CDBG Reports Heartland mention
D~~~E
~<IN.-~
MEMORANDUM
September 5, 2006
TO:
The Honorable Mayor and City Council Members
FROM:
Michael C. Van Milligen, City Manager
SUBJECT: Community Development Block Grants
The United States Government Accountability Office conducted an audit of the National
Community Development Block Grant Program. A visit to Dubuque was part of this
audit and the Heartland Financial Project is mentioned on pages 58 and 59.
Aj~A"--
Michael C. Van MilligenV
MCVM/jh
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
David Harris, Housing and Community Development Department Director
David Heiar, Economic Development Director
Rick Dickinson, Executive Director, Greater Dubuque Development Corporation
Phil Ruppel, Interim Director, Dubuque Area Chamber of Commerce
Dan LoBianco, Executive Director, Dubuque Main Street, Ltd.
Dawn Lang, Budget Director
Jennifer Larson, Budget Director
GAO
United States Government Accountability Office
Report to Congressional Committees
July 2006
COMMUNITY
DEVELOPMENT
BLOCK GRANTS
Program Offers
Recipients Flexibility
but Oversight Can Be
Improved
..
...
...
t***
****
****
GAO
Accountability * Integrity * Reliability
GAO-06-732
l. GAO
Hilbn~
Highlights of GAO-06-732, a report to
congressional..commidees
Why GAO Did This Stutlr
The Community DevelQpment
BIQck GllIllt (CDBG) program
provides funding fQr hO\$ng,
eCQnQmic develQpment, aad Qther
cQmmunity develQpment activitles_
In fIscal year 2006, CQngress
apprQpriated abQut $4.2 billiQn for
the program. Administered by the
Department Qf Housing and Urban
DevelQpment (HUD), the CDBG
prQgram prQvides funding to
metrQPQlitan cities and urban
counties, known as entitlement
cQmmunities, and to' states for
ili5ttibutiontQnQnentitlement
cQmmunities. This reli>ert discusses
(I) hQW recipients use CDBG
funds, including the extent to
which they cQmply with spending
limits, (2) how HUD momtors
recipients' use Qf CDBG funds, and
(3) hQW HUD holds recipients that
have nQt cQmplied with CDBG
Ji>rQgrarn requirements accQuntable_
TO' address these objectives, we
"J,;i'<:d 20 recipients, analyzed HUD
dam, and interviewed HUD staff.
What GAD Recommends
GAO recommends thai HUD
centrally maintain the daia needed
to determine cQffipliance with
staiutory spending limits, develQP a
plan fO'r replacing an aging
workforce, solicit additional input
frem its fIeld staff on user
requirements for illlS, and
cQnsider develQping guidance 011
sanctioning CDBG recipients. m-
resPQnding to a draft Qf this report,
HUD stated that, O'verall, itagreed
with GAO's fmdings, cQnclusiQns,
aaa recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-06-732,
To view the full product. including the scope
and methodology, click on the link above.
F:or~ iiifolTnation, contact WI1HarnShear
al(202) 512-8678 or shearw@gao,gov.
July 2006
COMMUNITY DEVELOPMENT BLOCK
GRANTS
Program Offers Recipients Flexibility but
Oversight Can Be Improved
What GAD Found
HUD data shO'W that CDBG recipients spend the largest percentage O'f their
grants Qn public imprQvements (such as water lines and streets) and
hO'using, but HUD dO'es nO't 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 seniQr services) and administratiQn and planning. HQwever, data
prQvided by HUD fQr the 100 mQst PQPulQUS entitlement cQmmunities, which
received abQut Qne-third Qf the CDBG funds allQcated in fiscal year 2006,
shQwed that not all of these entitlement communities complied with the
limits. Of the 100 communities, 3 exceeded their public service spending
limit, and I exceeded the administratiQn and planning spending limit. Given
that entitlement communities collectively spend at Qr clQse 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 nQt develQped a plan to replace monitoring staff or fully involved its field
staff in plans to redesign an information system they use to' mQnitQr
recipients. HUD's monitoring strategy calls for its field Qffices to' consider
various risk factors when determining which recipients to' review because it
has limited mQnitQring resQurces, and its workload has increased as its
staffIng levels have decreased. FQr example, 13 of the 42 fIeld offices that
oversee CDBG recipients dO' nQt have a fInancial specialist to evaluate the
fmancial 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 Qr manage
UPCQming retirements. Finally, although the Integrated Disbursement and
InfQrmatiQn System (IDIS) is a tool that HUD fIeld staff use to' mQnitor, HUD
headquarters has solicited little input from them on efforts to redesign IDIS.
Although it has issued a clear PQlicy stating what actions it will take when
entitlement communities fail to' meet the statutQry requirement that funds be
spent in a timely manner, HUD has nQt develQped similar guidance
establishing a cQnsistent framework for hQlding CDBG recipients
accountable fQr deficiencies identifIed during monitQring. FQr deficiencies
Qther 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 Qffices have great flexibility when taking
sanctions, HUD has nQt issued guidance establishing a framewQrk to' ensure
that they are treating recipients that cQmmit similar infractions equitably. We
found instances in fIscal year 2005 where treatment seemed incQnsistent.
FQr example, several field QffIces fQund that recipients had nQt dQcumented
that a funded activity met anyone of the program's three national objectives,
but tQQk different actions_ In the cQntinued absence of guidance, HUD lacks
a means to better ensure consistency in the sanctioning process.
United States Government Accountability Office
Contents
Letter
Appendixes
Tables
Appendix I:
Appendix II:
Appendix III:
Appendix IV:
Appendix V:
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 Clem. Timeliness Policy, but Ha~ Not Issued
Similar Guidance on Other Enforcement Actions
ConcllL~ions
Recommendations for Executive Action
Agency COllunent.s mld Our Evaluation
Objectives, Scope, and Methodology
Selected States' Methods of Distributing Funds
Activities Funded by the Recipients That GAO Visited
Public Improvements
Housing
Public Services
Economic Development
Acquisit.ion
Comments from the Department of Housing and Urban
Development
GAO Comments
GAO Contact and Staff Acknowledgments
Table I: Categories of Eligible CDBG Activities
Table 2: Percent.age of CDBG Recipient.s Monitored, FY
2001-2005
Table 3: Number of Times CDBG Recipient.s Were Monitored, FY
2001-2005
Table 4: Sanctions Taken against. CDBG Recipient.s, FY 2003 -
2005
Table 5: 20 Hecipients That GAO Visit.ed
Table (3: Information on How 10 States Dist.ribute Their CDBG
Funds
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GAO-06-732 Community Development Block Grants
1
2
5
12
23
~32
~3G
~38
38
40
45
50
50
53
5G
58
GO
G1
G4
G7
f)
24
2G
~34
41
4G
Contents
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 Cliteria
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 II: Single Family Housing Rehabilitation in Greeley,
Colorado
Figure 12: Loaves and Fishes Community Food Pantry in Napenille,
Illinois
Figure 13: Heartland Financial Building in Dubuque, Iowa
Abbreviations
CDBG
CPD
ESG
GAO
GMP
HOME
HOPWA
HUD
!DIS
OMB
PART
Community Development Block Grant Program
Office of Community Planning and Development
Emergency Shelter Grants Program
Government Accountability Office
Grants Management Process System
HOME Investment Partnerships Program
Housing Opportunities for Persons with AlDS Program
Department of Housing and Urban Development
Integrated Disbursement and Information System
Office of Management and Budget
Program Assessment Rating Tool
6
1~1
14
15
17
18
a5
50
52
58
54
56
59
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Pageii
GAO-06-732 Community Development Block Grants
i
...
~ GAG
Accountability .. Integrity .. Reliability
United States Government Acconntability Office
Washington, D.C. 20548
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. Thmer
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
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GAO-06-732 Community Development Block Grants
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.l We selected these recipients based on factors such
as geographic dispersion, funding level, and need.' During these visits, we
interviewed staff, toured funded projects, and reviewed 144 recipient files.
We also visited four non entitlement communities. We analyzed Integrated
Disbursement and Information System (ImS) 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
IThe 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.
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GAO-06-732 Community Development Block Grants
entitlement communities---eities and urban counties-spent 27 percent of
their funds on housing, 24 percent on public improvements, and 17 percent
on administration and plarming. 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 limitsa 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. 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
3We 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.
'GAO, Starufurd.sjor Internal Conlrot in the Federal Government, GAO/AIMD~)O.21.3.1
(Washington, D.C.: November 1999).
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GAO-06-732 Community Development Block Grants
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 staffto devote to CDBG monitoring and its CDBG
workload has increased as its staffmg 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 fmdings 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.
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GAO-06-732 Community Development Block Grants
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 reconuuendations designed to improve HUD's
processes for monitoring conuuunities' 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 lOIS, and consider developing guidance on sanctioning
CDBG recipients. We provided a draft of this report to HUD for its review
and conuuent. In response, HUD provided a letter with comments that are
technical in nature. In addition, we received oral conuuents from the Office
of Conuuunity Planning and Development's Comptroller stating that,
overall, HUD agrees with our findings, conclusions, and reconuuendations.
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.
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GAQ.06.732 Community Development Block Grants
Figure 1: COBG Appropriations, 1990 - 2006
Real dollars in billions
Constant dollars in billions (2005)
6
6
--.. -.....-....
5
5
4
........---...............-
...
.
.
4
3
3
2
2
o
o
'OO~~'~~~~W'~~M'01m~'M~~
~'91'~~~'~~'~'~~'OO~'~~~~'~
Fiscal year
Fiscal year
- Total appropriations
.. .. .... Formula allocation
Source: HUD appropriations data.
Note: The formula allocation represents the portion of CDBG funds that is available for distribution to
entitlement communities and stales after Congress sets aside funds for special purposes.
After funds are set aside for special pwposes such as the Indi3J\ CDBG
program 3J\d allocated to insular areas, the annual appropriation for CDBG
formula funding is split so that 70 percent is allocated among eligible
metropoIit3Jl cities 3J\d counties (referred to as entitlement communities)
3J\d 30 percent among the states to serve nonentitlement communities.'
Entitlement communities are (1) principal cities of metropoIit3J\ areas, (2)
other metropoIit3Jl cities with populations of at least 50,000; 3J\d (3)
qualified urb3J\ counties with populations of at least 200,000 (excluding the
'1btal set-asides for fiscal year 2006 are $467 million. Under the Indian CDBG program, HUn
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.
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GAQ-06-732 Conununity Development Block Grants
population of entitled cities)' 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.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. Sub recipients
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 sub recipient, 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 ofthose benefiting meet the definition.
However, the CDBG statute includes an exception that enables certain
'1'he Office of Management and Budget COMB) 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 CnBG program
funding. HUD awards funds for the nonentitlement areas in Hawaii directly to the three
eligible counties.
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GAO-06-732 Community Development Block Grants
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.' 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 defmed 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.' 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.
'42 U.8.C. 9 5305(c)(2)(A)(ti).
9Public service activities funded through community based development
organizations-organizations authorized under 24 e.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.
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GAO-06-732 Community Development Block Grants
Table 1: Categories of Eligible COBG Activities
Category
Acquisition
Administration and
planning
Economic
development
Housing
Public improvements
Public services
Repayments of
Section 108 loans
Other
Source: HUDdata.
Description
Includes the acquisition of real property, clearance and
demolition, and relocation
Includes planning, general program administration, and indirect
costs
Includes financial assistance to for-profit businesses and the
rehabilitation of publicly or privately owned commercial or
industrial property
Includes the rehabilitation of residential properties, direct
homeownership assistance, and code enforcement
Includes public facilities such as homeless shelters and
neighborhood facilities and improvements to water and sewer
lines and streets
Includes health services, senior services, child care services, and
employment training
Repayments of loans obtained using current and future COSG
allocations as collateral
Includes nonprofit organization capacity building and assistance
to institutions of higher learning
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 (HOPW A) Program.lO
Annually, recipients must submit an action plan that identifies the activities
they will undertake to meet the objectives in their strategic plans. 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
lllrJ'he 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
seIVices by assisting with the operational costs of shelter facilities. The HOPWA program
provides housing assistance and related supportive seIVices to persons living with human
immunodeficiency virus/acquired immunodeficiency syndrome eHIV/AIDS).
IlRecipients have different program year start and end dates that often coincide with their
jurisdictions' fiscal year.
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GAO-06-732 Community Development Block Grants
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-!DIS and GMP. Developed in fiscal year 1996, !DIS 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.
Page 10
GAO~06-732 Community Development Block Grants
In April 1999, we issued a report on HUD's oversight of CDBG and CPD's
three other formula grant programs." 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 (I) 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 2001.13
We have issued standards for internal control in government that agencies
should follow. 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.
1ZGAO, Community Development: Weak Management Controls Compromise Integrity of
Four Hun Grant Programs, GAO/llCED-9[1-98 (Washington, D.C.: Apr. 27, 1999).
"GAO, High-Risk 8<mes: An Updnte, GAO-Ol-26:J (Washington, D.C.: January 2001).
, 'GAO/AIMD-OO-21.:J.I.
Page 11
GAO-06-732 Community Development Block Grants
Recipients Fund a
Variety of Activities,
but HUD Lacks
Centralized Data
Showing Compliance
with Statutory
Spending Limits
CDBG Recipients Use the
Majority of Their Grants to
Fund Public Improvements
and Housing Activities
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 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 $508 million (or 10 percent) ofthese total expenditures
were from program income generated by previous CDBG activities. As
shown in figure 2, CDBG recipients spent 32 percent of their total funds on
public improvements and 25 percent on housing in fiscal year 2005. Within
the category of public improvements, recipients spent the largest
percentage of their funds on water and sewer improvements. Under the
housing category, the single activity that received the most funding was
single-unit residential rehabilitation.
Page 12
GAO-06-732 Community Development Block Grants
Figure 2:
l
FY 2005 COBG Expenditures, All Recipients
0.5% Other
2.7% Section 108 ioan repayments
Acquisition
31.9%
Source: GAD analysis of 101$ data,
Economic development
Public services
Administration and planning
Housing
Public improvements
Note: Other includes nonprofit organization capacity building and assistance to institutions of higher
learning.
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
Page 13
GAO-06-732 Community Development Block Grants
funding using a formula method. For examples of how selected states
distribute their CDBG funds, see appendix II.
Figure 3: FY 2005 COBG Expenditures, Entitlement Communities and States
COSG expenditures by entitlement communities COBG expenditures by states
27.4%
0.5% Other
3.7% Section 108
loan repayments
Economic
development
Acquisition
0.1 % Section 108
loan repayments
0.6% Other
1.7% Public
services
3.5% Acquisition
Administration
and planning
Economic
development
Housing
Public
improvements
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.
GAO-06-732 Community Development Block Grants
Public services
53.5%
Administration
and planning
Public
improvements
Housing
Source: GAD analysis of !DIS dala.
Page 14
Figure 4: Activities Funded by Recipients That We Visited
EI Centro Del Pueblo
(Los Angeles, California)
Public service activities
included youth services,
senior services, employment
training, and literacy
programs. For example, the
city of Los Angeles, California
used CDBG funds to support
an after-school activities
center that serves 250 youth
ages 7 to 20,
Hope House
(Atlanta, Georgia)
Public improvement activities
included the construction of
homeless shelters, improvements
to water and sewer lines, and
park renovations. For example,
the city of Atlanta, Georgia used
CDBG funds to construct a new
sheller and transitional housing
facility for 70 homeless men.
Beloit housing rehabilitation
(Beloit, Wisconsin)
Housing activities included housing
rehabilitation, home buyer assistance,
energy efficiency improvements, and
various home safety improvements. For
example, the city of Beloit, Wisconsin
used CDBG funds for paint, housing
rehabilitation, and revolving loan
programs.
Washington Street I Before I
corridor redevelopment
(Denver, Colorado)
Economic development activities
included improvements to
commercial properties, infrastruc-
ture development to attract or
retain businesses, revolving loan
funds, and business fayade
improvements. For example, the
city of Denver, Colorado used
COBG funds to finance the
demolition and rehabilitation of
blighted commercial properties.
Sources; GAO (top two photos): City 01 Beloit, Wisconsin (middle two photos): Civil Technology, Inc. (bonom two photos).
Page 15
GAO-06-732 Community Development Block Grants
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 defIDing 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.
Page 16
GAO-06-732 Community Development Block Grants
Figure 5: FY 2005 COBG Expenditures, by National Objective
Entitlement communities
States
4.4"10 Slum/blight
4.5"10 Missing
national objective
code
1
0.8"10
Missing national
objective code
1.1"10
Urgent need
2.6"10
Slum/blight
Low/moderate
income persons
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.
A special statutoI}' 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
Page 17
GAQ-06-732 Community Development Block Grants
Low/moderate
income persons
95.6"10
Source: GAD analysis of !DIS data.
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
Number of COBG recipients
150
135
.0
8.
-
70
r-----
3.
-
26
120
60
30
o
50.9 to 44.9 to 39.9 to 34.9 to Less
45.0 40.0 35 30.0 than 30
Exception percentage range
Source: GAD analysis of HUD data
Page 18
GAO-06-732 Community Development Block Grants
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.I' 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
l"'rhese manual adjustments reflect amounts that affect the calculation but are not included
inIDIS.
Page 19
GAQ.06.732 Community Development Block Grants
Congress Has Provided Some
Exceptions to the Public Service
Spending Limit
report, HUD could not provide data that directly addressed the request. I'
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 2006.17
Our analysis of the limited data showed that not all of these entitlement
communities complied with the statutory spending limits. 18 Of the 100
entitlement communities, 3 exceeded their public service spending limit,
and I 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.
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
l~ouse Committee on Government Reform, Bringing Communities into the 21st Century:
A Report on Improving the Community Development Block Grant Program, Report
109-365. JanuaJy 31. 2006.
17The 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.
18We 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.
Page 20
GAO-06-732 Community Development Block Grants
Not All Staff and Overhead Costs
Funded with CDBG Are Subject
to the Planning and
Administration Spending Limit
HUD Has Established a New
Performance Measurement
System to Track Program
Accomplishments
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.l9
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 rnillion 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 better
track accomplishments achieved with CDBG funds. lDIS 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.
lThs 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.
Page 21
GAQ-06-732 Community Development Block Grants
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 nationallevel.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
200MB, 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 peIfonnance including program purpose and design;
performance measurement, evaluations, and strategic planning; program management; and
program results.
Page 22
GAO~06~732 Community Development Block Grants
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's Monitoring Strategy
Focuses on High-Risk
Recipients
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.
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 lDlS, 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.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 !DlS 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
!DIS.
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.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
"GAD! AIMD-OO-21.3.1.
~is 20 percent goal applies to CDBG as well as the other formula and competitive grant
programs that CPD administers.
Page 23
GAO-06-732 Community Development Block Grants
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.23 As shown in table 2, CPD has
monitored more than 20 percent of its CDBG recipients in recent years.
Table 2: Percentage of COBG Recipients Monitored, FY 2001-2005
Fiscal year
2001
2002
2003
2004
2005
Total recipients
1,067
1,078
1,088
1,158
1,165
Recipients
monitored
Recipients not
monitored
Percentage of
recipients
monitored
366
408
363
373
349
701
670
725
785
816
34.3
37.8
33.4
32.2
30.0
Source: GAD 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).
HUD's monitoring policy calls for HUD staffto 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." Field
office staff rate recipients on various factors that fall under the following
four categories: fmancial, management, satisfaction, and services.25 The
2~e 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.
"GAO/AIMD-OO-21.3.1.
25rJ'he fmancial 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 Hun 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.
Page 24
GAO~06-732 Community Development Block Grants
staff total the scores from each factor and assign recipients a fmal 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.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 80.27 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
26According 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.
27Ten 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.
Page 25
GAO-06-732 Community Development Block Grants
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 staffmg 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 COBG Recipients Were Monitored, FY 2001-2005
Number of times
monitored
Not monitored
Once
Twice
Three times
Four times
Five times
3-year period
(FY 2003-2005)'
255
588
190
33
N/A
N/A
4-year period (FY
2002-2005)'
140
502
300
94
21
N/A
5-year period
(FY 2001-2005)'
84
396
352
151
48
16
Source: GAD analysis of GMP dala.
"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.
f>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.
eWe 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.
Monitoring recipients is critical because it often results in findings. During
our site visits, we reviewed 144 recipient files and found documentation
Page 26
GAQ.06.732 Community Development Block Grants
HUD Has Limited Staff and
Travel Funds to Devote to
CDBG Monitoring
problems.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.'" Another 14 files did not
note which national objective the activity was supposed to meet.
Additionally, 46 f1les we reviewed showed no evidence of monitoring by the
recipient.30 In contrast, recipients we visited tended to have signed
agreements with their sub recipients as required by program regulations. Of
the 90 cases that involved a subrecipient, 87 files contained a signed
sub recipient agreement, and 76 of the 87 agreements contained the five
required elements we tested. When HUD reviews files during its
monitoring, it fmds 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.'l Examples of
cited findings included not documenting a national objective, funding an
ineligible activity, poor recordkeeping, and incomplete subrecipient
requirements.
HUD employs a risk-based monitoring approach because it has limited staff
and travel funds to devote to CDBG monitoring. CPD's staffmg 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
28We reviewed documentation on 134 projects, of which 4 involved multiple activities or
files, for a total of 144 files.
2fThe 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.
30When assessing the extent of monitoring performed, we excluded the six projects that
were administration and planning projects.
3lA 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.
Page 27
GAO-06-732 Community Development Block Grants
to 1.128, an increase of 27 percent. This increase in workload has had a
greater effect on certain CPO field offices. As of February 2006, the average
number of COBG recipients per program representative was nearly four.32
The number of recipients per representative exceeded this average at 20 of
the 42 CPO field offices and was six or more at three offices.33 The HUO
official responsible for CPO field office staff told us he would like to have
more staff but has to get the work done with what he has. Additionally,
CPO program representatives in their role as program monitors oversee
other HUO programs, including three other formula grant programs,
homeless programs, and a number of smaller competitive grant programs.
For example, at the Chicago CPO 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 CPO
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 CPO field offices also do not have a fmancial analyst.
Financial analysts are important because they evaluate the financial
operations of each recipient and ensure that CPO's monitoring activities
adequately address any fmancial vulnerabilities in CPO 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 CPO field offices did
not have a financial analyst. These 13 field offices averaged a COBG
portfolio of $60 million. In offices we visited that did not have a financial
analyst, other staff assumed some of the responsibilities of a fmancial
analyst, but these staff had other responsibilities as well and lacked the
specialized skills of a financial analyst.
Staffmg shortages may worsen in the future because many current CPO
field staff are eligible to retire. As of February 2006, 39 percent of CPO 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
32 A program representative is in charge of working with a recipient to provide technical
assistance, training, program guidance, and monitoring.
33We focused on program representatives because they are primarily responsible for
monitoring recipients, but other CPD staff are sometimes assigned recipients to monitor.
Page 28
GAO-06-732 Community Development Block Grants
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 CPO Director. Oenver field office officials told us that the
office could lose all but one of its program representatives to retirement in
the next 5 years.
HUO has not developed a plan to hire staff with needed skills, such as
financial analysts, or to help CPO 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.34 According to a HUO official, HUO has taken a number of steps to
manage its CPO 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.35
HUO internal reviews and the HUO Inspector General have also noted that
limited staffing has negatively impacted CPO's monitoring. In fiscal year
2004, II of the 12 internal management reviews, known as Quality
Management Reviews, performed at CPO field offices noted staffing
issues.'" 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 fmancial analyst for oversight of $1l3 million in CPO program
funds. Furthermore, in a June 2004 report on CPO management controls,
the HUO Inspector General observed that reductions in field office staffmg
"GAOl AlMD-iJO-21.3.1.
35GAO, Internal Control Management and Evaluation Tool, GAO~Ol-l008G (Washington,
D.C.: August 2001).
36Quality Management Reviews are HUD~wide management reviews of its field office
programs and services.
Page 29
GAO-06-732 Community Development Block Grants
HUD Has Made Little Effort
to Involve Field Staff in
Plans to Redesign IDIS
levels had impacted CPD's monitoring capabilities.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 [mdings
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 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 [mancial 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 [mancial data. As
37U.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-OOOl (June 2004).
Page 30
GAQ.06.732 Community Development Block Grants
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 !DIS, the National Academy of Public Administration found
that (I) !DIS 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.38
To improve the usefulness of !DIS, 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 !DIS 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 (I) 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."
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 stafftasked with
monitoring CDBG recipients, field staff are the users that rely most heavily
on IDIS as a monitoring tool. Although HUD headquarters and the
38Staff 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 CnBG Performance Measures into [DIS (Washington, D.C.:
February 2005).
311GAO, Information Technology Investment Management: A Frameworkfor Assessing and
Improving Process Maturity, GAO-04-.:J94G Version 1.1 (Washington, D.C.: March 2004).
Page 31
GAO-06-732 Community Development Block Grants
HUD Has Implemented
a Clear Timeliness
Policy, but Has Not
Issued Similar
Guidance on Other
Enforcement Actions
HUD's Timeliness Policy
Has Reduced the Number of
Entitlement Communities
That Are Slow to Expend
Funds
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
!DIS are limited to soliciting input regarding the new system's reporting
capabilities, the other factors that have limited !DIS' effectiveness as a
monitoring tool may not be addressed.
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 fmdings that
appeared to be similar were associated with different enforcement actions.
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.'" 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
10While Hun 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 distrtbute
their funds to nonentitlement communities in a timely manner. HUD does not have the
statutory authority to impose a timely expenditure standard for states.
Page 32
GAO-06-732 Community Development Block Grants
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. 1f 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 oftimely 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 fmdings and about 350 sanctions. In
fiscal year 2005, HUD assessed 95 sanctions, including about $1.6 million in
financial sanctions.
Page 33
GAO-06-732 Community Development Block Grants
Table 4: Sanctions Taken against CDBG Recipients, FY 2003 - 2005
Fiscal Amount of financial
year Concerns Findings Sanctions sanctions
2003 538 685 110 $2,025,487
2004 488 644 147 7,217,377
2005 447 581 95 1,616,704
Total 1,473 1,910 352 $10,859,568
Source: GAD analysis of GMP data.
Note: Some, but not all, sanctions result in a financial action.
The sanctions that HUD may take against recipients range from issuing a
letter of warning to advising recipients to reimburse their lines of credit. 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.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.
411f the recipient fails to take corrective or remedial action that resolves the defici~ncy to the
satisfaction of HUn, Hun may impose more severe sanctions, such as terminating payments
to the recipient. However, HUn may impose these sanctions only after, in most
circumstances, the recipient is provided an opportunity for a hearing before an
administrative law judge.
42fJ'he 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.
Page 34
GAO-06-732 Community Development Block Grants
Figure 7: Sanctions Taken as Result of FY 2005 Monitoring Reviews, by Type
Type of sanction (occurrences)
Percentage of all sanctions
Other (26)
48.4%
27.4
12.6
5.3
3.2
0 2.1
0 1.1
100.0%
End/alter activity (46)
Reimburse line of credil (12)
Warning letter (5)
Change payment (3)
Suspend disbursement of funds (2)
Reprogram funds (1)
AIt(95)
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 101S.
Our internal control standards state that agencies should implement
control activities, which are policies and procedures that enforce
management's directives and ensure accountability.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
"GAO/AIMD.OO.21.:J.1.
Page 35
GAO-06-732 Community Development Block Grants
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 snpport meetinl: a national obiective: 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 environmentm 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.
Page 36
GAOw06-732 Commwrlty Development Block Grants
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 ifit 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 fmdings 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
Page 37
GAO-06~732 Community Development Block Grants
Recommendations for
Executive Action
Agency Comments and
Our Evaluation
help HUD's m311agement provide greater tr311sparency 3lld accountability
to the s311ctioning process.
In order to improve HUD's oversight ofthe CDBG program, we recommend
that the Secretary of Housing 3lld Urb311 Development direct the Assist3llt
Secretary for Community PI311ning 3lld Development to take the following
four actions:
. Maintain in IDIS the data needed to determine compli311ce with the
statutory limitations on expenditures for public service activities 3lld
administration 3lld pl311ning.
. Develop a pl311 for ensuring the proper mix of skills 3lld abilities 3lld
replacing 3ll aging CPD workforce.
. Look for additional opportunities to solicit field staff input on IDIS user
requirements.
. Consider developing guid311ce for the CDBG program that details what
conditions should be considered when taking corrective actions 3lld
what specific conditions warr311t different types of corrective actions.
We provided HUD with a draft of this report for review 3lld comment. We
received oral comments from the Office of Community PI311ning 3lld
Development's Comptroller on July 12, 2006, addressing our key findings,
conclusions, 3lld recommendations. He stated that, overall, HUD agrees
with our findings, conclusions, 3lld recommendations. In addition, HUD
provided a letter from the General Deputy Assist3llt Secretary for
Community PI3llning 3lld Development with comments that were technical
in nature. This letter 3lld our response to each of the comments appear in
appendix IV. HUD also provided other oral technical comments that were
incOIJlorated where appropriate.
As agreed with your offices, unless you publicly announce the contents of
this report earlier, we pl311 no further distribution until 30 days from the
date of this letter. At that time, we will send copies of this report to the
R311king Minority Member, Subcommittee on Housing 3lld Community
Opportunity, House Committee on Fin311cial Services; R311king Minority
Page 38
GAO-06-732 Community Development Block Grants
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
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.
f/)/~g.~
William B. Shear
Director, Financial Markets and
Community Investment
Page 39
GAO-06-732 Community Development Block Grants
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.l In selecting the recipients located in
large metropolitan areas, we considered geographic dispersion, funding
level, need,2 and proxllnity 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
'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.
2We determined "need" using the needs scores HUn 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).
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GAO-06-732 Community Development Block Grants
Appendix I
Objectives, Scope, and Methodology
nonentitlement communities funded by the states of Georgia and
Maryland.' We interviewed the eight HUD field offices that monitor the
grantees we visited and interviewed staff at HUD headquarters.' 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
Baltimore metropolitan area
Recipient
Atlanta, Georgia
State of Georgia
Baltimore, Maryland
Baltimore County, Maryland
State of Maryland
Boston, Massachusetts
Attleboro, Massachusetts
Commonwealth of Massachusetts
Chicago, Illinois
Kane County, Illinois
Naperville, Illinois
Denver, Colorado
Greeley, Colorado
State of Colorado
Los Angeles, California
Gardena, California
Santa Monica, California
Beloit, Wisconsin
Dubuque, Iowa
Warner Robins, Georgia
Boston metropolitan area
Chicago metropolitan area
Denver metropolitan area
Los Angeles metropolitan area
Other
Source: GAD.
%ese nonentitlement communities were Poulan, Georgia; West Point, Georgia; Denton,
Maryland; and Caroline County, Maryland.
4We 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.
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GAO-06-732 Community Development Block Grants
Appendix I
Objectives, Scope, and Methodology
To deterrrrine 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 deterrrrine (1) the activities
most often funded by recipients in f'Iscal year 2005, (2) any differences
between the activities most often funded by entitlement and state
recipients in f'Iscal year 2005, and (3) the percentage of activities funded in
f'Iscal 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 deterrrrined that (1)
IDIS did not save some of the data needed to deterrrrine 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
deterrrrine 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 benef'It 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 deterrrrine 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 f'Ield staff responsible for perforrrring 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 suff'Iciently reliable for the purposes of this
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GAO-06-732 Community Development Block Grants
Appendix I
Objectives, Scope, and Methodology
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 !DIS 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.' 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.' If we determined that a project selected
for review was terminated after it was awarded, we selected a replacement
project. When reviewing the mes, 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
5We reviewed documentation on 134 projects, of which 4 involved multiple activities or f1les,
for a total of 144 f1les.
6For every recipient we visited, except Warner Robins, Georgia, we reviewed a random
sample of files. In Warner Robins, we reviewed all six subrecipient files.
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GAO-06.732 Community Development Block Grants
Appendix I
Objectives, Scope, and Methodology
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.
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GAO-06.732 Community Development Block Grants
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.' 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.2 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.
'The Corrunonwealth of Puerto Rico is a United States Territory, but it is classified as a state
for the purposes of the CDBG program.
2While these plans describe how each state plarmed to distribute its fiscal year 2005
allocation from HUD, they do not cover the same time periods because the states' fiscal
years vary.
Page 45
GAO-06-732 Community Development Block Grants
Appendix II
Selected States' Methods of Distributing
Funds
Table 6: Information on How 10 States Distribute Their CDBG Funds
FY 2005 allocation
Program year
Colorado
$12,428,946
April 1 to March 31
Maryland
$8,944,527
July 1 to June 30
Georgia
$44,892,413
July 1 to June 30
Breakdown of
allocation
. Housing (32.3%)
. Business financing
(32.3%)
. Public facilities and
community
development (32.3%)
. Technical assistance
(1%)
. State administration
(2%)
. Annual competition
(77%)
. Immediate threat
and danger (1%)
. Employment
incentives (16%)a
. Redevelopment
fund (3%)
. Technical
assistance (1 %)
. State
administration (2%)
. Community
development
(72%)
. Business and
economic
development
(25%)
. Technical
assistance (1 %)
. State
administration
(2%)
Massachusetts
$38,578,167
April 1 to March 31
. Community
development (54%)
. Housing
development
support (12%)
. Economic
development (6%)
. Mini-entitlements
(23%)'
. Reserves (2%)
. Technical assistance
(1%)
. State administration
(2%)
New York
$54,423,586
January 1 to
December 31
. Annual competition
(60%)
. Economic
development (35%)
. Imminent threat
(2%)
. Technical assistance
(1%)
. State administration
(2%)
Evaluation criteriad . Project impact . Demographic need . Public purpose . Financial feasibility . Municipal poverty
. Public and private . Program feasibility . Project impact . Affordability score
commitments . Program strategy . Project . Readiness to . Program impact
. Management . Project impact management proceed . Outstanding
capability . Leverage of . Local commitment . Developer capacity performance
additional . Project feasibility . Site and design
resources . Sources and use . Cost effectiveness
. Urgent need of funds . Community needs
. Readiness to score
proceed
. Past performance
Application Applications accepted Annual competition Applications All programs accept Annual competition
deadline until all funds are accepts applications accepted at set applications at set accepts applications
allocated. at a set time each time each year. time each year, except at set times each
year, but all other economic year, but all other
programs accept development, which programs accept
applications until all accepts applications applications on a first-
funds are allocated. until all funds are come, first~ served
allocated. basis, until all funds
are allocated.
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GAO-06-732 Community Development Block Grants
Appendix II
Selected States' Methods of Distributing
Funds
North Carolina Ohio Pennsylvania Puerto Rico Texas
$50,010,517 $54,560,938 $55,485,726 $53,094,663 $82,305,507
January 1 to December July 1 to June 30 January 1 to December July to June 30 February 1 to January 31
31 31
. Community . Community housing . Annual competition . Basic grant (34%) . Community
revitalization (31%) improvement (15.6%) (13%) . Competitive fund (61%) development (61%)
. Scattered site housing . Homeless assistance . Cities (24%) . Emergency grant (2%) . Texas capital (15%)
(29%) (1%) . Towns (38%) . Technical assistance . Colonia (13%)C
. Infrastructure (11%) . Formula allocation . Counties (38%) (1%) . Planning and capacity
. Housing development (42.5%) . State administration . State administration building (1 %)
(4%) . Water and sewer (2%) (2%) . Disaster relief fund (4%)
. Economic development (19.2%) . Texas community
(20%) . Economic development development program-
. Urgent needs (2%) (12.3%) small towns
. Technical assistance . Downtown revitalization environment program
(1%) (4.6%) (3%)
. State administration . Discretionary grant (1 %) . Technical assistance
(2%) . Micro enterprise (1%)
business development . State administration
(0.4%) (2.2%)
. New horizon (0.2%)
. Technical assistance
(1%)
. State administration
(2.2%)
. Severity of needs . Community distress . Magnitude and severity . Basic grant distributes . Project impact
. Local commitment . Administrative capacity of need funds evenly among 51 . Community needs
. Feasibility . Past performance . Third party support nonentitlement . Feasibility
. Rotatione . Program design and . Impact of problem on communities . Leverage ratio
. Capacity impact residents in affected . Competitive fund . Management capacity
. Market demand . Cost effectiveness area distributes funds based . Past performance
. Job creation . Leverage and on past performance,
coordination project impact,
feasibility, and number
of beneficiaries
. Emergency grant
distributes funds on a
case-by-case basis
Community revitalization All programs accept All programs accept Basic grant and All programs accept
and scattered site applications at a set time applications at a set time competitive fund accept applications at a set time
housing accept each year, except for each year, except Annual applications at a set time each year or when a
applications at set times. Economic development, competition, which period each year. natural disaster occurs.
All other programs accept Discretionary grant and accepts applications until Emergency grant accept
applications until all funds New horizon, which all funds are allocated. applications when an
are allocated.! accept applications until urgent need occurs.
all funds are allocated.
Page 47
GAO-06-732 Community Development Block Grants
Appendix II
Selected States' Methods of Distributing
Funds
(Continued From Previous Page)
Colorado
Incentives or None
application
bonuses offered
Georgia Maryland
Available for certain None
applicants proposing
projects in
revitalization areas.
Massachusetts New York
No incentives, but all None
communities have a
community wide
needs score that can
help their chances of
receiving an award.
Matching
requirement
None
Annual competition None
grantees must match
5 percent of awards
ranging from
$300,001 to
$500,000 and 10
percent for awards
over $500,000.
None
Economic
development requires
applicants to match at
least 60 percent of
total project costs for
which CDBG funds
are being requested.
Page 48
GAQ-06-732 Conununity Development Block Grants
North Carolina
Economic development
offers additional funding
for jobs created in state
designated communities.
Economic development
requires most grantees to
match at least 25 percent
of awards received.
Ohio
Economic development
considers applicants to be
more competitive in the
selection process if they
create jobs for low~ and
moderate-income
individuals.
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.
Appendix II
Selected States' Methods ofnistributing
Funds
Pennsylvania
None
Puerto Rico
None
Texas
None
None
None
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: GAOanalysisofslaledata.
aThe Employment Incentive Program awards grants to nonentitlement communities to offer loans to
private-far-profit entities that create and/or retain jobs for persons who are low. and moderate-income.
bThe Mini Entitlement Program awards grants to non entitlement 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.
cColonia refers to any unincorporated community with poor water and sewage systems and housing.
Texas' allocation for colonia includes the Colonia Fund and Non-Border Coronia fund, which have
geographic differences but address similar community needs.
dEvaluation criteria listed are a summary of the various criteria that the states use to evaluate
applications for their programs.
eRotation refers to county governments that receive scattered site housing grants on a revolving basis
to address housing needs of very low income famities in the county.
fThe 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.
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GAQ-06-732 Community Development Block Grants
Appendix III
Activities Funded by the Recipients That GAG
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 (anonentitlement 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
Source: GAD.
Former location of Boys and Girls Club (left). New location and building for Boys and Girls Club (right).
. 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
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GAO-06.732 Community Development Block Grants
Appendix III
Activities Funded by the Recipients That
GAO Visited
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 cleauing 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.
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Appendix III
Activities Funded by the Recipients That
GAO Visited
Figure 9: Renovated Briggs Playground Pool in Attleboro, Massachusetts
Soufce:GAO.
. 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.
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GAO-06-732 Community Development Block Grants
Appendix III
Activities Funded by the Recipients That
GAO Visited
Figure 10: Corron Farm Park in Kane County, Illinois
Source: Kane County, Illinois
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).
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GAO-06-732 Community Development Block Grants
Appendix III
Activities Funded by the Recipients That
GAO Visited
Figure 11: Single Family Housing Rehabilitation in Greeley, Colorado
Source: GAQ
. 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
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GAO-06-732 Community Development Block Grants
Appendix III
Activities Funded by the Recipients That
GAO Visited
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 COBG 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 COBG
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 COBG funds in 2002 to rehabilitate housing
for low- and moderate-income households. Since 2002, the county has
received $575,000 in COBG funds to rehabilitate 51 homes. Additionally,
the county also received $17,250 in COBG funds in 2003 to complete a
housing study. The county told us that the COBG funds have also helped
the county leverage $10,250 from the U.S. Oepartment of Agriculture for
housing rehabilitation.
. Baltimore County, Maryland conducts a Single Family Rehabilitation
and Emergency Repair Program. Since the inception of the program, the
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GAO-Q6-732 Community Development Block Grants
Appendix III
Activities Funded by the Recipients That
GAO Visited
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, rerrnance, 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 Conununity 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
Source: GAO.
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GAO-06-732 Community Development Block Grants
Appendix III
Activities Funded by the Recipients That
GAO VISited
. 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
no 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.
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GAOM06M732 Community Development Block Grants
Appendix III
Activities Funded by the Recipients That
GAO VISited
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.
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GAO-06-732 Community Development Block Grants
Appendix III
Activities Funded by the Recipients That
GAQ Visited
Figure 13: Heartland Financial Building in Dubuque, Iowa
Source: City of O\JbuQue, lowe.
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GAQ-06-732 Community Development Block Grants
Appendix III
Activities Funded by the Recipients That
GAO Visited
. 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 sUIVey 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.
Clinka 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 $1.3 million.
Page 60
GAO-06-732 Community Development Block Grants
Appendix IV
Comments from the Department of Housing
and Urban Development
Note: GAO comments
supplementing those in
the report text appear at
the end of this appendix.
(Page references in this
letter may differ.)
".~",.,o,.
!~H~
\ ,
'\..:.0'''''''/
us. DEPAIlTMENTOFDOVSING AND URBAN DEVELOPMENT
WASHINGTON,D.C.204ID-7000
llFFICIIc.<THIlAS$J$TNfrSlDlETARY
_tONMUNrTYPVo1<I'QNG.v<1>~
fflUL 11 2006
Mr. Paul Schmidt
Assistant Director of Financial Markets
and Community Investment
U.S. Government Accounting Office
Washington, DC 20548
Dear Mr. Schmidt:
See comment 1.
Thank you for the opportunity to provide comments on the government
Accountability Office (GAO) draft report: COMMUNITY DEVELOPMENT BLOCK
GRANTS: ProlZram Offers Recioients Flexibilitv but OversilZht Can Be Imoroved
(GA0-06-732). 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 or lit paragrapb; That grantees spend at or close to the
planningladmin 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, 200 paragraph; page 4, 18th and 19th Jines; page 23, I. paragraph;
page 29, last paragraph, lit sentence; page 30, second and third fun sentences; page
39,200 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.
See comment 2.
See comment 3.
~ghts page, 3" paragraph; page 33, Id full paragraph; page 3S, 2" sentence in
2 paragraph; page 36, 1- full paragraph, 4Ch sentence: BUD 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.
See comment 4.
Highlights page, 3rd paragraph, r 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. Furthennore, it is unrealistic to describe ..the conditions under which
each type of sanction should be taken" given that the program has 26 eligible activities
Page 61
GAO-06-732 Community Development Block Grants
Appendix IV
Comments from the Department of Housing
and Urban Development
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 570.91O(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.
See comment 5.
Page 10, first rull paragraph: The sentence that reads, "In addition to monitoring
CDBG, CPD field staff oversee the HOME, ESG, and HOPW A 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
unobligatcullunexpended grant funds. as well as monitoring activities."
See comment 6.
Page 10,last line or I" full paragraph: Technically, the CPD Monitoring Handbook
contains more than 29 Exhibits for monitoring CDRG recipients. Th~re 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.
See comment 7.
Page 23,last sentence in the first paragraph, 2" haIr or 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 IS 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 FRO (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 62
GAO-06-732 Community Development Block Grants
Appendix IV
Comments from the Department of Housing
and Urban Development
.
Page 26, 1" paragraph, last sentence: The report states, "However, despite not
monitnring 16 high-risk recipients, 8 of the 12 responsible Field Offices monitored
recipients that they did not consider high-risk." Departmental policy pennits 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.
Depanmental Management Control Program, section 7-6.B). In fiscal year 2005, as
noted in the GAO report,lRJD 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 CnBG
recipients should be subject to monitoring. The report should reflect this.
See comment 8.
See comment 9.
Page 27,1" 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.
See comment 1 O.
Page 27, 5th sentence: Add "by recipient" after.... .showed no evidence of monitoring.
See comment 11.
Page 38, 1" sentence of 1" full paragraph: We do not agree that lRJD 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.
See comment 12.
Page 39, paragraph at the top of the page: It is comparatively much simpler to
develop policies and procedures to address timeliness deficiencies. gi,ven 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 CDBO'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,
V---1~."" ""\;~1. ~""~
Nelson R. Breg6n
General Deputy Assistant Secretary
Enclosure
Page 63
GAO-06-732 Community Development Block Grants
Appendix IV
Comments from the Department of Housing
and Urban Development
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 (I) 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
Page 64
GAO-06-732 Community Development Block Grants
Appendix IV
Comments from the Department of Housing
and Urban Development
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 finiling 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 !DlS 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.
Page 65
GAOM06-732 Community Development Block Grants
Appendix IV
Comments from the Department of Housing
and Urban Development
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 pemtits 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.
Page 66
GAO-06-732 Community Development Block Grants
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)
Page 67
GAO-06-732 Community Development Block Grants
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