBG funds to address
emergency expenses associated with the needs of Hurricane Katrina
evacuees.[Footnote 19]
Not All Staff and Overhead Costs Funded with CDBG Are Subject to the
Planning and Administration Spending Limit:
The expenses subject to the spending limit on administration and
planning do not reflect all of the staff and overhead costs being
funded with CDBG. CDBG recipients are allowed by regulation to
incorporate into individual activity budgets delivery costs such as
architectural and engineering expenses, legal expenses, insurance,
permit fees, taxes, and similar expenses if such expenses are directly
attributable or integral to carrying out an eligible activity. These
expenses are not counted toward the 20 percent administrative and
planning spending limit. With the exception of housing rehabilitation
administration and code enforcement, HUD does not track staff costs
charged to various eligible activities. In fiscal year 2005, CDBG
recipients spent $153 million on housing rehabilitation administration
and $133 million on code enforcement--about 6 percent of total
expenditures. While funds charged to planning and administration are
presumed to meet the program's national objectives, HUD requires
recipients to document that any staff or overhead costs charged to
other eligible activities meet a national objective.
HUD Has Established a New Performance Measurement System to Track
Program Accomplishments:
HUD has established a new performance measurement system to better
track accomplishments achieved with CDBG funds. IDIS currently contains
data on CDBG-funded accomplishments, but the data are incomplete and
inconsistent. First, HUD has not always required recipients to enter
accomplishment data; therefore, data on the older projects are
incomplete. Second, recipients report data differently. For example,
some CDBG recipients report the number of persons served by a CDBG
funded activity, while other recipients report the number of times a
service is provided. In an effort to address these problems, HUD began
verifying the accuracy of CDBG accomplishment data in 2004. To ensure
complete and accurate data, HUD periodically reviews the data that
recipients enter into IDIS for inconsistencies, inaccuracies, and
omissions. HUD then gives the recipients feedback by placing
spreadsheets on the Web for each recipient that indicate the fields in
IDIS that need correction.
To further track program accomplishments, HUD has developed a new
performance measurement system for the CDBG program. In March 2006, HUD
published performance measures developed in conjunction with a working
group comprised of community development organizations. They undertook
this effort in reaction to an OMB finding that the CDBG program was
unable to demonstrate results at the national level.[Footnote 20] HUD's
new outcome performance measurement system has three objectives: (1)
creating suitable living environments, (2) providing decent affordable
housing, and (3) creating economic opportunities. Under these broad
objectives, there are three outcomes: (1) availability and
accessibility, (2) affordability, and (3) sustainability. The specific
outcome indicators that HUD will track include the number of persons
assisted by a public service activity, number of housing units
rehabilitated, and number and types of jobs created. Recipients could
start entering the new performance measurement data in May 2006.
To help recipients implement the new performance measurement system,
HUD has scheduled 15 regional training sessions that will provide
information to recipients on performance measurement principles and the
new outcome framework. The first session was held in May 2006, and the
last session is scheduled for August 2006. According to HUD, the
training sessions will (1) provide information about how recipients can
implement the outcome indicators through their local and state
procedures for data collection and reporting and (2) discuss entry of
the performance data into IDIS. The agenda topics include data quality
and how to measure the outcome of various activities such as housing
and economic development. For this training, HUD has developed a
training manual and guidebook that contains information on measuring
outcomes achieved with CDBG funds. The department has made these
materials available to all recipients on its Web site. At the close of
our review, these activities were too new to assess their
effectiveness.
Although HUD Uses a Risk-Based Approach to Monitor CDBG Recipients, It
Lacks a Plan to Replace Monitoring Staff and Has Not Fully Involved
Field Staff in Its Plans to Redesign IDIS:
While HUD has implemented a risk-based monitoring strategy for the CDBG
program, it has not developed a plan to ensure that it has enough staff
with the skills needed to conduct monitoring or fully involved its
field staff in plans to redesign IDIS, an information system they use
to monitor recipients. Consistent with our internal control standards,
HUD has established a risk assessment process to identify CDBG
recipients for review.[Footnote 21] HUD's monitoring strategy calls for
its field offices to consider various risk factors when determining
which recipients to review because it has limited monitoring resources,
and its workload has increased as its staffing levels have decreased.
For example, 13 of the 42 field offices overseeing CDBG recipients do
not have a financial specialist, and 39 percent of its field staff is
eligible to retire within the next 3 years. Despite these statistics,
HUD has not developed a plan to hire staff with needed skills or help
manage upcoming retirements. Finally, although IDIS is one of the tools
that HUD field staff use to monitor recipients, HUD headquarters has
solicited little input from them on efforts to redesign IDIS.
HUD's Monitoring Strategy Focuses on High-Risk Recipients:
HUD's monitoring of the CDBG program focuses on high-risk recipients.
Each year, CPD sets a formal monitoring goal. Its goal in fiscal year
2005 was for CPD as a whole and each of its field offices to monitor a
minimum of 20 percent of their formula and competitive
recipients.[Footnote 22] According to the HUD official who set the
goal, he set it at 20 percent based on the need to balance government
stewardship with available resources, including staff and travel funds.
With a 20 percent goal, he noted that it would be conceivable that
every recipient would be monitored over a period of 5 years. Overall,
CPD met its monitoring goal for fiscal year 2005. CPD's goal was to
review 942 recipients, and it completed 977 reviews. Of the 977
reviews, 349 were CDBG reviews. However, two individual field offices
did not monitor 20 percent of their recipients.[Footnote 23] As shown
in table 2, CPD has monitored more than 20 percent of its CDBG
recipients in recent years.
Table 2: Percentage of CDBG Recipients Monitored, FY 2001-2005:
Fiscal year: 2001;
Total recipients: 1,067;
Recipients: monitored: 366;
Recipients not monitored: 701;
Percentage of recipients monitored: 34.3.
Fiscal year: 2002;
Total recipients: 1,078;
Recipients: monitored: 408;
Recipients not monitored: 670;
Percentage of recipients monitored: 37.8.
Fiscal year: 2003;
Total recipients: 1,088;
Recipients: monitored: 363;
Recipients not monitored: 725;
Percentage of recipients monitored: 33.4.
Fiscal year: 2004;
Total recipients: 1,158;
Recipients: monitored: 373;
Recipients not monitored: 785;
Percentage of recipients monitored: 32.2.
Fiscal year: 2005;
Total recipients: 1,165;
Recipients: monitored: 349;
Recipients not monitored: 816;
Percentage of recipients monitored: 30.0.
Source: GAO analysis of GMP data.
Note: Total recipients consist of entitlement communities, states, and
insular areas (American Samoa, Guam, the Northern Mariana Islands, and
the Virgin Islands).
[End of table]
HUD's monitoring policy calls for HUD staff to focus on high-risk
recipients when selecting CDBG recipients for review. Consistent with
our internal control standards, HUD has developed a formal risk
analysis process for its field offices to use when determining which
recipients to review.[Footnote 24] Field office staff rate recipients
on various factors that fall under the following four categories:
financial, management, satisfaction, and services.[Footnote 25] The
staff total the scores from each factor and assign recipients a final
score on a 100-point scale. At each field office, a CPD management
representative then conducts a review to ensure the validity and
consistency of the scores. HUD considers recipients that receive a
score of 51 or greater to be high risk; it considers those with a score
of 30 to 50 to be medium risk; and those with less than 30 it considers
to be low risk. Recipients that receive a high-risk rating are subject
to monitoring, unless a management representative approves an
exception. CPD management representatives can approve an exception if
(1) the HUD Office of Inspector General is auditing the recipient; (2)
they determine that monitoring is administratively infeasible in the
current year, given other monitoring actions; or (3) they have other
reasons--such as HUD recently monitored the recipient or it monitored
another program administered by the recipient. Field office staff must
review high-risk recipients on site unless they reviewed them on site
in the last 2 years, and the purpose of the monitoring is to validate
the implementation of corrective actions. Medium-and low-risk
recipients can be reviewed using remote, or off-site, monitoring.
Our review of data from GMP--the system that field staff use to record
the results of the risk analysis process and any monitoring performed-
-showed that HUD's field offices followed the risk analysis process in
all but 16 cases in fiscal year 2005. For fiscal year 2005, HUD
designated 164 recipients as high risk. Out of these 164 recipients,
GMP data showed that 107 were monitored, 41 were granted an exception,
and 16 were not monitored or provided an exception.[Footnote 26] The
risk scores assigned to the 16 high-risk recipients that HUD did not
monitor or provide an exception ranged from a low of 51 to a high of
80.[Footnote 27] These 16 recipients received allocations totaling
about $145 million in fiscal year 2005. They included Detroit, Michigan
($43 million), Oregon ($16 million), and Honolulu, Hawaii ($11
million). According to HUD, these recipients were not monitored or
granted an exception either because its field staff misunderstood the
exception requirements or the field office responsible for monitoring
the recipient experienced a staffing shortfall. However, despite not
monitoring these 16 high-risk recipients, 8 of the 12 responsible field
offices monitored recipients that they did not consider high risk.
Further, we found that HUD reviewed most, but not all, CDBG recipients
at least once in the 5-year period from fiscal year 2001 through fiscal
year 2005. As shown in table 3, our analysis of GMP data showed that
HUD monitored all but 255 recipients in fiscal years 2003 through 2005.
These 255 recipients received about $525 million in fiscal year 2005
funding. When we expanded our analysis to 4 years (fiscal years 2002
through 2005), we determined that HUD had monitored all but 140
recipients that received a total of about $239 million in fiscal year
2005. During the 5-year period from fiscal year 2001 through 2005, HUD
did not monitor 84 recipients that received a total of about $132
million in fiscal year 2005.
Table 3: Number of Times CDBG Recipients Were Monitored, FY 2001-2005:
Number of times monitored: Not monitored;
3-year period (FY 2003- 2005)[A]: 255;
4-year period (FY 2002-2005)[B]: 140;
5-year period (FY 2001-2005)[C]: 84.
Number of times monitored: Once;
3-year period (FY 2003-2005)[A]: 588;
4-year period (FY 2002-2005)[B]: 502;
5-year period (FY 2001-2005)[C]: 396.
Number of times monitored: Twice;
3-year period (FY 2003-2005)[A]: 190;
4-year period (FY 2002-2005)[B]: 300;
5-year period (FY 2001-2005)[C]: 352.
Number of times monitored: Three times;
3-year period (FY 2003- 2005)[A]: 33;
4-year period (FY 2002-2005)[B]: 94;
5-year period (FY 2001-2005)[C]: 151.
Number of times monitored: Four times;
3-year period (FY 2003-2005)[A]: N/A;
4-year period (FY 2002-2005)[B]: 21;
5-year period (FY 2001- 2005)[C]: 48.
Number of times monitored: Five times;
3-year period (FY 2003-2005)[A]: N/A;
4-year period (FY 2002-2005)[B]: N/A;
5-year period (FY 2001- 2005)[C]: 16.
Source: GAO analysis of GMP data.
[A] We excluded 77 recipients that were not entitlement communities all
3 years, resulting in a total of 1,066 recipients. HUD monitored 12 of
the 77 new entitlement communities once during the 3-year period.
[B] We excluded 86 recipients that were not entitlement communities all
4 years, resulting in a total of 1,057 recipients. HUD monitored 16 of
the 86 new entitlement communities once during the 4-year period.
[C] We excluded 96 recipients that were not entitlement communities all
5 years, resulting in a total of 1,047 recipients. HUD monitored 22 of
the 96 new entitlement communities once during the 5-year period.
[End of table]
Monitoring recipients is critical because it often results in findings.
During our site visits, we reviewed 144 recipient files and found
documentation problems.[Footnote 28] For example, 24 of the 144 files
we reviewed did not contain sufficient documentation to show that the
activity met one of the three national objectives, as required by the
program.[Footnote 29] Another 14 files did not note which national
objective the activity was supposed to meet. Additionally, 46 files we
reviewed showed no evidence of monitoring by the recipient.[Footnote
30] In contrast, recipients we visited tended to have signed agreements
with their subrecipients as required by program regulations. Of the 90
cases that involved a subrecipient, 87 files contained a signed
subrecipient agreement, and 76 of the 87 agreements contained the five
required elements we tested. When HUD reviews files during its
monitoring, it finds similar occurrences. Fifty-seven percent of HUD's
fiscal year 2005 reviews resulted in at least one finding. In total,
HUD's fiscal year 2005 monitoring resulted in 581 findings and 447
concerns.[Footnote 31] Examples of cited findings included not
documenting a national objective, funding an ineligible activity, poor
recordkeeping, and incomplete subrecipient requirements.
HUD Has Limited Staff and Travel Funds to Devote to CDBG Monitoring:
HUD employs a risk-based monitoring approach because it has limited
staff and travel funds to devote to CDBG monitoring. CPD's staffing
levels have decreased nationwide, as its CDBG workload has increased.
From fiscal year 1993 to the beginning of fiscal year 2006, the number
of CPD field office staff decreased from 751 to 599, a decline of 20
percent. During the same time period, the number of entitlement
communities grew from 889 to 1,128, an increase of 27 percent. This
increase in workload has had a greater effect on certain CPD field
offices. As of February 2006, the average number of CDBG recipients per
program representative was nearly four.[Footnote 32] The number of
recipients per representative exceeded this average at 20 of the 42 CPD
field offices and was six or more at three offices.[Footnote 33] The
HUD official responsible for CPD field office staff told us he would
like to have more staff but has to get the work done with what he has.
Additionally, CPD program representatives in their role as program
monitors oversee other HUD programs, including three other formula
grant programs, homeless programs, and a number of smaller competitive
grant programs. For example, at the Chicago CPD office, each
representative monitors four to six formula grants, as well as
approximately 100 competitive grants. Although they represent fewer
dollars than the formula grant programs, the competitive grant programs
require more monitoring, according to CPD program managers. The
programs are generally administered by small nonprofit organizations
that experience a large amount of staff turnover. Further, there were
9,705 active competitive grants in fiscal year 2005.
A number of CPD field offices also do not have a financial analyst.
Financial analysts are important because they evaluate the financial
operations of each recipient and ensure that CPD's monitoring
activities adequately address any financial vulnerabilities in CPD
programs and related capacity concerns. They help field offices review
budget submissions, financial report submissions, independent audit
reports, and drawdown requests. As of late April 2006, 13 of the 42 CPD
field offices did not have a financial analyst. These 13 field offices
averaged a CDBG portfolio of $60 million. In offices we visited that
did not have a financial analyst, other staff assumed some of the
responsibilities of a financial analyst, but these staff had other
responsibilities as well and lacked the specialized skills of a
financial analyst.
Staffing shortages may worsen in the future because many current CPD
field staff are eligible to retire. As of February 2006, 39 percent of
CPD field staff was eligible to retire within the next 3 years. If we
include those eligible for early retirement, the percentage increases
to 59 percent within the next 3 years. For example, the four officials
we interviewed in the Milwaukee field office told us that they were all
currently eligible to retire, including the CPD Director. Denver field
office officials told us that the office could lose all but one of its
program representatives to retirement in the next 5 years.
HUD has not developed a plan to hire staff with needed skills, such as
financial analysts, or to help CPD manage upcoming retirements. Our
internal control standards state that agencies, as part of their human
capital planning, should consider how to retain valuable employees,
plan for their eventual succession, and ensure continuity of needed
skills and abilities.[Footnote 34] According to a HUD official, HUD has
taken a number of steps to manage its CPD workforce, such as hiring
interns and implementing a leadership development program. However,
these efforts do not specifically address the need to hire financial
analysts and replace the staff that will become eligible for retirement
in the next few years. According to internal control standards, an
agency should have a specific and explicit workforce planning strategy
that allows for identification of current and future human capital
needs and a formal recruiting and hiring plan with explicit links to
skill needs the agency has identified.[Footnote 35]
HUD internal reviews and the HUD Inspector General have also noted that
limited staffing has negatively impacted CPD's monitoring. In fiscal
year 2004, 11 of the 12 internal management reviews, known as Quality
Management Reviews, performed at CPD field offices noted staffing
issues.[Footnote 36] For example, the reports noted that one office
might not meet its monitoring goals due to significant loss of staff
and that staff at two offices had an unbalanced workload. Also, one
report noted that the field office needed a financial analyst for
oversight of $113 million in CPD program funds. Furthermore, in a June
2004 report on CPD management controls, the HUD Inspector General
observed that reductions in field office staffing levels had impacted
CPD's monitoring capabilities.[Footnote 37] The report noted that,
between 1993 and 2003, CPD had been negatively impacted by staffing
challenges that had plagued all of HUD.
Further, according to HUD field office staff, limited travel budgets
have affected their ability to monitor CDBG recipients. For fiscal year
2005, the travel budget for all 42 CPD field offices was about
$392,000. The travel budgets for the six field offices we visited
ranged from $2,528 in Baltimore (11 CDBG recipients) to $20,691 in Los
Angeles (105 CDBG recipients). Some field office staff told us their
travel budgets affect which recipients they select for on-site
monitoring during the risk assessment process. For example, they will
limit their monitoring of recipients that require a high cost of
travel. They will either conduct off-site monitoring or document an
exception, which allows them to monitor these recipients less often
despite their risk analysis score. Additionally, when monitoring
recipients, field office staff sometimes shorten their visit to fit
within their travel budget. In its June 2004 report, the HUD Inspector
General reported similar findings and added that field offices will
also reduce the amount of staff participating in a monitoring visit in
order to reduce travel costs. According to the headquarters official
that manages CPD's field offices, he has to balance the travel needs of
all 42 field offices when allocating limited travel funds. To help the
field offices better plan their travel, he has begun providing them
with quarterly, rather than monthly, allocations of funds.
HUD Has Made Little Effort to Involve Field Staff in Plans to Redesign
IDIS:
HUD is currently redesigning IDIS but has solicited limited input from
its field staff. IDIS, a tool that HUD field staff use to conduct on-
site and off-site monitoring, has shortcomings that limit its
usefulness as a monitoring tool. IDIS was designed to be a real-time
information system providing financial disbursement, tracking, and
reporting functions for CPD. In our April 1999 report, we noted that
the system was not providing needed information, and our current work
indicates that, despite HUD improvements to the system, it still is not
providing all the information needed to monitor recipients'
performance. During our site visits, field office staff noted that (1)
the data in IDIS are not always current because some recipients do not
update it quarterly, as HUD recommends and (2) the accomplishment data
in IDIS are not as reliable as the financial data. As previously noted,
HUD is currently working with recipients to improve the quality of the
accomplishment data. Also, a HUD headquarters official noted that HUD
plans to add reports that will better assist field staff with their
monitoring. Similarly, in a report on how to incorporate performance
measures into IDIS, the National Academy of Public Administration found
that (1) IDIS allows data input errors and omissions, (2) the ability
to manipulate data for reporting purposes is limited, and (3) HUD staff
and recipients have expressed frustration with using the
system.[Footnote 38]
To improve the usefulness of IDIS, HUD is currently reengineering the
system. The department has obligated $9.4 million for development of
the new system. One problem with the initial development of IDIS was
that HUD did not adequately consider input from end users. HUD has
attempted to address this problem in the statement of work for the new
system by stating that the contractor should gather requirements from
HUD stakeholders and recipients. Specifically, the contractor was to
work with HUD's field offices to identify issues with the current
accomplishment reporting, hold sessions with both field office staff
and recipients to solicit user requirements pertaining to reports, and
develop a draft prototype to solicit HUD stakeholder and recipient
feedback on proposed navigation approaches. Soliciting input from end
users on their requirements is consistent with best practices for
system development. Our guidance on information technology investment
management states that (1) investment control processes should ensure
that key customers and business needs for each project are identified
and that the users are engaged in this process and (2) users should
participate in project management throughout a project's or system's
life cycle to ensure that it supports the organization's business needs
and meets users' needs.[Footnote 39]
Contrary to the IDIS statement of work and our guidance on information
technology investment management, HUD headquarters and its contractor
have solicited little input from field staff. As the HUD staff tasked
with monitoring CDBG recipients, field staff are the users that rely
most heavily on IDIS as a monitoring tool. Although HUD headquarters
and the contractor have held only one session with field staff, they
have already drafted a document outlining the system's functional
requirements. According to the HUD official that is overseeing
development of the new system, the one session held with field staff
was unproductive; therefore, they plan to wait until they are making
decisions regarding the standard reports that the system will generate
to solicit additional input from field office staff. If HUD's plans to
involve its field staff in efforts to improve IDIS are limited to
soliciting input regarding the new system's reporting capabilities, the
other factors that have limited IDIS' effectiveness as a monitoring
tool may not be addressed.
HUD Has Implemented a Clear Timeliness Policy, but Has Not Issued
Similar Guidance on Other Enforcement Actions:
Although HUD has issued a clear policy stating what actions it will
take when entitlement communities fail to meet the statutory
requirement that funds be spent in a timely manner, it has not
developed similar guidance establishing a consistent framework for
holding CDBG recipients accountable for deficiencies identified during
monitoring. Because federal law requires HUD to ensure timely
expenditure of entitlement funds, HUD has set a timeliness standard for
entitlement communities and established a grant reduction policy for
recipients that exceed the standard. As it monitors CDBG recipients,
however, HUD has the flexibility to assess other sanctions ranging from
issuing a warning letter to advising the recipient to pay back CDBG
funds. HUD headquarters has not issued guidance that describes the
conditions under which each type of sanction should be taken, and we
found instances in fiscal year 2005 where findings that appeared to be
similar were associated with different enforcement actions.
HUD's Timeliness Policy Has Reduced the Number of Entitlement
Communities That Are Slow to Expend Funds:
By implementing a timeliness standard, HUD has reduced the number of
entitlement communities that are slow to expend funds. Federal law
requires HUD to review CDBG entitlement communities to determine if
they have carried out their CDBG-assisted activities in a timely
manner.[Footnote 40] It considers an entitlement community to be timely
if, 60 days prior to the end of the recipient's current program year,
the amount of entitlement grant funds available under grant agreements
but undisbursed by the U.S. Treasury was not more than 1.5 times the
entitlement grant amount for its current program year. To ensure that
entitlement communities comply with this standard, HUD established a
grant reduction policy for untimely recipients in November 2001. The
new policy stated that an untimely recipient had 1 year to become
timely. If it still did not meet the 1.5 standard at the end of its
next program year, HUD would reduce its next grant by how much it
exceeded the standard, unless HUD determined that the lack of timely
spending was due to factors beyond the recipient's control. For
example, if a recipient's annual grant was $1 million and its 60-day
ratio was 1.57, the maximum amount of the reduction would be $70,000
(0.07 times $1 million).
Since the implementation of this grant reduction policy, the number of
untimely entitlement communities has gone down from 140 in November
2001 to 65 as of April 2006. Of the 65 recipients that were untimely as
of April 2006, 8 had a 60-day ratio above 2.0. The remaining recipients
had 60-day ratios between 1.51 and 2.0. Although HUD could not provide
a list showing the total number of recipients that have been untimely
for only a year since the inception of the standard, it has tracked the
total number that were untimely for 2 consecutive years and, therefore,
subject to grant reduction. As of April 2006, 14 recipients had been
subject to grant reduction. Of these 14, HUD only reduced three
recipients' funding. It granted exceptions to six recipients due to
factors such as natural disasters that triggered Presidential disaster
designations and did not take action against three because HUD failed
to provide proper notice to the recipient when it first became
untimely. The remaining two had moved under the 1.5 standard quickly,
and HUD decided not to reduce their grants.
Guidance Could Help Ensure Sanctions Are Appropriate:
When they identify deficiencies other than failing to meet the
timeliness standard, HUD's field offices have the flexibility to
determine which sanctions are warranted based on the conditions
identified. As shown in table 4, HUD's monitoring of CDBG recipients
during fiscal years 2003 to 2005 resulted in approximately 1,900
findings and about 350 sanctions. In fiscal year 2005, HUD assessed 95
sanctions, including about $1.6 million in financial sanctions.
Table 4: Sanctions Taken against CDBG Recipients, FY 2003 - 2005:
Fiscal year: 2003;
Concerns: 538;
Findings: 685;
Sanctions: 110;
Amount of financial sanctions: $2,025,487.
Fiscal year: 2004;
Concerns: 488;
Findings: 644;
Sanctions: 147;
Amount of financial sanctions: 7,217,377.
Fiscal year: 2005;
Concerns: 447;
Findings: 581;
Sanctions: 95;
Amount of financial sanctions: 1,616,704.
Fiscal year: Total;
Concerns: 1,473;
Findings: 1,910;
Sanctions: 352;
Amount of financial sanctions: $10,859,568.
Source: GAO analysis of GMP data.
Note: Some, but not all, sanctions result in a financial action.
[End of table]
The sanctions that HUD may take against recipients range from issuing a
letter of warning to advising recipients to reimburse their lines of
credit.[Footnote 41] Beyond the program regulations that describe the
purpose of taking corrective actions and the various actions that can
be taken, HUD has issued no guidance to its field offices describing
what conditions its field staff should consider when taking corrective
actions and what specific conditions warrant different types of
corrective actions.[Footnote 42] Instead, its 42 field offices have the
flexibility to determine the types of sanctions for findings that they
identify. According to HUD headquarters officials, field offices may
call HUD headquarters for advice before taking sanctions against a
recipient. Figure 7 shows that the action taken the most often during
fiscal year 2005 was that of advising the recipient to alter or end an
activity.
Figure 7: Sanctions Taken as Result of FY 2005 Monitoring Reviews, by
Type:
[See PDF for image]
Source: GAO analysis of GMP data.
Note: Numbers do not add to 100 percent due to rounding. In one of the
few cases where HUD advised a recipient to change a payment, it advised
the recipient to reimburse expenses improperly charged to others. In
the one case where HUD advised a recipient to reprogram funds, it
advised the recipient to shift the funds to an eligible activity. The
other sanctions that HUD took included advising recipients to provide
additional documentation, collect additional information on people
served, or report activities differently in IDIS.
[End of figure]
Our internal control standards state that agencies should implement
control activities, which are policies and procedures that enforce
management's directives and ensure accountability.[Footnote 43] One
such strategy is to document the steps taken to implement internal
controls. Such documentation should be clear and readily available.
Contrary to these standards, HUD has not clearly documented the steps
that its field offices take to determine the appropriate sanctions when
deficiencies are identified during monitoring. Such guidance could
establish the parameters within which field office should operate,
while still allowing for consideration of individual situations. By
establishing a framework within which field offices should operate, HUD
headquarters could instill accountability as well as allow field staff
to make individual judgments based on factors such as a recipient's
past performance and the frequency and severity of findings.
In the absence of guidance, HUD's field offices have treated recipients
that committed similar infractions differently. In our meetings with
several national organizations that represent CDBG recipients,
representatives noted that their members have observed inconsistent
interpretation of program regulations across HUD field offices.
Further, we found instances where deficiencies identified in fiscal
year 2005 seemed similar to us but different corrective actions were
taken.
* Inability to support meeting a national objective: When one field
office found that a recipient could not support that an activity met a
national objective, it asked the recipient to provide either more
documentation or a written assurance that it would not fund that type
of activity in the future. In contrast, another field office advised a
recipient that could not document that an activity met a national
objective to reimburse its line of credit. In another instance, a field
office stated that it might disallow expenditures if the recipient
could not document that an activity met a national objective.
* Documenting environmental reviews: When one field office determined
that a recipient had not documented any follow-up compliance actions
for projects where mitigating measures for environmental compliance
were identified, even after the office had previously identified the
lack of follow up as a concern, it advised the recipient to submit
documentation showing that follow-up actions had been taken. In another
case where a field office determined that a recipient had failed to
fully document its environmental reviews, that field office advised the
recipient to suspend disbursement of funds for all activities until it
put in place revised environmental review procedures and the
appropriate level of environmental review had been carried out.
Guidance providing HUD's 42 field offices with a range of appropriate
actions for identified deficiencies could help to provide greater
transparency and accountability, and it could better ensure consistency
of sanctions for similar infractions.
Conclusions:
Many communities use their CDBG funds to benefit their residents and
increase the economic health of the community. One of the cited
strengths of the program is its flexibility, which allows communities
to make decisions locally about the best use of the funds in their
community. Given the program's flexibility, it is critical that HUD
ensure that recipients use funds in a manner that is consistent with
the purposes of the program. While there are statutory spending limits
on public services and planning and administration, HUD does not
centrally maintain the data needed to determine compliance with these
spending limits in a timely manner. Entitlement communities
collectively spend at or close to the limits on public services and
planning and administration. Therefore, it is important for HUD to be
able to report on the extent of entitlement community compliance with
these limits. Without these data readily available, HUD cannot provide
timely assurance that recipients are adhering to these limits.
With program funding being cut as the number of grant recipients
increases, it is essential for HUD to ensure that recipients use funds
properly. Because it has limited monitoring resources, HUD has
implemented a risk-based process to identify recipients for review.
However, HUD faces challenges as it carries out these responsibilities.
First, a large percentage of the field staff responsible for monitoring
CDBG recipients will be eligible for retirement within the next 3
years. HUD has not developed a plan for replacing this vital program
expertise. HUD has established an internship program and other
initiatives to develop senior leaders, but such activities will not, in
themselves, replace experienced professionals. Without such a plan, HUD
has no way to ensure continuity of needed skills and abilities. Second,
HUD is reengineering IDIS--the system that it relies on to monitor
recipients it cannot review on-site--to address a number of
shortcomings in the system, but its plans to involve HUD field staff in
these efforts are limited to soliciting input regarding the new
system's reporting capabilities. If it does not fully involve all of
the system's stakeholders in the reengineering process, as it failed to
do when initially developing the system, HUD runs the danger of
repeating past development mistakes and having to live with a flawed
system that limits its monitoring abilities. Developing a system that
better meets the monitoring needs of HUD field staff has increased in
importance in an environment where the number of monitoring staff is
declining as the workload is increasing.
While allowing for judgment and flexibility, an effective monitoring
program should also make it transparent to recipients what actions may
be taken if deficiencies are found. HUD has established a clear policy
stating that it will reduce an entitlement community's grant funds if
it fails to spend its funds in a timely manner, and, as a result, the
number of untimely recipients has dropped. However, HUD has not
developed similar guidance laying out a framework of enforcement
actions that may be taken when certain deficiencies are identified
during monitoring, and we found instances where findings that appeared
to be similar were associated with different enforcement actions. Such
guidance could establish the parameters within which field offices
should operate, while still allowing for flexibility to address
individual situations. Issuing guidance could also help HUD's
management provide greater transparency and accountability to the
sanctioning process.
Recommendations for Executive Action:
In order to improve HUD's oversight of the CDBG program, we recommend
that the Secretary of Housing and Urban Development direct the
Assistant Secretary for Community Planning and Development to take the
following four actions:
* Maintain in IDIS the data needed to determine compliance with the
statutory limitations on expenditures for public service activities and
administration and planning.
* Develop a plan for ensuring the proper mix of skills and abilities
and replacing an aging CPD workforce.
* Look for additional opportunities to solicit field staff input on
IDIS user requirements.
* Consider developing guidance for the CDBG program that details what
conditions should be considered when taking corrective actions and what
specific conditions warrant different types of corrective actions.
Agency Comments and Our Evaluation:
We provided HUD with a draft of this report for review and comment. We
received oral comments from the Office of Community Planning and
Development's Comptroller on July 12, 2006, addressing our key
findings, conclusions, and recommendations. He stated that, overall,
HUD agrees with our findings, conclusions, and recommendations. In
addition, HUD provided a letter from the General Deputy Assistant
Secretary for Community Planning and Development with comments that
were technical in nature. This letter and our response to each of the
comments appear in appendix IV. HUD also provided other oral technical
comments that were incorporated where appropriate.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the date of this letter. At that time, we will send copies of this
report to the Ranking Minority Member, Subcommittee on Housing and
Community Opportunity, House Committee on Financial Services; Ranking
Minority Member, Subcommittee on Federalism and the Census, House
Committee on Government Reform; Ranking Minority Member, Subcommittee
on Federal Financial Management, Government Information, and
International Security, Senate Committee on Homeland Security and
Governmental Affairs; and the Chairman and Ranking Minority Member,
Subcommittee on Housing and Transportation, Senate Committee on
Banking, Housing, and Urban Affairs. We will also send copies to the
Secretary of Housing and Urban Development. Copies of this report will
also be available to other interested parties upon request. In
addition, the report will be made available at no charge on the GAO Web
site at [Hyperlink, http://www.gao.gov.]
If you or your staff have any questions about this report, please
contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix V.
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The Chairman of the Subcommittee on Housing and Community Opportunity,
House Committee on Financial Services; the Chairman of the Subcommittee
on Federalism and the Census, House Committee on Government Reform; and
the Chairman, Subcommittee on Federal Financial Management, Government
Information, and International Security, Senate Committee on Homeland
Security and Governmental Affairs requested that we review the use of
Community Development Block Grant (CDBG) funds and how the Department
of Housing and Urban Development (HUD) oversees the program. In
particular, we examined (1) how recipients have used CDBG funds,
including the extent to which they have funded activities that meet
national program objectives, complied with spending limits, and
reported accomplishments achieved with funds; (2) how HUD has monitored
recipients' use of CDBG funds; and (3) how HUD has held recipients that
have not complied with CDBG program requirements accountable for their
actions.
To accomplish these objectives, we analyzed fiscal year 2005 data from
HUD's Integrated Disbursement and Information System (IDIS) and fiscal
year 2001 through 2005 data from the Grants Management Process (GMP)
System on all CDBG recipients. We assessed the reliability of the HUD
data we used by reviewing information about the systems, performing
electronic data testing to detect errors in completeness and
reasonableness, and discussing the data with knowledgeable agency
officials. We determined that the data were sufficiently reliable for
the purposes of this report. In addition to analyzing HUD data on all
CDBG recipients, we visited 20 recipients. As shown in table 5, we
visited 17 recipients in six large metropolitan areas as well as 3
smaller recipients outside large metropolitan areas.[Footnote 44] In
selecting the recipients located in large metropolitan areas, we
considered geographic dispersion, funding level, need,[Footnote 45] and
proximity to a HUD field office and state capital. We selected the
smaller recipients outside large metropolitan areas based on their
population and location. Of the 20 recipients we visited, 4 were
states, 2 were urban counties, and 14 were cities. We also visited four
nonentitlement communities funded by the states of Georgia and
Maryland.[Footnote 46] We interviewed the eight HUD field offices that
monitor the grantees we visited and interviewed staff at HUD
headquarters.[Footnote 47] Finally, we interviewed representatives of
four national organizations that represent CDBG recipients--the Council
of State Community Development Agencies, the National Association for
County Community and Economic Development, the National Association of
Housing and Redevelopment Officials, and the National Community
Development Association--to obtain their views on the use of CDBG funds
and HUD's oversight of the program.
Table 5: 20 Recipients That GAO Visited:
Area: Atlanta metropolitan area;
Recipient: Atlanta, Georgia; State of Georgia.
Area: Baltimore metropolitan area;
Recipient: Baltimore, Maryland; Baltimore County, Maryland; State of
Maryland.
Area: Boston metropolitan area;
Recipient: Boston, Massachusetts; Attleboro, Massachusetts;
Commonwealth of Massachusetts.
Area: Chicago metropolitan area;
Recipient: Chicago, Illinois; Kane County, Illinois; Naperville,
Illinois.
Area: Denver metropolitan area;
Recipient: Denver, Colorado; Greeley, Colorado; State of Colorado.
Area: Los Angeles metropolitan area;
Recipient: Los Angeles, California; Gardena, California; Santa Monica,
California.
Area: Other;
Recipient: Beloit, Wisconsin; Dubuque, Iowa; Warner Robins, Georgia.
Source: GAO.
[End of table]
To determine how the communities that receive CDBG funds use those
funds, we reviewed CDBG program regulations to determine how recipients
are allowed to use their funds. We then analyzed IDIS data on
activities funded as of September 30, 2005, to determine (1) the
activities most often funded by recipients in fiscal year 2005, (2) any
differences between the activities most often funded by entitlement and
state recipients in fiscal year 2005, and (3) the percentage of
activities funded in fiscal year 2005 that met each of the three
national program objectives. For examples of how communities use their
funds, we relied on documentation provided by the 20 recipients we
visited and pictures we took during our site visits. We had planned to
use IDIS data to examine the extent to which CDBG recipients were
complying with the statutory spending limits on public services and
planning and administration but determined that (1) IDIS did not save
some of the data needed to determine compliance by entitlement
communities and (2) IDIS data cannot be used to determine states'
compliance with the limits. Therefore, we requested data from HUD
showing the percentage of funds spent by selected recipients on public
services as well as on planning and administration. We initially
requested data on the 200 entitlement communities that received the
most funding, but HUD could only provide data on the 100 most populous
entitlement communities within our time frames. We then analyzed that
data to determine how many had exceeded the two spending limits in
program year 2004. We also analyzed HUD data to determine the number of
recipients eligible for the special exception that allows certain
recipients to count activities that benefit fewer than 51 percent low-
and moderate-income persons as meeting the low-and moderate-income
national objective in fiscal year 2006. To determine the status of
HUD's efforts to implement a performance measurement system, we
reviewed the notices published in the Federal Register and guidance on
HUD's Web site as well as interviewed HUD officials.
To identify how HUD monitors communities' use of CDBG funds, we
reviewed HUD's monitoring guidance to determine which tools it uses to
monitor recipients. To gain an understanding of HUD's formal
monitoring, we reviewed documentation on its risk analysis process and
interviewed the HUD headquarters officials responsible for setting
monitoring policy as well as HUD field staff responsible for performing
the monitoring. We analyzed data from HUD's Integrated Performance
Reporting System (HIPRS) to determine if the Office of Community
Planning and Development (CPD) met its monitoring goal in fiscal year
2005. We interviewed a knowledgeable agency official regarding the data
and determined that they were sufficiently reliable for the purposes of
this report. We also analyzed GMP data to determine (1) if HUD's field
offices complied with its risk analysis process in fiscal year 2005,
(2) the extent to which HUD monitored CDBG recipients in fiscal years
2001 to 2005, and (3) what types of monitoring findings HUD had in
fiscal year 2005. To determine the adequacy of HUD's monitoring
resources, we reviewed information on CPD staffing and travel budgets.
To assess the usefulness of IDIS as a monitoring tool, we reviewed
reports on the system and interviewed HUD field staff regarding their
experiences with using the system. We also reviewed HUD's plans for
reengineering IDIS and discussed them with the responsible HUD
official.
To assess the extent to which the recipients we visited have complied
with CDBG program regulations, we reviewed 144 project files.[Footnote
48] To identify projects for review, we requested that each recipient
provide a list of the projects that they had awarded in calendar year
2003. We used the calendar year because recipients' fiscal years vary,
and we chose 2003 because we anticipated that projects would be well
under way or complete by the time of our review. From the list that
each recipient provided, we selected a stratified random sample of 6 to
10 projects; the number of files selected depended on the funding level
of the recipient--more files were selected for recipients with larger
grants.[Footnote 49] If we determined that a project selected for
review was terminated after it was awarded, we selected a replacement
project. When reviewing the files, we looked for (1) documentation
showing that the activity funded met a national objective, (2) a
subrecipient agreement that included the information required in the
program regulations (if applicable), and (3) evidence that the
recipient had monitored the activity.
To determine the extent to which HUD has held recipients that have not
complied with CDBG program requirements accountable for their actions,
we reviewed the CDBG program regulations to determine what sanctions
HUD can take against recipients. We reviewed HUD's policy on timely
expenditure of funds and analyzed data on the number of untimely
recipients as of April 2006. We also analyzed GMP data to determine the
number of sanctions that HUD had taken in fiscal years 2003 to 2005 and
the specific types of sanctions it took in fiscal year 2005. In
addition, we interviewed HUD field and headquarters staff to determine
how they decide which sanctions to take against recipients.
We performed our work from July 2005 to July 2006 in accordance with
generally accepted government auditing standards.
[End of section]
Appendix II: Selected States' Methods of Distributing Funds:
The methods that states use to distribute CDBG funds vary. To
demonstrate the variety of methods used, we examined the approach that
the following 10 states take when distributing their funds: Georgia,
Colorado, Maryland, Massachusetts, North Carolina, New York, Ohio,
Pennsylvania, Puerto Rico, and Texas.[Footnote 50] We selected these
states because we visited the first four and the remaining six received
the largest funding allocations in federal fiscal year 2005. To
determine the method of distribution used, we reviewed each state's
fiscal year 2005 action plan.[Footnote 51] Table 6 provides information
such as how each state allocates its funds among various activities,
the evaluation criteria used to select applications, and incentives or
application bonuses offered.
Table 6: Information on How 10 States Distribute Their CDBG Funds:
FY 2005 allocation;
Colorado: $12,428,946;
Georgia: $44,692,413;
Maryland: $8,944,527;
Massachusetts: $38,578,167;
New York: $54,423,586;
North Carolina: $50,010,517;
Ohio: $54,560,938;
Pennsylvania: $55,485,726;
Puerto Rico: $53,094,663;
Texas: $82,305,507.
Program year;
Colorado: April 1 to March 31;
Georgia: July 1 to June 30;
Maryland: July 1 to June 30;
Massachusetts: April 1 to March 31;
New York: January 1 to December 31;
North Carolina: January 1-December31;
Ohio: July 1-June 30;
Pennsylvania: January 1-December 31;
Puerto Rico: July to June 30;
Texas: February 1 to January 31.
Breakdown of allocation;
Colorado:
* Housing (32.3%);
* Business financing (32.3%);
* Public facilities and community development (32.3%);
* Technical assistance (1%);
* State administration (2%);
Georgia:
* Annual competition (77%);
* Immediate threat and danger (1%);
* Employment incentives (16%)[A];
* Redevelopment fund (3%);
* Technical assistance (1%);
* State administration (2%);
Maryland:
* Community development (72%);
* Business and economic development (25%);
* Technical assistance (1%);
* State administration (2%);
Massachusetts:
* Community development (54%);
* Housing development support (12%);
* Economic development (6%);
* Mini-entitlements (23%)[B];
* Reserves (2%);
* Technical assistance (1%);
* State administration (2%);
New York:
* Annual competition (60%);
* Economic development (35%);
* Imminent threat (2%);
* Technical assistance (1%);
* State administration (2%);
North Carolina:
* Community revitalization (31%);
* Scattered Site Housing (29%);
* Infrastructure (11%);
* Housing Development (4%);
* Economic development (20%);
* Urgent needs (2%);
* Technical assistance (1%);
State administration (2%);
Ohio:
* Community housing improvement (15.6%);
* Homeless assistance (1%);
* Formula allocation (42.5%);
* Water and sewer (19.2%);
* Economic development (12.3%);
* Downtown revitalization (4.6%);
* Discretionary grant (1%);
* Micro enterprise business development (0.4%);
* New horizon (0.2%);
* Technical assistance (1%);
* State administration (2.2%);
Pennsylvania:
* Annual competition (13%);
* Cities (24%);
* Towns (38%);
* Counties (38%);
* State administration (2%);
Puerto Rico:
* Basic grant (34%);
* Competitive fund (61%);
* Emergency grant (2%);
* Technical assistance (1%);
* State administration (2%);
Texas:
* Community development (61%);
* Texas capital (15%);
* Colonia (13%)[C];
* Planning and capacity building (1%);
* Disaster relief fund (4%);
* Texas community development program”small towns environment program
(3%);
* Technical assistance (1%);
* State administration (2.2%).
Evaluation criteria[D];
Colorado:
* Project impact;
* Public and private commitments;
* Management capability;
Georgia:
* Demographic need;
* Program feasibility;
* Program strategy;
* Project impact;
* Leverage of additional resources;
* Urgent need;
Maryland:
* Public purpose;
* Project impact;
* Project management;
* Local commitment;
* Project feasibility;
* Sources and use of funds;
* Readiness to proceed;
* Past performance;
Massachusetts:
* Financial feasibility;
* Affordability;
* Readiness to proceed;
* Developer capacity;
* Site and design;
* Cost effectiveness;
* Community needs score;
New York:
* Municipal poverty score;
* Program impact;
* Outstanding performance;
North Carolina:
* Severity of needs;
* Local commitment;
* Feasibility;
* Rotation[E];
* Capacity;
* Market demand;
* Job creation;
Ohio:
* Community distress;
* Administrative capacity;
* Past performance;
* Program design and impact;
* Cost effectiveness;
* Leverage and coordination;
Pennsylvania:
* Magnitude and severity of need;
* Third party support;
* Impact of problem on residents in affected area;
Puerto Rico:
* Basic grant distributes funds evenly amongst 51 nonentitlement
communities;
* Competitive fund distributes funds based on past performance, project
impact, feasibility, and number of beneficiaries;
* Emergency grant distributes funds on a case-by-case basis;
Texas:
* Project impact;
* Community needs;
* Feasibility;
* Leverage ratio;
* Management capacity;
* Past performance.
Application deadline;
Colorado: Applications accepted until all funds are allocated;
Georgia: Annual competition accepts applications at a set time each
year, but all other programs accept applications until all funds are
allocated;
Maryland: Applications accepted at set time each year;
Massachusetts: All programs accept applications at set time each year,
except economic development, which accepts applications until all funds
are allocated;
New York: Annual competition accepts applications at set times each
year, but all other programs accept applications on a first-come, first-
served basis, until all funds are allocated.
North Carolina: Community revitalization and scattered site housing
accept applications at set times. All other programs accept
applications until all funds are allocated[F];
Ohio: All programs accept applications at a set time each year, except
for Economic development, Discretionary grant and New horizon, which
accept applications until all funds are allocated;
Pennsylvania: All programs accept applications at a set time each year,
except Annual competition, which accepts applications until all funds
are allocated;
Puerto Rico: Basic grant and competitive fund accept applications at a
set time period each year. Emergency grant accept applications when an
urgent need occurs;
Texas: All programs accept applications at a set time each year or when
a natural disaster occurs.
Incentives or application bonuses offered;
Colorado: None;
Georgia: Available for certain applicants proposing projects in
revitalization areas;
Maryland: None;
Massachusetts: No incentives, but all communities have a community wide
needs score that can help their chances of receiving an award;
New York: None;
North Carolina: Economic development offers additional funding for jobs
created in state designated communities;
Ohio: Economic development considers applicants to be more competitive
in the selection process if they create jobs for low-and moderate-
income individuals;
Pennsylvania: None;
Puerto Rico: None;
Texas: None.
Matching requirement;
Colorado: None;
Georgia: Annual competition grantees must match 5 percent of awards
ranging from $300,001 to $500,000 and 10 percent for awards over
$500,000;
Maryland: None;
Massachusetts: None;
New York: Economic development requires applicants to match at least 60
percent of total project costs for which CDBG funds are being
requested.
North Carolina: Economic development requires most grantees to match at
least 25 percent of awards received;
Ohio: Economic development requires applicants to leverage funds from
other sources. All other programs do not require a match, but it can
make applicants more competitive in the selection process;
Pennsylvania: None;
Puerto Rico: None;
Texas: Disaster relief applicants must match awards based on population
size; the larger the population, the larger the match required. All
other programs require a match to be competitive in the selection
process.
Source: GAO analysis of state data.
[A] The Employment Incentive Program awards grants to nonentitlement
communities to offer loans to private-for-profit entities that create
and/or retain jobs for persons who are low-and moderate-income.
[B] The Mini Entitlement Program awards grants to nonentitlement
communities based on multiple parameters that other grantees are not
required to meet, including population, percentage of low-and moderate-
income persons, age of housing stocks, and population density.
[C] Colonia refers to any unincorporated community with poor water and
sewage systems and housing. Texas' allocation for colonia includes the
Colonia Fund and Non-Border Colonia fund, which have geographic
differences but address similar community needs.
[D] Evaluation criteria listed are a summary of the various criteria
that the states use to evaluate applications for their programs.
[E] Rotation refers to county governments that receive scattered site
housing grants on a revolving basis to address housing needs of very
low income families in the county.
[F] The Housing development program has two components--one accepts
applications at a set time each year and the other accepts applications
until all funds are allocated.
[End of Table]
[End of section]
Appendix III: Activities Funded by the Recipients That GAO Visited:
During our review of the CDBG program, we visited 16 entitlement
communities and four states. Additionally, we visited four
nonentitlement communities funded by two of the states we visited
(Georgia and Maryland). These recipients funded the following examples
of public improvement, housing, public service, economic development,
and acquisition activities.
Public Improvements:
West Point, Georgia (a nonentitlement community) used $500,000 in CDBG
funds awarded by the state of Georgia to build a new Boys and Girls
Club (see fig. 8). According to the city's application for funds, the
old Boys and Girls Club did not have an accessible entry, had several
leaks in the roof that could only be temporarily repaired, did not have
load bearing walls, and had a mechanical system that appeared to be
well beyond its reasonable life expectancy. The total budget for the
project was $721,500, including operating costs. According to the
application, the club plans on serving 200 children, 180 of which are
from low-and moderate-income families.
Figure 8: Boys and Girls Club in West Point, Georgia:
[See PDF for image]
Source: GAO.
Former location of Boys and Girls Club (left). New location and
building for Boys and Girls Club (right).
[End of figure]
* Poulan, Georgia (a nonentitlement community) utilized a $499,081
grant from the state of Georgia to replace a portion of the city's
corroding water pipes. At the time of the grant, the corroding water
pipes restricted the amount of water that flowed through the water
lines and caused the water to become discolored and rusty. According to
local officials, the water that was fed through these water lines was
not suitable for drinking, bathing, or cleaning clothes. In addition to
the money provided by the state, the city of Poulan provided $40,000.
Over 70 percent of residents that benefited from the new water lines
had low-and moderate-incomes.
* The state of Maryland awarded the town of Denton (a nonentitlement
community) $600,000 to make improvements to city streets. Specifically,
the funding was used to install a new storm water management system,
curbs, gutters, sidewalks, and paving. The CDBG grant provided $431,913
for construction, $148,087 for project administration and contingency,
and $20,000 for general administration. The project was matched with a
$566,950 loan and a $4,920 grant from the U.S. Department of
Agriculture and $7,841 from the town of Denton.
* Attleboro, Massachusetts used $222,267 in CDBG funds to finance, in
part, the reconstruction of the Fred E. Briggs Playground municipal
pool and bathhouse, which is located in a census tract where 59 percent
of the households are of low-and moderate-income. The city demolished
the old pool, the bathhouse, the building that housed the filtration
system, the walkways, and the fencing and constructed a brand new
municipal pool and bathhouse facility (see fig. 9). The capital project
was necessary to bring both the pool and bathhouse into compliance with
federal, state and local building and health codes and to provide
accessibility for persons with disabilities. The total project cost was
$537,849.
Figure 9: Renovated Briggs Playground Pool in Attleboro, Massachusetts:
[See PDF for image]
Source: GAO.
[End of figure]
* Kane County, Illinois used $28,592 in CDBG funds to finance the
rehabilitation of the Corron Farm Park (see fig. 10), located in and
owned by Campton Township. The structure was listed in the Kane County
Register of Historic Places and was vacant and badly deteriorated when
rehabilitation work began. The building will house a local history
museum upon completion. Additionally, local officials told us that the
investment of CDBG funds helped reinforce local efforts to protect open
space in an area facing rapid growth and development. The overall
funding for the project was $64,936, with Campton Township investing
$36,344 in the project.
Figure 10: Corron Farm Park in Kane County, Illinois:
[See PDF for image]
Source: Kane County, Illinois.
[End of figure]
Housing:
Greeley, Colorado spent $236,000 in 2003 CDBG funds to continue its
single-family housing rehabilitation program and provide emergency
assistance to the elderly and persons with disabilities. Efforts were
concentrated in areas targeted for urban renewal. Activities included
in the housing rehabilitation were housing rehabilitation and
weatherization, housing replacement, property acquisition, ramps for
persons with disabilities and elderly, first-time home buyer's program,
and urban renewal (see fig. 11).
Figure 11: Single Family Housing Rehabilitation in Greeley, Colorado:
[See PDF for image]
Source: GAO.
[End of figure]
* In 2003, Atlanta, Georgia provided $350,000 in CDBG funds to
Southeast Energy Assistance (SEA) for energy-related repairs to 225
homes owned by low-income residents. These repairs eliminate air leaks
to make homes more energy efficient and reduce heating and cooling
costs. SEA is a nonprofit organization that is a service provider for
the federally funded Weatherization Assistance Program (WAP). WAP
services include adding insulation to floors, walls, and attics;
replacing or repairing damaged exterior doors and windows; and
installing weather-stripping and caulking.
* In fiscal year 2003, the Commonwealth of Massachusetts awarded
$1,118,125 in funding to the town of Oak Bluffs to rehabilitate 40
units of substandard housing in the towns of Oak Bluffs, Aquinnah,
Chilmark, Edgartown, Tisbury, and West Tisbury. Low-and moderate-income
persons residing in substandard housing were eligible to participate.
Upon completion of the grant, a total of 47 units had been
rehabilitated. The project utilized three loan options: a deferred
payment loan, a deferral agreement loan, and a direct reduction loan.
Ten loans were issued at or under $30,000, 23 loans were issued at or
under $25,000, and 14 loans were issued at or under $20,000.
* Chicago, Illinois provided $5.9 million in CDBG funds to build
Wentworth Commons. Wentworth Commons provides affordable housing to
families and individuals that were formerly homeless or at risk of
homelessness. To qualify to live at Wentworth, applicants must make 60
percent or less of the area median income. Overall, there are 51 units
at the site: 24 efficiency apartments, 15 three-bedroom apartments, 9
two-bedroom apartments, and 3 four-bedroom apartments. The site also
features supportive services such as case management, employment
training, and leadership development. The building is environmentally
friendly and energy efficient. It uses solar energy to generate
electricity into the building's electrical distribution system, which
offsets electrical use. The total cost of the project was $13 million.
* Los Angeles, California runs a "Handyworker" Program that provides
minor home repair services to low-income senior citizens or homeowners
with disabilities. The program helps keep housing from deteriorating by
funding repairs that homeowners could not otherwise afford. In program
year 2004, the city budgeted $2,000,000 in CDBG funds for the program.
Grants of up to $5,000 per client were available for repairs or home
improvements that address home safety, accessibility, and security
issues. Improvements include exterior and interior painting, minor
finish work, the installation of disability grab bars and accesiblity
ramps, minor plumbing, and other repairs. Through this program, the
city is working to preserve the existing stock of affordable housing.
The city's goal for program year 2004 was to provide 1,552 households
"Handyworker" services.
* Caroline County, Maryland (a nonentitlement community) began
receiving state of Maryland CDBG funds in 2002 to rehabilitate housing
for low-and moderate-income households. Since 2002, the county has
received $575,000 in CDBG funds to rehabilitate 51 homes. Additionally,
the county also received $17,250 in CDBG funds in 2003 to complete a
housing study. The county told us that the CDBG funds have also helped
the county leverage $10,250 from the U.S. Department of Agriculture for
housing rehabilitation.
* Baltimore County, Maryland conducts a Single Family Rehabilitation
and Emergency Repair Program. Since the inception of the program, the
county has assisted nearly 1,850 income eligible households. In fiscal
year 2005, the county spent $1 million in CDBG funds to assist 93
households. The program provides loans of up to $25,000 per home. The
loans are then deferred until the sale, refinance, or transfer of
property. During ownership, the county allows homeowners to make
certain repairs and home improvements.
Public Services:
Naperville, Illinois provided $19,223 in program year 2005 funding for
the Loaves and Fishes Community Food Pantry (see fig. 12). The food
pantry provides groceries that ensure a healthy diet to Naperville's
low-income and homeless clients. According to Loaves and Fishes, 3,000
Naperville residents live in poverty. On a weekly basis, the food
pantry provides 250 families with the equivalent of three bags of
groceries to last for a 2-week period. In 2005, the food pantry
provided: services to over 1,500 families, home delivery to over 100
seniors and individuals with disabilities, and over 1,800 holiday food
distributions.
Figure 12: Loaves and Fishes Community Food Pantry in Naperville,
Illinois:
[See PDF for image]
Source: GAO.
[End of figure]
* Denver, Colorado provided $50,000 in 2003 funding to Brothers
Redevelopment Incorporated to provide the salaries and benefits for a
director and two part time counselors. The director and part time
counselors provided information, referrals and mortgage counseling for
low-and moderate-income households in the Denver community.
* Santa Monica, California provided $242,442 in program year 2005 CDBG
funding toward the SAMOSHEL homeless shelter. SAMOSHEL provides 110
shelter beds to homeless adults, and expects to serve up to 500 persons
annually with their emergency shelter. Additionally, the shelter
provides services such as access to medical and mental health services,
permanent and transitional housing programs, domestic violence
intervention, counseling and case management, and substance abuse
recovery support and employment services.
* In fiscal year 2003, Warner Robins, Georgia provided $41,000 in CDBG
funds to the Gateway Cottage. The Gateway Cottage program targets young
homeless mothers recovering from substance abuse. The cottage provides
housing and resources for a time span of 1 year while providing
training in hygiene, personal finance, substance abuse, parenting, and
daily living skills. The program networks with other service providers
to link clients with job training, educational opportunities, and
physical and mental health services. Upon graduation from the program,
clients are eligible to apply for the aftercare component of the
program, which is supportive housing in conjunction with supportive
services.
* Beloit, Wisconsin provided $7,068 for the Beloit Chore Service
Program in 2005. The program provides senior citizens with screened,
qualified workers who will do home maintenance and repairs at
affordable prices. The program staff screen workers and verify that
they are qualified to perform the repair and maintenance work. The
workers provide inexpensive home repairs, which allow seniors to remain
independent and in their own homes.
* Baltimore, Maryland provided $80,700 in 2003 CDBG funds to the Belair-
Edison Neighborhoods Incorporated. The funds were used to undertake
several activities including prepurchasing, default and delinquency
counseling, fair housing counseling and education, homeownership
workshops, and public information and technical assistance to
businesses in the Belair-Edison area of Baltimore.
Economic Development:
* In fiscal year 2005, Boston, Massachusetts designated $856,697 in
CDBG funds for its Boston Main Streets program. The city of Boston
provided funding and technical assistance to 19 neighborhood-based Main
Streets districts throughout the city. The program helps the local
districts capitalize on their unique cultural and historical assets
while focusing on the community's economic development needs. Examples
of activities funded under the program include small business
recruitment, business retention, and addressing competition from
shopping malls and discount retailers. From 1995 to December 2005, the
city created 540 new businesses and 3,643 new jobs, and leveraged
$9,645,644 in additional private investment through the program.
* Dubuque, Iowa provided a $500,000 CDBG loan to Heartland Financial in
April 2003 as an incentive to select a downtown location for the
company's expansion of 47 new jobs (see fig. 13). The $4.5 million
project provided for the renovation of two downtown buildings both of
which are on the National Register of Historic Places. In addition, it
provided for reuse of the vacant buildings, retained a workforce in the
downtown, and created new jobs for low-and moderate-income persons.
Figure 13: Heartland Financial Building in Dubuque, Iowa:
[See PDF for image]
Source: City of Dubudue, Iowa.
[End of figure]
* As of the 2003/2004 fiscal year, the city of Gardena, California had
expended $490,755 in CDBG funds revitalizing their Van Ness Corridor.
The goal of the revitalization was to strengthen the economic vitality
of the city, provide employment opportunities, stimulate quality retail
development, and create a sustainable economic base for the city. The
city provided funds to businesses along the corridor to eliminate slum
and blight. CDBG assistance has included financial assistance for
facade and exterior improvements, providing block wall and
infrastructure improvements along the corridor, conducting a business
survey to develop and implement a business outreach program, and
providing an on-going graffiti abatement and removal program.
Acquisition:
* The state of Colorado provided $250,000 in CDBG funds to help a
health clinic in Lafayette, Colorado acquire property to build a new
facility. Clinica Campesina is a community health center serving the
needs of the low-income, uninsured residents of Southeastern Boulder,
Broomfield, and Western Adams Counties. Ninety-six percent of the
patients that the clinic serves are at or below 200 percent of the
federal poverty line. The clinic's patients are predominately children
under the age of 13 (38 percent) and women of childbearing age (28
percent). The total project budget was $1.3 million.
[End of section]
Appendix IV: Comments from the Department of Housing and Urban
Development:
U.S. Department Of Housing And Urban Development:
Washington, D.C. 20410-7000:
Office Of The Assistant Secretary:
For Community Planning And Development:
JUL 11 2006:
Mr. Paul Schmidt:
Assistant Director of Financial Markets and Community Investment:
U.S. Government Accounting Office:
Washington, DC 20548:
Dear Mr. Schmidt:
Thank you for the opportunity to provide comments on the government
Accountability Office (GAO) draft report: Community Development Block
Grants: Program Offers Recipients Flexibility but Oversight Can Be
Improved (GAO-06-732). Below are specific comments that we have on the
draft report. They are in addition to comments previously provided and
discussed with you.
Highlights page, last line of 1st paragraph: That grantees spend at or
close to the planning/admin and public service caps is less of an issue
for reporting than it is for monitoring compliance with the
requirements. Recommend revising this sentence to make this point.
Highlights page, 2nd paragraph; page 4, 18th and 19th lines; page 23,
1st paragraph; page 29, last paragraph, 1st sentence; page 30, second
and third full sentences; page 39, 2nd bullet under recommendations:
HUD/CPD recently developed a staffing/hiring plan to help ensure the
proper mix of skills and abilities for the present as in the future.
The plan, which is a living document, currently provides for the
filling of 169 critical positions. The Deputy Secretary approved it on
June 5, 2006. A copy is enclosed for your information.
Highlights page, 3rd paragraph; page 33,1st full paragraph; page 35,
2nd sentence in 2nd paragraph; page 36, 1st full paragraph, 4th
sentence: HUD issued guidance in the past on actions to take if a
grantee was not is compliance with program requirements. Specifically,
CPD issued Handbook 6513.01 "Community Development Block Grant Program:
Entitlement Grant Management," in September 1992. An entire chapter in
this Handbook was devoted to managing performance deficiencies (Chapter
8). CPD Grants Management Policy Notebook (first issued in FY 1997 and
revised in 1998) replaced some, but not all, of the provisions of this
Handbook.
Highlights page, 3rd paragraph, 2nd to last sentence; page 33, center
paragraph; page 35, last paragraph on the page; page 37, paragraph
above "Conclusions" That Field Offices took different actions to
address infractions may be perfectly acceptable if the cause(s)
differed. Furthermore, it is unrealistic to describe "the conditions
under which each type of sanction should be taken" given that the
program has 26 eligible activities and 3 national objectives which are
carried out by 1,128 entitlements and 50 states, the common wealth of
Puerto Rico and Insular Areas in myriad combinations to meet locally
defined needs. Field Office actions are guided both by the regulatory
language of 24 CFR 570.910(a) which outlines the parameters within
which corrective actions should be crafted, as well as by OIG standards
for resolving deficiencies (which are included in the CPD Monitoring
Handbook at Chapter 2, section 2- 8.B. The guidance in Chapter 8 of the
Handbook referenced above is also available to guide Field Office
decisions on corrective actions. It is comparatively much simpler to
provide guidance for timeliness, given the nature of the standard
itself.
Page 10, first full paragraph: The sentence that reads, "In addition to
monitoring CDBG, CPD field staff oversee the HOME, ESG, and HOPWA
programs as well as a number of smaller competitive programs" should be
revised as follows: "CPD Field Offices are responsible for a broad
range of grant management activities that include annual review and
approval of Entitlement grantee action plans, preparation and execution
of grant agreements, review of Entitlement grantee annual performance
reports, managing homeless program competition to include: review of
over 4,500 applications; preparing conditional award letters; review
and approval of technical submission for conditionally approved grants;
set-up of budgets for each grant in Line of Credit Control System;
execution of grant agreements and grant closeout activities, provision
of technical assistance to Entitlement and Competitive grantees, and
recapturing unobligated/unexpended grant funds, as well as monitoring
activities."
Page 10, last line of 1st full paragraph: Technically, the CPD
Monitoring Handbook contains more than 29 Exhibits for monitoring CDBG
recipients. There are several other separate Chapters that contain
Exhibits for other requirements applicable to the CDBG program, such as
fair housing and equal opportunity, lead hazards, labor, relocation,
etc.
Page 23, last sentence in the first paragraph, 2nd half of Page 31,
last paragraph, page 38: HUD believes that more field input has already
been received and has been used to influence the design of the IDIS
revised version than HUD is credited for in the report. The
reengineered system will retain the same functionality as the existing
system, but will include improvements to make data entry easier for
grantees, to use an Internet framework for flexibility, and to increase
report capability both for the grantees and the field. In addition,
headquarters staff obtains user input via regular monthly conference
calls with CPD field staff to discuss current operational issues with
IDIS and the changes that are occurring in IDIS, through biweekly
conference calls with the Field Office CPD Directors, as well as
through Performance Measurement training in 5 regional locations in
2005 on IDIS and at 15 field sites across the country in 2006.
In addition, Field Office staff will be consulted when the re-
engineering project gets to the point of specifying reports that need
to be added to the system to assist them to do their work. An FRD
(functional requirements document) has been developed which makes clear
that additional report functionality must be added to IDIS. The Field
Offices will be responsible for specifying what types of reports would
most help them do their work. When we get to that point in the re-
engineering work, they will be consulted.
Page 26, 1st paragraph, last sentence: The report states, "However,
despite not monitoring 16 high-risk recipients, 8 of the 12 responsible
Field Offices monitored recipients that they did not consider high-
risk." Departmental policy permits monitoring of medium-and low-risk
grantees and, in fact, explicitly acknowledges that monitoring low-risk
entities serves a useful and valid program purpose (see Handbook 1840.1
Rev-3, Departmental Management Control Program, section 7-6.B). In
fiscal year 2005, as noted in the GAO report, HUD Field Offices
designated 164 of 1,128 CDBG recipients as high-risk. Therefore, 964
CDBG recipients were designated as moderate or low-risk. From a risk
management perspective, some portion of this universe of 85% of CDBG
recipients should be subject to monitoring. The report should reflect
this.
Page 27, 1st paragraph under footnotes: Monitoring recipients is NOT
critical simply because it results in findings. It is critical to
fulfill statutory and regulatory responsibilities to assess compliance
as well as to carry out our stewardship responsibilities.
Page 27, 5th sentence: Add "by recipient" after ".showed no evidence of
monitoring.
Page 38, 1st sentence of 1st full paragraph: We do not agree that HUD
should ensure the proper use of funds just because program funding is
"being cut as the number of grant recipients increases." We monitor
because that is our stewardship responsibility.
Page 39, paragraph at the top of the page: It is comparatively much
simpler to develop policies and procedures to address timeliness
deficiencies, given the nature of the standard itself.
We hope the above comments will be helpful in finalizing the draft
report, and assist your study's efforts analyzing CDBG's flexibility
and oversight activities. If you have any questions regarding our
comments, please contact Richard Kennedy, Director, Office of Block
Grant Assistance, at 202-708-3587, extension 4542.
Sincerely,
Signed by:
Nelson R. Bregon:
General Deputy Assistant Secretary:
Enclosure:
The following are GAO's comments on the Department of Housing and Urban
Development's letter dated July 11, 2006.
GAO Comments:
1. We agree that it is important to monitor compliance with
administration and planning and public service spending caps. However,
our report emphasizes HUD's need to centrally maintain data on
compliance with statutory spending limits so that it can report on the
extent of compliance; therefore, we made no change to the report in
response to this comment.
2. The CPD staffing/hiring plan was approved in June 2006 and was
provided to us along with HUD's written agency comments. Because the
plan was provided at the close of this engagement this report does not
evaluate the extent to which the plan addresses identified workforce
needs.
3. The guidance that HUD references was issued in the 1990s. When we
interviewed the Director of CPD's Office of Field Management and field
office staff regarding the monitoring of CDBG recipients, they stated
that they were following the new CPD Monitoring Handbook, which was
issued in September 2005. The introduction to this handbook states that
it establishes standards and provides guidance for monitoring CPD
programs, including CDBG. Beyond referring field staff to various
sections of the program regulations, the new handbook does not describe
what conditions its field staff should consider when taking corrective
actions and what specific conditions warrant different types of
corrective actions. Because we believe that HUD needs a consistent
framework for holding CDBG recipients accountable for deficiencies
identified during monitoring, we made no change to the report.
4. Our report acknowledges that any additional guidance that HUD
develops for its field staff taking sanctions could allow for the
consideration of individual situations. Because individual situations
may vary, we stated that such guidance could establish a framework, or
parameters, within which field offices should operate. Although HUD
points to several forms of guidance in its comment, none of them
specifically addresses the concerns raised in this report. The
regulatory language in 24 C.F.R. 570.910(a) states that corrective
actions should be designed to (1) prevent a continuation of the
performance deficiency; (2) mitigate, to the extent possible, the
adverse effects or consequences of the deficiency; and (3) prevent a
recurrence of the deficiency. While this language establishes the
purpose of taking sanctions, it does not provide parameters that help
field staff determine which specific corrective sanction is appropriate
to address the deficiency identified. Section 2-8.B. of the CPD
Monitoring Handbook describes HUD's basis for determining whether a
deficiency should result in a finding or concern, but it does not help
field office staff determine which sanction may be appropriate if the
deficiency results in a finding. Finally, as we mentioned in our
response to the previous comment, the additional handbook HUD
referenced was issued in 1992, while the CPD Monitoring Handbook was
issued in 2005. Given the great flexibility that exists when taking
sanctions, we believe it would be useful to provide field office staff
further guidance to ensure they are treating recipients that commit
similar infractions equitably.
5. We revised the report to include the suggested text.
6. We revised the text to make it clear that the 29 exhibits we mention
are in the two handbook chapters that are specific to the CDBG program.
7. We agree that the meetings referenced by HUD can be helpful in
sharing information on current operational issues with IDIS. However,
the meetings that HUD has referenced are either regularly scheduled
management meetings or training on HUD's new performance measurement
system. None of these meetings are the field office sessions that are
specifically mentioned in the statement of work for the reengineered
IDIS system. When we asked about the status of sessions that the
statement of work said would be held with field staff regarding user
requirements, accomplishment reporting, and proposed navigation
approaches, the HUD official that is overseeing development of the new
system stated that these sessions would not be held until late summer
2006 at the earliest, although a functional requirements document had
already been drafted. Further, additional statements made by that
official and HUD's written comments indicate that the focus of future
meetings with field staff will only be on reporting requirements. We
continue to believe that soliciting input from end users on system
requirements is consistent with best practices for system development
and recommend that field office staff should participate in project
management throughout the system's life cycle to ensure that the
completed system supports both HUD's business needs and the end user
field office needs.
8. We agree that monitoring low-or medium-risk grantees can serve a
useful and valid program purpose, especially considering the large
number of grantees designated as such. The report acknowledges that HUD
policy permits the monitoring of medium-and low-risk recipients by
noting that they can be reviewed using remote, or off-site, monitoring.
Therefore, we made no change to the report.
9. We agree that monitoring recipients is critical to fulfill statutory
and regulatory responsibilities to assess compliance as well as carry
out stewardship responsibilities. In our report, we are providing one
reason why monitoring is critical, not an all-inclusive list, so we did
not change the report.
10. We revised the text as suggested.
11. We agree that grant monitoring is a critical stewardship
responsibility. This section of our report is highlighting the fact
that program funding cuts are being made at the same time as the number
of grant recipients is increasing, which creates challenges as HUD
carries out its stewardship responsibilities.
12. We agree that it is easier to develop policies and procedures to
address timeliness deficiencies than it is to develop guidance that
addresses the myriad of deficiencies identified during monitoring.
However, given the importance of holding CDBG recipients accountable
for how they use their funds, we recommend that HUD consider issuing
additional guidance for field staff that establishes the parameters
within which field offices should operate and provides greater
transparency to the sanctioning process.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact: William Shear, (202) 512-8678:
Staff Acknowledgments:
In addition, Paul Schmidt, Assistant Director; Nima Patel Edwards;
Cynthia Grant; Curtis Groves; Alison Martin; John McGrail; Marc Molino;
David Noguera; David Pittman; Nitin Rao; and Paige Smith made key
contributions to this report.
(250253):
FOOTNOTES
[1] The 20 recipients we visited included 17 recipients in the Atlanta,
Baltimore, Boston, Chicago, Denver, and Los Angeles metropolitan areas
and 3 recipients outside of large metropolitan areas (Warner Robins,
Georgia; Dubuque, Iowa; and Beloit, Wisconsin).
[2] "Need" comprises factors such as poverty, age of housing, and
decline.
[3] We do not know to what extent the 100 most populous entitlement
communities are reflective of the 1,128 entitlement communities;
therefore, results of this analysis cannot be generalized to all
entitlement communities.
[4] GAO, Standards for Internal Control in the Federal Government, GAO/
AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[5] Total set-asides for fiscal year 2006 are $467 million. Under the
Indian CDBG program, HUD provides competitive grants to federally
recognized Indian tribes and to certain tribal organizations. The four
insular areas are American Samoa, Guam, the Northern Mariana Islands,
and the Virgin Islands.
[6] The Office of Management and Budget (OMB) defines metropolitan
areas. A principal city is the largest city of a metropolitan area or a
city that meets specified statistical criteria.
[7] Although 118 of the 1,128 entitlement communities no longer meet
the definition, they remain entitlements due to a statutory provision
that allows communities that qualified for at least 2 years to remain
qualified indefinitely. These 118 entitlement communities were
allocated about $100 million in fiscal year 2005. The 50 state
recipients include Puerto Rico but not Hawaii because it has
permanently elected not to receive state CDBG program funding. HUD
awards funds for the nonentitlement areas in Hawaii directly to the
three eligible counties.
[8] 42 U.S.C. § 5305(c)(2)(A)(ii).
[9] Public service activities funded through community based
development organizations--organizations authorized under 24 C.F.R.
570.204 to carry out special activities such as economic development or
new housing construction--are not subject to the public service
spending limit.
[10] The HOME program provides federal assistance to participating
jurisdictions for housing rehabilitation, rental assistance, home-
buyer assistance, and new housing construction. The ESG program
provides homeless persons with basic shelter and essential supportive
services by assisting with the operational costs of shelter facilities.
The HOPWA program provides housing assistance and related supportive
services to persons living with human immunodeficiency virus/acquired
immunodeficiency syndrome (HIV/AIDS).
[11] Recipients have different program year start and end dates that
often coincide with their jurisdictions' fiscal year.
[12] GAO, Community Development: Weak Management Controls Compromise
Integrity of Four HUD Grant Programs, GAO/RCED-99-98 (Washington, D.C.:
Apr. 27, 1999).
[13] GAO, High-Risk Series: An Update, GAO-01-263 (Washington, D.C.:
January 2001).
[14] GAO/AIMD-00-21.3.1.
[15] These manual adjustments reflect amounts that affect the
calculation but are not included in IDIS.
[16] House Committee on Government Reform, Bringing Communities into
the 21st Century: A Report on Improving the Community Development Block
Grant Program, Report 109-365, January 31, 2006.
[17] The percentage reported only reflects funds allocated to 99 of the
100 entitlement communities because Jefferson County, Kentucky was no
longer listed as a separate entitlement community in fiscal year 2006.
[18] We do not know to what extent the 100 most populous entitlement
communities are reflective of the 1,128 entitlement communities;
therefore, results of this analysis cannot be generalized to all
entitlement communities.
[19] This suspension was issued pursuant to a statutory provision that
allows the Secretary of Housing and Urban Development to suspend most,
but not all, statutory requirements in cases where the President has
issued a federal disaster declaration.
[20] OMB, Department of Housing and Urban Development PART Assessments,
February 2005. OMB uses its Program Assessment Rating Tool (PART) to
assess and improve program performance so that the federal government
can achieve better results. PART looks at all factors that affect and
reflect program performance including program purpose and design;
performance measurement, evaluations, and strategic planning; program
management; and program results.
[21] GAO/AIMD-00-21.3.1.
[22] This 20 percent goal applies to CDBG as well as the other formula
and competitive grant programs that CPD administers.
[23] The two offices that did not monitor 20 percent of their
recipients in fiscal year 2005 were Fort Worth, Texas and Philadelphia,
Pennsylvania. According to HUD officials, the Fort Worth office did not
meet its goal because it was very involved in the Hurricane Katrina
disaster recovery process. The Philadelphia office did not meets its
goal because the staff person assigned to complete the remaining two
monitoring visits passed away suddenly.
[24] GAO/AIMD-00-21.3.1.
[25] The financial factors considered include the size of the grant,
how timely the recipient has been in expending its grant funds, and the
extent to which the recipient has received program income. The
management factors evaluated include the complexity of the activities
that a recipient undertakes, the timeliness and accuracy of the
recipient's submissions, a recipient's staff capacity, and how long it
has been since HUD last monitored the recipient on site. The
satisfaction factors examined include whether the recipient has
received citizen complaints and how responsive the recipient has been
to any citizen complaints. The service factors considered are whether
the recipient has met the program's national objectives and complied
with the limitation on public service expenditures.
[26] According to HUD officials, 4 of the 16 recipients that GMP showed
were not monitored or granted an exception were monitored in fiscal
year 2005, but the documentation was not completed in time to be
counted in fiscal year 2005. The city of New Orleans was monitored in
August 2005, just before Hurricane Katrina, but did not show up as
being monitored because a monitoring letter was never completed.
Similarly, HUD monitored three more recipients at the end of fiscal
year 2005, but they did not show up as being monitored because the
monitoring letters were not finalized prior to the end of the fiscal
year.
[27] Ten of the 16 high-risk grantees were last reviewed in fiscal year
2004, three were last reviewed in fiscal year 2003, two were last
reviewed in fiscal year 2001, and one was a new grantee in fiscal year
2004.
[28] We reviewed documentation on 134 projects, of which 4 involved
multiple activities or files, for a total of 144 files.
[29] The documentation required varies based on the national objective.
For instance, if CDBG funds were spent on an activity that benefited
low-and moderate-income people based on the creation of jobs, the
recipient must document (1) that it entered into a written agreement
with the assisted business containing a commitment by the business that
at least 51 percent of the jobs would be held by low-and moderate-
income people and a listing by job title of the full and part-time
permanent jobs to be created; (2) the number of permanent jobs filled
and which jobs were initially held by low-and moderate-income people;
and (3) for each low-or moderate-income person hired, the size and
annual income of the person's family prior to the person being hired
for the job.
[30] When assessing the extent of monitoring performed, we excluded the
six projects that were administration and planning projects.
[31] A finding is a deficiency in program performance based on a
statutory, regulatory, or program requirement for which sanctions or
other corrective actions are authorized. A concern is a deficiency in
program performance not based on a statutory, regulatory, or other
program requirement.
[32] A program representative is in charge of working with a recipient
to provide technical assistance, training, program guidance, and
monitoring.
[33] We focused on program representatives because they are primarily
responsible for monitoring recipients, but other CPD staff are
sometimes assigned recipients to monitor.
[34] GAO/AIMD-00-21.3.1.
[35] GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G
(Washington, D.C.: August 2001).
[36] Quality Management Reviews are HUD-wide management reviews of its
field office programs and services.
[37] U.S. Department of Housing and Urban Development, Office of
Inspector General, Audit of Management Controls over Grantee and
Subgrantee Capacity, Community Planning and Development, 2004-FW-0001
(June 2004).
[38] Staff Report from the National Academy of Public Administration
for the Office of Community Planning and Development, U.S. Department
of Housing and Urban Development, Integrating CDBG Performance Measures
into IDIS (Washington, D.C.: February 2005).
[39] GAO, Information Technology Investment Management: A Framework for
Assessing and Improving Process Maturity, GAO-04-394G Version 1.1
(Washington, D.C.: March 2004).
[40] While HUD encourages states to expend their funds in a timely
manner, its timely expenditure standard does not apply to them. Federal
law only requires states to distribute their funds to nonentitlement
communities in a timely manner. HUD does not have the statutory
authority to impose a timely expenditure standard for states.
[41] If the recipient fails to take corrective or remedial action that
resolves the deficiency to the satisfaction of HUD, HUD may impose more
severe sanctions, such as terminating payments to the recipient.
However, HUD may impose these sanctions only after, in most
circumstances, the recipient is provided an opportunity for a hearing
before an administrative law judge.
[42] The program regulations state that corrective actions should be
designed to (1) prevent a continuation of the performance deficiency;
(2) mitigate, to the extent possible, the adverse effects or
consequences of the deficiency; and (3) prevent a recurrence of the
deficiency.
[43] GAO/AIMD-00-21.3.1.
[44] We considered a community to be within a metropolitan area if it
was within 70 miles of the central city. This meant that some of the
communities that we considered to be within a certain metropolitan
area, such as Greeley, Colorado, were outside that metropolitan area as
defined by the Office of Management and Budget.
[45] We determined "need" using the needs scores HUD developed for its
recent study on the formula used to distribute CDBG funds. See U.S.
Department of Housing and Urban Development, Office of Policy
Development and Research, CDBG Formula Targeting to Community
Development Need (Washington, D.C.: February 2005).
[46] These nonentitlement communities were Poulan, Georgia; West Point,
Georgia; Denton, Maryland; and Caroline County, Maryland.
[47] We interviewed staff in person and collected documentation from
the Atlanta, Baltimore, Boston, Chicago, Denver, and Los Angeles field
offices. We interviewed staff at the Milwaukee and Omaha field offices
via the telephone.
[48] We reviewed documentation on 134 projects, of which 4 involved
multiple activities or files, for a total of 144 files.
[49] For every recipient we visited, except Warner Robins, Georgia, we
reviewed a random sample of files. In Warner Robins, we reviewed all
six subrecipient files.
[50] The Commonwealth of Puerto Rico is a United States Territory, but
it is classified as a state for the purposes of the CDBG program.
[51] While these plans describe how each state planned to distribute
its fiscal year 2005 allocation from HUD, they do not cover the same
time periods because the states' fiscal years vary.
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