Rural Economic Development: More Assurance Is Needed That Grant  
Funding Information Is Accurately Reported (24-FEB-06,		 
GAO-06-294).							 
                                                                 
GAO was asked to update its 1989 report on the distribution of	 
economic development funding using newer tools now available for 
measuring the distribution of federal funds to rural areas. GAO  
agreed to (1) identify federal economic development programs, (2)
determine the best way to identify rural areas for this report,  
(3) determine the amount and share of economic development	 
funding that rural areas receive, and (4) discuss the way federal
agencies report data on economic development funding.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-294 					        
    ACCNO:   A47818						        
  TITLE:     Rural Economic Development: More Assurance Is Needed That
Grant Funding Information Is Accurately Reported		 
     DATE:   02/24/2006 
  SUBJECT:   Census						 
	     Data integrity					 
	     Eligibility criteria				 
	     Eligibility determinations 			 
	     Federal aid programs				 
	     Federal aid to localities				 
	     Federal funds					 
	     Regional development programs			 
	     Reporting requirements				 
	     Rural economic development 			 
	     2000 Decennial Census				 
	     Federal Assistance Award Data System		 
	     GSA Catalog of Federal Domestic			 
	     Assistance 					 
                                                                 

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GAO-06-294

     

     * Report to Congressional Requesters
          * February 2006
     * RURAL ECONOMIC DEVELOPMENT
          * More Assurance Is Needed That Grant Funding Information Is
            Accurately Reported
     * Contents
          * Results in Brief
          * Background
          * Economic Development Programs Fund Activities Related to Job and
            Business Creation, Infrastructure, and Markets
          * We Identified Rural Areas Using a System Based on Population and
            Commuting Patterns with Census Tracts
          * The Amount of Economic Development Funding Rural Areas Received
            Varied across Programs, Agencies, States, and Regions
          * Data Submitted to Census Were Often Inaccurate and Incomplete
               * Census Cannot Assure Compliance with FAADS Reporting
                 Requirements
               * Federal Agency Staff Lacked Knowledge about FAADS Reporting
                 Requirements
               * A Lack of Oversight and Coordination at Federal Agencies
                 Caused Inaccurate Reporting to FAADS
          * Conclusions
          * Recommendations
          * Agency Comments and Our Evaluation
     * Scope and Methodology
     * Funding Data for Selected Federal Programs That Fund Economic
       Development Activities
     * Comments from the Department of Commerce
     * GAO Contact and Staff Acknowledgments
     * PDF6-Ordering Information.pdf
          * Order by Mail or Phone

Report to Congressional Requesters

February 2006

RURAL ECONOMIC DEVELOPMENT

More Assurance Is Needed That Grant Funding Information Is Accurately
Reported

Contents

Tables

Figures

February 24, 2006Letter

The Honorable Norm Coleman The Honorable Mike Crapo United States Senate

In response to a congressional request, we issued a report in 1989 that
sought to determine the portion of overall federal economic development
funding that was being directed to rural areas to ensure that rural
America is not left behind.1 Our 1989 report sought to determine how much
of $29 billion in economic development funding from 88 programs in 1987
had gone to rural counties.  In that report, we defined rural counties as
those counties with urban populations of less than 20,000 (based on the
1980 Census)-a definition that was widely accepted at the time. We found
that while about 16 percent of the population lived in rural counties,
those counties received about 17 percent of the funding for the programs
for which we were able to report data.

Since our report was issued, researchers have developed more exact methods
of differentiating flows of federal funds between rural and urban areas.
The new systems generally rely on census tracts, which are far more
numerous than counties, and use software programs to "geocode," or track,
federal funding to that level.2 Because of these developments and ongoing
concerns about the amounts rural areas have been receiving compared with
their urban counterparts, you asked us to update our 1989 report and
examine the share of economic development funds that support rural areas
today.

Examining this question requires defining and identifying what constitutes
an economic development program, defining what constitutes a rural area,
and obtaining and analyzing data on federal funding provided to these
programs. As we reported in 1989 and again in 2000, there is a lack of
agreement on the definition of "economic development."3 As a result, we
agreed to (1) develop a way to identify federal economic development
programs, (2) determine which system of classifying geographical areas as
rural or urban best suits the purposes of this report, (3) use the
economic development framework and classification system to identify rural
areas and report the amount and share of economic development funding
these areas have received, and (4) examine issues related to reporting
requirements for federal agencies that disburse economic development
funds.

We identified economic development programs using the same list of
economic development activities that we used for our 2000 report,
supplemented by activities we identified through other research studies
and information provided by federal program officials and external rural
development groups.4 Using this list as our criteria, we identified about
135 programs from the Catalog of Federal Domestic Assistance (CFDA) that
appeared to fit our framework.  5 We discussed these programs and our
reasons for choosing them with the administering federal agencies,
regional commissions, and regional authorities. Based on those discussions
and a more detailed review of the programs, we modified our framework
somewhat and reduced the number of programs to 86. We then attempted to
obtain obligation data for each of the programs from the Federal
Assistance Award Data System (FAADS), which is maintained by the U.S.
Census Bureau (Census) for the Office of Management and Budget (OMB) and
used to prepare the annual Consolidated Federal Funds Report (CFFR).6 If
we found that agencies were reporting inaccurate or incomplete data to
FAADS, in most cases we obtained the corrected data directly from the
federal agencies and regional commissions and authorities. Following a
recommendation we made in 2004 on defining rural areas, we used a
classification system that is based on characteristics at the census tract
level and geocoded the data to differentiate between rural and urban
areas.7 We compared our findings using both this new system and the system
that we used in our 1989 report. Appendix I contains a full description of
our scope and methodology.

We conducted our review from January 2005 through December 2005 in
accordance with generally accepted government auditing standards.

Results in Brief

Because federal agencies do not have a standard definition of what
constitutes economic development, we used a list of activities as criteria
for identifying economic development programs that are generally accepted
as being directly related to economic development by federal agencies and
external rural development groups. Our list includes economic development
activities we developed in our 2000 report on economic development issues
and others we chose specifically for this report. These activities range
from constructing and repairing roads, airports, and water systems to
establishing business incubators and developing and improving tourist
areas. In general, we included activities that provide direct assistance,
primarily through job creation or retention, rather than activities that
relate directly to individual quality-of-life issues, such as housing,
education, and health care.

We determined that, for purposes of this report, the best system for
differentiating rural from urban areas would be based on census tracts
rather than on counties. Because the number of census tracts in the nation
(about 62,000) is so much larger than the number of counties (about
3,000), classification systems based on census measures offer a more
precise means of identifying rural areas than the older county-based
systems. Further, such a system would allow us to track federal funding to
the subcounty level. However, because data limitations meant that we could
track only about 50 percent of the funding to the subcounty level, we
chose to use a system developed in 2001 that uses the population and
commuting patterns of census tracts to classify counties as rural or
urban. With this system, we found that 19 percent of the U.S. population
resided in rural areas-a figure comparable to the 20 percent figure cited
in the 2000 Census. For purposes of comparison, we also analyzed the data
using the classification system from our 1989 report.

The 86 economic development programs we identified provided about $200
billion in economic development funding for fiscal years 2002 through 2004
to the 50 states and Washington, D.C. Using our classification system, we
were able to track about $150 billion to the county level or below. We
found that the amount of funding rural areas received varied by program,
agency, state, and region. For example, when we analyzed the funding by
the agency providing it, we found that the amounts provided to rural areas
ranged from about 7 percent for the Department of Labor (DOL) to more than
60 percent for the Appalachian Regional Commission. On a state-by-state
basis, the percentages varied somewhat, but rural areas received a greater
share of the economic development funding per capita than urban areas in
most of the states. Detailed information about the share of federal
economic development funding by program, agency, state, and county can be
viewed at www.gao.gov/cgi-bin/getrpt?GAO-06-436sp.

In developing the funding information, we identified significant problems
with agencies' reporting of their program obligation data to FAADS. For
example, 44 of the 86 economic development programs we analyzed either did
not report any funding data or reported incomplete or inaccurate data to
FAADS during all or part of fiscal years 2002, 2003, and 2004. As a
result, the obligations reported by these agencies for the 86 programs
were off by more than $11 billion during this time.8 Some 19 programs (22
percent) provided no information on obligations of about $4.5 billion.
Another 25 programs reported to FAADS amounts that varied significantly
from the programs' annual obligations, and some programs had always
reported expenditure data rather than obligation data, resulting in
differences of millions of dollars. After working with agency officials to
find the reasons behind the missing or incorrect data, we received
corrected data from seven agencies and three regional commissions, and
determined that these data were sufficiently reliable for our analysis.
Although the quarterly FAADS reporting requirement has been in place since
1982, several factors have affected compliance with it, including Census'
inability to assure that agencies were submitting the data, a lack of
knowledge among program officials about the reporting requirements, and
poor oversight and coordination at the agencies. After we discussed the
problems with Census, they and OMB began jointly meeting with the agencies
to improve reporting compliance for all federal programs.

To help ensure that Census receives accurate funding information from
federal agencies, this report makes recommendations to OMB for improving
its oversight of compliance with FAADS reporting requirements.

Background

According to the National Academy of Public Administration, federal
participation in economic development evolved during the 20th century.
Economic development programs implemented during the 1930s
characteristically involved direct federal action, bypassing state and
local governments. During the 1940s and 1950s, these programs were
intended to improve housing and commercial districts in central cities. In
the 1960s, the federal government created programs to provide economic
development assistance to economically distressed areas. These programs
were expanded in the 1980s and 1990s to utilize new technologies to create
new transit systems, clean up hazardous waste sites, and carry out other
economic development activities in urban and rural areas.9 Most recently,
economic development initiatives have included the revitalization of
disaster areas, including lower Manhattan after the September 11, 2001,
terrorist attacks and the Gulf Coast after the 2005 hurricane season.

A variety of federal programs and federally funded regional commissions
and authorities have helped advance economic development in communities
throughout the United States, including many communities that are
considered rural. Most of the nationwide programs do not have specific
rural economic development objectives, but the regional commissions and
authorities target economic rural areas specifically. For this reason, a
narrow definition of economic development programs that only included
those focusing exclusively on rural areas would include few programs and
limited dollars.

The nationwide programs also do not have a standard definition of economic
development. Department of Commerce officials, for example, consider
economic development programs as those that save or create jobs. U.S.
Department of Agriculture (USDA) officials consider economic development
broadly as activities that increase economic opportunities and improve
residents' quality of life. Officials at other federal agencies, including
the Department of Defense (DOD), the Department of Transportation (DOT),
and the Department of Housing and Urban Development (HUD), said that they
did not have definitions of economic development.

Like the concept of economic development, the notion of what constitutes
rural and urban areas has evolved over several decades, partly in response
to changes in residential and commuting patterns. As the cities and
suburbs have expanded and more remote areas have become accessible,
distinctions between rural and urban areas have blurred. Federal agencies
use different criteria as to what constitutes a rural area. Depending on
the agency and the program, the criterion most often used to define rural
areas is population, especially at USDA, which uses varying thresholds
ranging from 2,500 or less to 50,000. Some agencies and programs that fund
economic development activities do not focus on serving rural or urban
areas but instead provide competitive or formula-based grants to eligible
applicants from any location.10

FAADS is a centralized reporting system that OMB established in April 1980
to gather and disseminate information on the domestic financial assistance
provided by federal agencies. Authorized by the Consolidated Federal Funds
Report Act of 1982,11 FAADS is a quarterly report of financial assistance
awards made by each federal agency. OMB has designated Census as its
executive agent to manage and operate the system, which the Congress and
public officials use for policy and trend analyses, revenue forecasting,
oversight, and legislative initiatives. Federal agencies and regional
commissions and authorities that administer financial assistance programs
are required to report quarterly to FAADS on the financial assistance
awards they make.

Economic Development Programs Fund Activities Related to Job and Business
Creation, Infrastructure, and Markets

Because federal agencies do not have a standard definition of what
constitutes economic development, we developed a list of activities that
were generally accepted as being directly related to economic development.
As agreed with your office, we based our framework on our prior work, a
review of other research studies, and discussions with federal officials
and rural development groups.12 We also held discussions with the
administering federal agencies, regional commissions, and regional
authorities to reach consensus on the activities and programs we selected.

Our framework includes nine economic development activities:

o planning and developing strategies for job creation and retention;

o constructing and renovating commercial buildings;

o establishing business incubators (facilities to help small businesses
get started);

o constructing industrial parks;

o developing infrastructure by constructing and repairing roads, water and
sewer systems, and airports;

o supporting entrepreneurial activities;

o promoting the development of new markets for existing products;

o developing telecommunications and broadband infrastructure and enabling
technology transfer; and

o developing and improving areas for tourism.

The first five activities listed above, with the exception of developing
airports, are from our 2000 report.13 That list was developed based on a
general consensus of officials from (1) the Department of Commerce's
Economic Development Administration, whose mission is to help economically
distressed areas, (2) other federal agencies involved with economic
development, and (3) several national associations familiar with economic
development. For this report, we confirmed the 2000 list with officials
from the same federal agencies and organizations and also reached a
general consensus on the four additional items. In general, we focused on
activities that directly affected the overall development of an area, such
as job creation, rather than on activities that improved individuals'
quality of life, such as housing and education. However, we did include
job training that had a direct impact on economic development by, for
example, preparing employees for work in a specific industry or business
in a particular area.

We identified 86 federal programs at 10 federal agencies and 3 regional
commissions that included one or more of the activities in our economic
development framework. Many of these programs were not labeled as economic
development programs, but some of their activities suggested that they
supported this goal. For example:

o The goal of USDA's Empowerment Zone and Enterprise Community program for
rural areas is to stimulate the creation of new jobs, particularly for the
disadvantaged and long-term unemployed, and to revitalize economically
distressed rural areas.

o The Department of the Interior's (Interior) Bureau of Indian Affairs
Facilities Operations and Maintenance program provides funding for basic
services at noneducational facilities located on reservations.

o The Department of Commerce's Trade Adjustment Assistance program
provides assistance to firms and industries adversely affected by
increased imports.

o The Appalachian Regional Commission, which oversees the Appalachian
Development Highway System, aims to open up areas with development
potential where commerce and communication have been inhibited by lack of
adequate access.14

The number of programs each agency and commission administered that met
one or more of the components of our economic development framework varied
from one at the Denali Commission-established in 1998 to address the needs
of rural Alaska-to 29 at USDA. We included only economic development
programs that received funding during our review period (fiscal years 2002
to 2004). Thus, we did not include programs such as DOD's base closing
economic assistance programs because DOD reported no obligations for these
programs during those years. Appendix II contains more detailed
information on each of the 86 programs.

We Identified Rural Areas Using a System Based on Population and Commuting
Patterns with Census Tracts

Since our 1989 report, which used county-level data to classify rural and
urban areas, a variety of more sophisticated classification systems have
been developed that use census tracts to differentiate between rural areas
and urban areas. These classification systems provide a more precise way
of differentiating between rural and urban areas than county-based
systems. Further, computer software programs can now geocode federal
funding data below the county level. Due to data limitations that only
allowed us to identify subcounty level recipients for about half of the
funding, we chose to use a system developed in 2001 which relies on both
population and commuting patterns of census tracts to classify each county
as rural or urban based on the counties dominant commuting patterns.
Although this approach does not fully resolve all the classification
problems inherent in county-based systems that are based on political
boundaries rather than demographic characteristics, it allowed us to
geocode most of the data and was most comparable to census population
data.

We considered a number of county-based and subcounty systems for analyzing
the data (table 1).

Table 1: Classification Systems for Differentiating Urban and Rural Areas

                                        

Classification system       Developed by        Geographic unit      First 
                                                                    developed 
Rural-Urban Continuum USDA/Economic Research    County                1975 
Codes                 Service (ERS)                             
Urban Influence Codes USDA/ERS                  County                1993 
2000 Census-urbanized Census                    Census tracts         2001 
areas and urban                                                 
clusters                                                        
Rural-Urban Commuting Office of Rural Health    Census tracts   Late 1990s 
Area (RUCA)           Policy, Department of     or zip codes    
                         Health and Human Services                 
                         (HHS) and USDA/ERS                        
Dominant RUCA         Washington Office of      County based on       2001 
                         Community and Rural       dominant census 
                         Health                    tracts          

Source: ERS, HHS, and the State of Washington's Office of Community and
Rural Health

We found shortcomings with most of these systems. For example:

o Many studies that have evaluated the rural share of federal programs,
including our 1989 report, have used the rural-urban continuum codes
devised by the Economic Research Service (ERS) of the USDA.  15 These
codes distinguish counties by their degree of urbanization and proximity
to a metropolitan area or areas. While using rural-urban continuum codes
allows geocoding at the county level, the results are often skewed,
particularly in the western states, where counties often are very large.
For example, using this approach, more than 50 percent of the nation's
rural population would live in counties that would be considered urban
(based on the 2000 Census).

o Urban influence codes, which were developed by ERS in 1993 as a way to
measure rurality by quantifying the influence of urban areas on rural
areas, use only county-level data and are based solely on urban factors.
As a result, the classifications are heavily skewed toward urban.

Beginning in the 1990s, ERS and other organizations have developed
subcounty classification systems that attempt to better capture
differences between rural and urban areas. These subcounty classification
systems include elements such as commuting zones and labor market areas
that are

more precise than the county level systems in order to capture the
economic and social diversity of rural areas.16 Some use census tracts
(about 62,000) or other geographic areas smaller than counties (about
3,000) that can better reflect rural-urban differences.

Census's urbanized areas and urban cluster system defines rural areas by
exclusion-that is, it views as rural all areas that it has not already
identified as urban. Census defines urbanized areas as continuously built
up areas with a population of at least 50,000 and compromising one or more
places and adjacent densely settled areas. Urban clusters are densely
settled territories with at least 2,500 but fewer than 50,000 people.
Collectively, urbanized areas and urban clusters are referred to as urban
areas and essentially depict densely settled territory as it may appear
from the air (see fig. 1).

Figure 1: Rural and Urban Areas as Defined by Census

On the basis of these definitions, data from the 2000 Census suggest that
59 million Americans (20 percent of the population) reside in rural areas.
As we reported in our 2004 report, using urbanized areas and urban
clusters is an effective way to make consistent eligibility determinations
for individual rural economic development programs when data is available
at the census

tract level.17 However, we found that our ability to track funds to the
local level varied significantly across agencies. For example, while rural
housing and most other USDA program data could be geocoded to the local
level, most DOT spending could be tracked only to the counties. Thus,
while geocoding data using urbanized areas and urban clusters would
effectively show rural and urban differences, limitations with the data
would only allow us to geocode about half of the data under this
classification system.

Ultimately, we chose the dominant RUCA system, developed by the Washington
State Office of Community and Rural Health in 2001, because it uses both
census tracts and county codes to determine which areas are rural. Using
this system we were able to code 99 percent of the economic development
funding.18 The dominant RUCA system is based on the 10-tiered subcounty
RUCA system developed by ERS in conjunction with the Department of Health
and Human Services (HHS) in the late 1990s. RUCA reflects both where
people live and work by using both population and commuting relationships
to classify census tracts. The dominant RUCA system classifies each county
as rural or urban based on the dominant commuting patterns.

Figure 2 shows a map of the rural and urban areas as defined by both the
census tracts on which the RUCA codes are based and by the dominant RUCA
system that we used due to the data limitations.

Figure 2: Rural and Urban Areas as Defined by RUCA and Dominant RUCA Codes

Although the census tract RUCA code map better reflects where people live
and work, using the dominant RUCA system we determined that 19 percent of
the U.S. population resided in rural areas. This figure is comparable to
the 20 percent figure cited in the 2000 Census.

The rural-urban continuum classification system does not explicitly define
rural. However, the rural-urban continuum codes can be combined to create
rural and urban designations. (See fig. 3.)

Figure 3: Rural and Urban Areas as Defined by Rural-Urban Continuum Codes

For example, in our 1989 report we defined as rural any county whose urban
population was less than 20,000 people. Using this definition, slightly
more than 10 percent of the U.S. population resides in rural areas, or
only half the 20 percent rural figure cited in the 2000 Census.

The Amount of Economic Development Funding Rural Areas Received Varied
across Programs, Agencies, States, and Regions

The 86 economic development programs we identified that met one or more of
the criteria from our list of economic development activities provided
about $200 billion in funding to the 50 states and Washington, D.C. for
fiscal years 2002 through 2004.19 We were able to use geocoding to track
about $150 billion of those dollars to the county level or below. We could
not track beyond the state level another $50 billion that was passed
through state capitals to county and local jurisdictions because we could
not identify final recipients. If we had geocoded the funding for
pass-through programs at the state capitals, the share of spending
associated with urban areas-where state capitals are typically
located-would have been overstated. For the approximately $150 billion
that we could geocode to the county level or below, our analysis showed
that during fiscal years 2002 through 2004, rural areas received more
economic development program assistance dollars per capita than their
urban counterparts. The overall shares of funding varied by the
administering program and agency, and by the state and region receiving
the money, with rural areas receiving a greater share of the funding in
some cases and urban areas in others.

When we analyzed economic development funding by program, we found wide
variations in the percentage of funding that went to rural areas. The
funding ranged from a high of 100 percent for the Interior's Improvement
and Repair of Indian Detention Facilities Program down to about 1 percent
for DOT's Transit Planning and Research Program and HUD's Brownfields
Economic Development Initiative. The programs with the highest percentage
of rural funding tended to be from USDA, whose funding decisions are
primarily based on specific definitions of rural, and from Interior and
the commissions and authorities whose programs serve rural areas. In
contrast, HUD, the Environmental Protection Agency (EPA), and DOL were
among the agencies with the lowest percentage of funding reaching rural
areas who also had significant pass-through dollar amounts. Most program
funding by these agencies to eligible applicants is done using a formula
or on a competitive basis without differentiating between rural and urban
areas.

USDA had the most programs providing economic development funding for
rural areas, but DOT provided the largest amount of economic development
funding overall (fig.4).20 DOT also accounted for the largest overall
amount of pass-through dollars ($37.9 billion), but higher percentages of
funds from EPA, DOL, and HUD were sent to state capitals. We were unable
to track 88 percent of EPA's funding, 79 percent of DOL's, or 75 percent
of HUD's below the state level, and excluded those dollars from our
analysis. Examples of programs that we could not track below the state
level are DOL's Employment Service program and EPA's capitalization grants
for clean water and drinking water.21

Figure 4: Economic Development Funds by Agency, Including Pass-Through
Funding,(FY 2002-2004)

Figure 5 shows the approximately $150 billion in economic development
funding that we could track below the state level by agency under both the
dominant RUCA and rural-urban continuum models during fiscal years
2002-2004. Under both models, the amount of federal agency, regional
commission, or authority funding to rural areas varied widely. For
example, using the dominant RUCA model we found that the amounts provided
to rural areas ranged from 7 percent or less for the portion of DOL and
EPA funding we could track to about 58 percent for USDA and 77 percent for
the Delta Regional Authority.

Figure 5: Economic Development Funds Tracked to Rural Areas (FY 2002-2004)

The share of economic development funding that rural areas received also
varied by state. Under the dominant RUCA model, the shares varied from 85
percent of the total funding in Wyoming to 3 percent in Massachusetts.
Figure 6 shows the percentage of economic development funding in each
state that went to rural areas.

Figure 6: Rural Share of Economic Development Assistance by State (FY
2002-2004)

The amounts also varied by region of the country. As shown in figure 7,
rural residents in the western states generally received more economic
development funding per capita than residents in the mid-Atlantic and
midwest states. For example, Alaska and North Dakota residents received
more than $1,200 a year during fiscal years 2002 through 2004, while
residents of all states east of the Mississippi River received $800 or
less per year during the same time period.

Figure 7: Rural Economic Development Funding Per Capita, by State (FY
2002-2004)

Detailed information on the share of federal economic development funding
that rural areas received, listed by program, agency, state, and county
under both the dominant RUCA and rural-urban continuum classification
systems, can be viewed at www.gao.gov/cgi-bin/getrpt?GAO-06-436sp.

Data Submitted to Census Were Often Inaccurate and Incomplete

OMB requires that all federal agencies submit financial assistance award
data to Census for their programs on a quarterly basis, but our review
showed that the data submitted were often inaccurate and that some data
were missing altogether. We worked with Census officials to find the
reasons for the incorrect and missing data, and ultimately we received
corrected information from seven agencies and three commissions. With
these corrections, we determined that the data were sufficiently reliable
for our analysis. The agencies involved took a number of significant
actions in order to provide corrected data for the programs we reviewed,
and these actions should improve FAADS reporting in the future.

During our review, which covered fiscal years 2002 through 2004, we looked
at the quarterly files of standardized records that FAADS maintains on
financial assistance awards made by federal agencies. For those programs
for which information had been submitted to FAADS, we checked the amounts
against agency obligation data provided by the agency or the CFDA record.
When we found significant discrepancies, we contacted the agencies to
determine the reasons for these differences. If the FAADS data were deemed
incorrect, in most cases we obtained corrected information from the
agencies and replaced the FAADS information with that data for our
analysis. In cases where the discrepancy could not be resolved, we used
the agency obligations data provided to us by the agency.

We found that for 44 of the 86 economic development programs included in
our analysis, the administering agencies either did not report any funding
data or reported incomplete or inaccurate data to FAADS during all or part
of fiscal years 2002 through 2004. Total obligations that were reported to
Census during those years for these programs were off by more than $11
billion, including obligations of about $4.5 billion for 19 programs (22
percent) that had not been reported at all, and a total of about $7
billion for 25 programs that was either over- or underreported. The
programs we reviewed accounted for less than 10 percent of the federal
programs that should be providing obligation information to FAADS. Since
the FAADS reporting requirements are the same for all federal agencies and
commissions that administer financial assistance programs-not just those
involved in economic development-the amount of unreported and misreported
funding is likely far greater than the $11 billion we identified during
our review.

Even though the FAADS reporting requirement has been in place since 1982,
for the agencies we reviewed, several factors affected the extent of
compliance with the FAADS requirements. These factors included:

o a lack of controls and resources at Census to determine whether agencies
were actually submitting the data,

o a lack of knowledge among program officials about the FAADS reporting
requirements, and

o poor oversight and coordination at the agencies responsible for ensuring
both compliance with the reporting requirement and the accuracy of the
data submitted.

A Census official noted that, over the years, Census has worked with
agencies to increase reporting compliance, but with limited success.
Because we identified so many programs for which data had not been
reported to FAADS, we worked with agency officials to identify the
agencies' reasons for not submitting the information. The agencies were
either unaware of the requirements, did not have computer databases
containing the necessary information, or were using expenditure instead of
obligation data. Several program officials subsequently instituted
corrective actions to improve FAADS reporting, and these improvements
should eventually be reflected in the annual CFFR.

Census Cannot Assure Compliance with FAADS Reporting Requirements

Our review showed that Census could not ensure that federal agencies were
complying with the FAADS reporting requirements. According to our
Standards for Internal Control in the Federal Government and related
documents, an agency's system of internal control should include
appropriate measures that will ensure the validity, accuracy, and
completeness of the data in agency systems and capture erroneous data

that can then be reported, investigated, and promptly corrected.22
However, according to a Census official, a lack of resources had kept the
bureau from establishing an effective system to monitor whether agencies
were submitting the required information. Further, Census does not have an
adequate process for determining whether an agency has failed to report
particular program data in a given year.

Although Census prepares quarterly compliance reports showing whether
agencies are meeting their reporting requirements, the reports we reviewed
did not capture the extent of the misreporting we found. While Census
officials told us that they had attempted to "persuade" agencies to submit
data in the past, it became apparent from our findings that the effect of
these efforts had been limited. During the course of our review, we talked
with Census officials about the significant lack of compliance with FAADS
reporting requirements, and officials from Census and OMB held several
discussions about the problem. The culmination of these discussions was a
meeting held in April 2005 between OMB, Census, and most of the agencies
responsible for reporting information to FAADS. The purpose of the meeting
was to allow OMB and Census to explain to the agencies the importance of
submitting their obligation information on all programs on a quarterly
basis as required. In addition, in June 2005, officials from the two
agencies met with representatives of HUD to emphasize the need for
compliance and accurate reporting, and in November 2005 Census and OMB
held a second multiagency meeting.

Even after this renewed emphasis on compliance and accurate reporting,
Census officials told us that some agencies had continued to submit
improper data that were not necessarily reliable, forcing Census to devote
staff resources to cleaning up the information. For example, the officials
said that even though they had frequently pointed out data problems to
HUD, the same errors kept occurring with each submission. HUD officials
told Census and OMB staff at a June 2005 meeting that they would try to
improve their reporting accuracy. According to a HUD official, the agency
was commended by OMB at the November 2005 multiagency meeting for reducing
its error rate by half. However, Census officials told us that while HUD's
progress is commendable, HUD's error rate remains higher than that of most
agencies.

Federal Agency Staff Lacked Knowledge about FAADS Reporting Requirements

A number of federal program officials who had not submitted FAADS
information to Census were not aware that they were required to do so. In
fact, a number of federal agency and regional commission officials told us
that they had never heard of FAADS. As shown in table 2, CFDA program
funding not reported to Census for fiscal years 2002, 2003, or 2004,
accounted for about $4.5 billion.

Table 2: Program Funding Not Reported to Census by Agencies for Fiscal
Years 2002-2004 (in thousands)a

                                        

 CFDA     CFDA program name     Agency     FY 2002   FY 2003   FY 2004     Total 
program                                                                
number                                                                 
10.353  National Rural        USDA           2,283     2,802     2,664     7,749 
        Development                                                    
        Partnership                                                    
10.665  Schools and           USDA         357,009   713,639   739,998 1,810,646 
        Roads/Grants to                                                
        States                                                         
10.666  Schools and           USDA           4,905     4,956     6,834    16,694 
        Roads/Grants to                                                
        Counties                                                       
10.673  Wood In               USDA               0         0       392       392 
        Transportation                                                 
10.674  Forest Products Lab:  USDA               0       548         0       548 
        Technology Marketing                                           
        Unit                                                           
10.855  Distance Learning and USDA         118,707   138,815   685,905   943,427 
        Telemedicine Loans                                             
        and Grants                                                     
10.859  Assistance to High    USDA               0    18,500    31,104    49,604 
        Energy Cost/Rural                                              
        Communities                                                    
12.002  Procurement Technical DOD           17,410    22,324    13,220    52,954 
        Assistance For                                                 
        Business Firms                                                 
14.246  Community Development HUD           25,314         0         0    25,314 
        Block Grants                                                   
        Brownfields Economic                                           
        Development                                                    
        Initiative                                                     
14.248  Community Development HUD          310,974   333,683   289,082   933,739 
        Block Grants                                                   
        (CDBG)/Section 108                                             
        Loan Guarantees                                                
14.250  Rural Housing and     HUD           25,000         0         0    25,000 
        Economic Development                                           
15.048  Bureau of Indian      Interior      56,773    44,664    35,400   136,837 
        Affairs                                                        
        Facilities/Operations                                          
        and Maintenance                                                
15.063  Improvement and       Interior           0         0       569       569 
        Repair of Indian                                               
        Detention Facilities                                           
15.124  Indian Loans/Economic Interior       4,500     4,717     3,143    12,360 
        Development                                                    
20.907  Minority Institutions DOT              442       442       200     1,084 
20.930  Payments For Small    DOT           20,000    19,863   21,803b    61,666 
        Community Air Service                                          
        Development                                                    
90.100  Denali Commission     Denali        91,594    93,961   120,074   305,630 
                              Commission                               
90.201  Delta Area Economic   Delta         26,570     7,203     3,595    37,368 
        Development           Regional                                 
                              Authority                                
93.768  Medicaid              HHS           21,228    19,727    17,945    58,900 
        Infrastructure Grants                                          
        to Support the                                                 
        Competitive                                                    
        Employment of People                                           
        With Disabilities                                              
Total                                    1,082,709 1,425,844 1,971,928 4,480,481 

Source: GAO analysis of agency data.

aPossible minor differences between actual funding and the amounts and the
totals in the schedule are due to rounding

bThis amount includes $1,929,901 that was reallocated from fiscal years
2002 and 2003

In the following examples of nonreporting that we found during our review,
the agency officials involved were not familiar with FAADS:

o Staff at two of the three regional commissions and authorities we
included in our analysis had never heard of FAADS or the CFFR and were not
aware of the reporting requirements. We provided information to these
officials about FAADS and the Census's involvement in collecting the data.
Between the two organizations, more than $340 million had not been
reported to FAADS during our 3-year review period. As a result of our
discussions about FAADS, officials at both commissions said that they
would contact Census and begin reporting the information.

o Two different HUD program officials noted that they were not familiar
with FAADS or the requirements to submit quarterly data. As a result, for
fiscal year 2002 more than $50 million dollars in funding provided by the
Brownfields Economic Development Initiative and the Rural Housing and
Economic Development program was not reported to FAADS.

o A DOD program official was not familiar with FAADS and was only vaguely
familiar with his program's CFDA number. As a result, $53 million in
program obligations was not reported in fiscal years 2002 through 2004.
Initially, the FAADS data we received directly from DOD indicated that the
program had received no funding for the 3 years we included in our review.
However, subsequent discussions with the DOD official revealed that this
particular program had about $53 million in obligations for fiscal years
2002 through 2004 that was not reported to FAADS and reflected in the
CFFR.

A Lack of Oversight and Coordination at Federal Agencies Caused Inaccurate
Reporting to FAADS

While other program managers were aware of the FAADS reporting
requirements, the information they submitted to Census was either
incomplete or inaccurate, resulting in the misreporting of another
approximately about $7 billion dollars from various agencies during fiscal
years 2002 through 2004. Several factors affected the quality of the
reporting. First, in some cases data from several programs were combined.
Second, program officials sometimes did not capture all the necessary
information. And finally, agencies lacked the controls needed to ensure
that all of the programs and the correct data were submitted, resulting in
significant over- and underreporting of obligations.

The following examples show some of the different scenarios that affected
the completeness and accuracy of agencies' submissions to FAADS:

o Although the Appalachian Regional Commission had four separate CFDA
program numbers, for many years the agency had submitted all of its
information under one program. As a result, three CFDA program accounts
showed no funding, even though each represented a distinct program. We
also determined that the amount of funding data submitted to FAADS
appeared to be more than $30 million higher than the Appalachian Regional
Commission's annual appropriation in fiscal year 2002 and more than $4
million higher than the Commission's fiscal year 2003 appropriation. The
Appalachian Regional Commission subsequently determined that it had
counted a portion of its FAADS submission twice and agreed to submit
revised data that would reapportion its data correctly among the four CFDA
program accounts and correct for the over-counting. These changes should
lower its fiscal year 2002 total by more than $31 million, and its fiscal
year 2003 total by $4.5 million. Also, the Appalachian Regional Commission
told us that it has instituted internal controls to prevent duplicate
submissions to FAADS and to prevent the reporting of all investments under
one CFDA number.

o Interior had not updated its "cross-walk" of internal data codes that is
intended to keep current with changes in the CFDA. As a result, Interior
had underreported its FAADS data by nearly $56 million for fiscal years
2002 and 2003. The staff member in charge of reporting to FAADS told us
that he had learned that some of his data codes were out of date only
after we questioned some inaccuracies in the data. Interior has since
rerun its data with the new codes and planned to resubmit corrected
information to Census for fiscal year 2004.

o Also, Interior's Outdoor Recreation, Acquisition, Development and
Planning program reported to FAADS obligations amounting to about $64
million. Data we subsequently obtained from the agency showed obligations
totaling more than $290 million. An agency official explained that until
recently, there had been no monitoring of the information submitted to
FAADS.

o HUD has consistently submitted to FAADS expenditure rather than
obligation data.23 When questioned about this practice, a HUD official
told us that the agency's systems were set up to capture expenditure data.
We found significant differences between expenditures and obligations in
the funding information for two of the six HUD programs we evaluated. HUD
met with Census and OMB in June 2005 about the issue and was considering
ways to change its system to supply the required obligations data.
Subsequently, another HUD official told us that a new system that would
collect and report program obligation data rather than expenditure data to
Census would be operational some time during 2006.

o We questioned a FAADS submission by HHS for the department's Native
American programs for fiscal year 2002 because the more than $82 million
in obligations reported for that year totaled more than three times the
$26.2 million budget for this program. For fiscal year 2003, the $37
million reported to FAADS was about $16 million more than the $20.8
million actual obligation amount provided to us by HHS. For fiscal year
2004, the $37 million reported to FAADS was about $13 million more than
the $23.9 million reported to us by HHS. An HHS official said that she
could not explain the discrepancies.

o For HHS's Health Care and Other Facilities program, the FAADS submission
for Fiscal Year 2002 totaled $620 million-more than $300 million more than
what HHS's internal system showed. An HHS official agreed that the
appropriate figure for the year was about $314 million and said that HHS
planned to review its data system to correct the discrepancy.

o We also questioned the figure of $1.3 billion that HHS reported for its
Community Services Block Grant Discretionary Awards program for fiscal
year 2002, because the department's internal grant-tracking system showed
a figure of about $55 million. After looking into the discrepancy, an HHS
official indicated that the department had for several years mistakenly
combined the Community Services Block Grant program and the Discretionary
Awards program under the Discretionary Awards CFDA program number.
However, the $1.3 billion total reported to FAADS also appeared to be
incorrect, as the total obligations for the two programs combined in
fiscal year 2002 was about $700 million-about $600 million less than what
was reported to Census. HHS has agreed to correct the discrepancy,
beginning with its fiscal year 2006 submission.

o The Small Business Administration (SBA) did not include in its FAADS
submission the funding for a special loan program under its Small Business
Loan program that was set up to assist the World Trade Center area after
the September 11, 2001, terrorist attacks. As a result, the agency's
obligations were underreported by about $828 million for fiscal year 2003
and about $3.1 billion for fiscal year 2004. According to an SBA official,
the agency will review the data that it provides to FAADS more closely in
order to avoid such discrepancies in the future.

According to the Census official who oversees the FAADS program, most of
the agency staffs who submitted the data to Census had very little
involvement with program operations, adding that the individual program
managers who were most knowledgeable about the data's accuracy and
completeness generally did not get involved. OMB has required since fiscal
year 1982 that agency officials review and sign off on a compliance form
when submitting quarterly data. The form contains a series of statements,
including one that reads, "All agency financial assistance award programs
are covered in agency's FAADS sources." However, the official we spoke
with who oversaw the program and had been involved with it since 1996 said
that he had never seen a compliance form accompanying a quarterly report.
It appeared that neither Census nor OMB was enforcing the requirement.
Both Census and OMB staff told us that OMB had previously considered
amending its guidance (Circular A-89) on reporting financial assistance
data to specifically require that each agency appoint an official
responsible for certifying that the FAADS data were accurately reported to
Census. However, at the time of our review, the guidance had not been
amended.

Officials in a number of agencies commented about the lack of controls for
submissions of data to FAADS and told us that requiring data certification
would likely improve data quality. For example, one FAADS coordinator
noted that the agency had no internal control checks in place to determine
which programs should report cost information in any particular quarter or
whether program personnel were submitting the required cost information.
Other agency officials indicated that their agencies had no controls over
FAADS data, including having individuals responsible for certifying that
the data submitted was correct. Finally, one USDA official noted that USDA
had been recording some FAADS information manually rather than through an
electronic system but added that the agency is expected to automate the
data collection system in 2006.

Conclusions

The federal government funds a wide variety of programs that provide rural
areas with economic development money. These programs provide assistance
that directly supports communities' economic well-being through such
activities as creating and helping to retain jobs; constructing and
repairing roads, airports, and water systems; establishing business
incubators; and developing and improving tourist areas. Exactly how much
assistance rural areas receive from the various economic development
programs depends on how "rural" is defined, a definition which is
constantly changing as advances in transportation, computer technology,
and telecommunications-along with the spread of suburbia-continue to blur
many of the distinctions between rural and urban life. We found that the
amount of economic development funding provided to rural areas varied
widely by program, agency, state, and region.

However, both the Congress and the public are at a disadvantage in trying
to assess the exact levels of funds rural areas receive because agencies
have not provided accurate funding data for economic development programs.
Our review showed that the data were often inaccurate or had not been
reported at all. As a result, the information published by Census in
reports issued to the Congress and the general public for the programs we
examined was off by billions of dollars. We reviewed fewer than 10 percent
of the programs that are required by OMB to provide obligation information
to Census. Because the reporting requirements do not differ for the
remaining 90 percent or more of the programs that are required to report
to FAADS, the accuracy of the remaining program data are likely
questionable. OMB has recently begun to meet with agency officials to
improve agency reporting, and several agencies have agreed to implement
changes that should ensure more accurate and complete compliance. Such
efforts should improve the data submitted to FAADS. But the types of
errors we identified will persist unless OMB emphasizes the importance of
establishing improved controls at the agencies and at Census, including
requirements that agencies certify their FAADS submissions and that Census
notify agencies when significant errors occur.

Recommendations

To better ensure that Census receives accurate funding information from
federal agencies, OMB should consider improving its oversight of
compliance with FAADS reporting requirements. We recommend that the
Director of the Office of Management and Budget:

o regularly reach out to individual agencies on FAADS reporting
requirements and on ways to improve the quality of the data provided to
Census, and

o amend its guidance to require agency officials to certify the accuracy
and completeness of their FAADS data reported to Census, and

o provide support to Census with its work in notifying agencies that do
not report or significantly misreport their FAADS data.

Agency Comments and Our Evaluation

We provided Commerce and OMB with a draft of this report for review and
comment. The Deputy Secretary of Commerce provided written comments that
are provided in appendix III. OMB provided oral comments, stating that it
agreed that improvements are needed in the FAADS reporting process. OMB
officials said that they would continue to regularly reach out to
individual agencies on FAADS reporting requirements, and when requested by
Census, will provide support in notifying agencies that do not report or
significantly misreport their FAADS data. They also said that they would
discuss the need for having higher-level agency officials certify FAADS
data submitted to Census at their next agencywide outreach meeting in
April 2006.

The Deputy Secretary of Commerce wrote that the Census generally agrees
with the report's conclusions and recommendations and that the
difficulties GAO encountered with FAADS provide insights into the breadth
and depth of the complexities involved for its staff in collecting,
analyzing, and tabulating this large governmentwide data set. He wrote
that the department will work with OMB and the individual reporting
agencies to identify additional resources and streamlined methodologies to
make future data more complete and accurate.

The Census official who oversees FAADS provided us with oral comments that
expanded on the Deputy Secretary's comments, stating that he agreed with
the need for OMB to regularly outreach to individual agencies and to
require agency officials to certify the accuracy and completeness of data
reported to FAADS. He also agreed that there is a need to identify and
notify agencies that do not report or significantly misreport their FAADS
obligation data, and noted that his office has been routinely reporting
problems to agencies. However, he said that his office needs more support
from OMB to succeed in this area. For example, he said that Census
contacted 12 federal agencies in mid-September 2005 informing them about
significant data problems with their fiscal year 2004 FAADS data
submissions, including many of the items we reported as missing in this
report. However, he said that 7 of the 12 agencies did not respond in any
way as to how they planned to correct the types of discrepancies in the
future. In light of this new information, we revised our recommendation to
acknowledge that OMB should provide additional support to Census in
notifying agencies that do not report or significantly misreport their
FAADS obligation data.

In addition to the comments we obtained from OMB and Commerce, we also
obtained technical comments from most of the other agencies and
commissions included in our review. We incorporated the comments in the
report as appropriate.

As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from
its issuance date. At that time we will send copies of the report to
interested members of Congress and congressional committees. We will also
send copies of this report to the Secretary of the Department of Commerce
and the Director of the Office of Management and Budget and we will make
copies available to others upon request. In addition, detailed information
about the share of federal economic development funding by program,
agency, state, and county will be available at no charge on the GAO
website at www.gao.gov/cgi-bin/getrpt?GAO-06-436sp.

If you or your staff have any questions concerning this report, please
contact me at (202) 512-4325 or at [email protected] . 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 IV.

William B. Shear Director, Financial Markets and   Community Investment

Scope and Methodology Appendix I

To examine the share of federal economic development funds that support
rural areas today, we (1) developed a framework for identifying federal
economic development funding; (2) determined the most informative
classification system for differentiating between rural and urban areas;
(3) used the economic development framework and classification system to
identify rural areas and report the amount and share of economic
development funding these areas have received; and (4) examined federal
agencies' reporting of economic development funds. We interviewed
officials from the U.S. Departments of Agriculture (USDA), Commerce
(Commerce), Defense (DOD), Housing and Urban Development (HUD), Labor
(DOL), Health and Human Services (HHS), Interior (Interior), and
Transportation (DOT). We also interviewed officials from the Small
Business Administration (SBA), Environmental Protection Agency (EPA),
Appalachian Regional Commission, Denali Commission, and Delta Regional
Authority.

Because there is no commonly accepted definition of what constitutes
federal economic development, we developed a framework for discussing
economic development using our prior reports and research studies by the
National Council for Urban Economic Development, the Progressive Policy
Institute, the Cornell Community and Rural Development Institute, and the
Northeast-Midwest Institute`s Center for Regional Policy. We also used
information provided by federal program officials and external rural
development groups, including the Aspen Institute Community Strategies
Group, the Sonoran Institute, the Southern Rural Development Initiative,
and the Progressive Policy Institute. We then used the framework to define
activities that were generally accepted as being related to economic
development and reviewed program descriptions from the Catalog of Federal
Domestic Assistance (CFDA) to assess which programs fostered or assisted
with economic development. We originally identified about 135 programs and
held discussions with the administering agencies, regional commissions,
and authorities on our framework and the programs selected. Based on those
discussions we modified our framework and eliminated programs that did not
meet the modified framework. In some cases we obtained more detailed
information on programs beyond that in the CFDA program descriptions. We
settled on 86 programs to include in our analysis.

In finalizing the framework, we focused on economic development activities
that directly affect the overall development of an area-particularly
saving or creating jobs-rather than on activities that improve
individuals' quality of life, such as housing or general education. For
example, we did include job training that had a direct impact on economic
development in an area by, for example, preparing employees for a specific
industry or business located in a particular area. However, we did not
include general educational programs, housing loan programs, research and
development programs, or other programs that do not directly impact the
economic development of an area.

To examine federal agencies' reporting of economic development funds, we
reviewed the extent to which agencies reported information to the Federal
Assistance Award Data System (FAADS) for the 86 programs we selected for
review during fiscal years 2002 through 2004. FAADS produces a quarterly
file of standardized records on financial assistance awards made by
federal agencies. Each transaction record identifies, by CFDA program code
number, the type and amount of financial assistance, the type and location
of the recipient, and the geographic place of performance. We assessed the
reliability of the FAADS data by (1) performing electronic testing of the
required data elements for obvious errors in accuracy and completeness,
(2) comparing program totals by fiscal year to similar data from the
Consolidated Federal Funds Report (CFFR) database, (3) reviewing related
documentation, and (4) interviewing the Census Bureau official
knowledgeable about the data.

For those programs for which information had been submitted to FAADS, we
checked the amounts against agency obligation data provided by the agency
or the CFDA record. When there were significant discrepancies, we
contacted the agencies to determine the reasons for the discrepancies. If
the FAADS data were deemed incorrect, in most cases we obtained the
corrected information from the agencies and replaced the FAADS information
for our analysis. In cases where the discrepancy could not be resolved, we
used the agency obligations data provided to us by the agency. Because HUD
had submitted expenditure data instead of obligation information as
required by FAADS, we obtained obligation information from HUD on each of
the programs included in our analysis. In addition to the more than 20
programs for which we identified discrepancies, we also identified another
20 programs for which the agencies had not submitted any information to
FAADS for one or more of fiscal years 2002 through 2004. For each of these
programs, we contacted agency staff to determine why no information had
been submitted to FAADS and what the obligation information amounts were
for each of the fiscal years. Also, because the FAADS data provides
detailed information on program recipients, such as zip codes, we
requested that each agency provide us with similar information on program
recipients so that we could geocode the information.

Once we created the final database of spending for the 86 programs, we
used the information in the file to identify the locality that received
the funds. However, for approximately 50 percent of the funding, we could
not identify a recipient below the county level. Based on this finding and
consultations with USDA's Economic Research Service, we decided to analyze
the dollars flowing to rural areas using the dominant Rural-Urban
Commuting Area (RUCA) approach. RUCA data is based on census tracts, but
the State of Washington's Office of Community and Rural Health has
developed a system to classify counties based on their dominant RUCA code
if census tract data is not available. In order to produce county-level
RUCA estimates, we applied this approach to the entire country by
assigning dominant RUCA categories to every county. These analyses allowed
us to classify every county as urban or rural. Using the county-level RUCA
file, we were able to assign a dominant RUCA code to over 99 percent of
the program dollars. We also classified every county as urban or rural
using ERS's rural-urban continuum system, including those counties
considered completely rural or that contained urban populations of less
than 20,000 as rural counties, and other counties as urban counties.

Another data issue involved pass-through programs, or programs for which
the data showed the recipient to be the state government. For most of
these programs, state governments subsequently passed these funds through
to counties or local governments. However, we could not identify the
subsequent recipients. Using the CFDA program descriptions, we determined
that 12 of 86 programs appeared to meet this criterion, along with the
portion of the highway spending program that went to state governments.
For example, both DOT's Formula Grants Program for Other than Urbanized
Areas and HUD's Community Development Block Grant/ State's program showed
no funding going to rural areas. Both these programs pass through funding
to rural areas, but the data only coded the funding to the state capitals.
If we had geocoded funding for such pass-through programs, the share of
spending associated with urban areas, where state capitals are typically
located, would have been overstated. Excluding the pass-through funding
reduced the total spending we analyzed from about $200 billion to about
$150 billion.

Significant noncompliance by a number of agencies that had failed to
submit obligation information for one or more programs, restricted our
ability to use the CFFR database to identify how all economic development
program funds were dispersed. While the reliability of the databases used
by Census to prepare the CFFR has been tested, we did not know the extent
to which agency data we obtained and analyzed directly from the agencies
were reliable. As a result, we contacted agency officials to determine the
controls used to ensure that the data they provided to us were reliable
and accurate. Specifically, we requested information concerning the
accuracy and completeness of the data, the use of the data in developing
financial statements about the programs, and any reviews or audits of the
quality of the data. The respondents indicated that the data were correct
and told us why they believed the information was accurate. In addition,
we questioned whether agency staff was aware of the FAADS reporting
requirements and in some cases requested data directly from agencies.
While the data we received directly from agencies were generally not as
comprehensive as the CFFR requires, we found that the information was
sufficient for our purposes.

We conducted our review from January 2005 through December 2005 in
accordance with generally accepted government auditing standards.

Funding Data for Selected Federal Programs That Fund Economic Development
Activities Appendix II

The following table lists each agency program by CFDA number and program
objective, the source we used to obtain fiscal year 2002-2004 funding
data, and whether or not missing or corrected data was obtained from the
agency.

Source: GAO and the Catalog of Federal Domestic Assistance

Comments from the Department of Commerce Appendix III

GAO Contact and Staff Acknowledgments Appendix IV

William B. Shear, (202) 512-4325, [email protected]

In addition to those named above, Andy Finkel, Assistant Director; Emily
Chalmers; Mark Egger; John McGrail; Rich LaMore; John Mingus; Marc Molino;
and Tom Taydus made key contributions to this report.

(250222)

www.gao.gov/cgi-bin/getrpt? GAO-06-294 .

To view the full product, including the scope

and methodology, click on the link above. To view the database on federal
economic development funding, click on the following link:
www.gao.gov/cig-bin/getrpt?GAO-06-436sp. For more information, contact
William B. Shear at (202) 512-4325 or [email protected].

Highlights of GAO-06-294 , a report to congressional requesters

February 2006

RURAL ECONOMIC DEVELOPMENT

More Assurance Is Needed That Grant Funding Information Is Accurately
Reported

GAO was asked to update its 1989 report on the distribution of economic
development funding using newer tools now available for measuring the
distribution of federal funds to rural areas. GAO agreed to (1) identify
federal economic development programs, (2) determine the best way to
identify rural areas for this report, (3) determine the amount and share
of economic development funding that rural areas receive, and (4) discuss
the way federal agencies report data on economic development funding.

What GAO Recommends

GAO recommends that the Office of Management and Budget (OMB) (1)
regularly reach out to individual agencies on Federal Assistance Award
Data System (FAADS) reporting requirements and on ways to improve the
quality of data provided to the U. S. Census Bureau (Census), (2) amend
its guidance to require agency officials to certify the accuracy and
completeness of their FAADS data reported to Census and (3) provide
support to Census with its work in notifying agencies not in compliance
with reporting requirements. OMB and the Departmert of Commerce provided
comments on a draft of this report and generally agreed with the
recommendations.

Based on prior GAO reports, other research studies, and information
provided by federal program officials and external rural development
groups, GAO developed a list of activities as criteria to identify
economic development programs. This list included job creation,
infrastructure development. and other activities that are generally
acknowledged to directly affect overall economic growth. Using this list,
GAO identified 86 federal programs in 10 federal agencies and 3 regional
commissions and authorities that provide economic development funding.

Because federal agencies use different criteria as to what constitutes
rural, determining how much funding has targeted rural areas required
determining which method of defining rural was the best for tracking
funding. Classification systems that can track funding data at the census
tract level or below can better differentiate between rural and urban
areas because they better reflect the economic and social diversity than
do county-based systems that are based on political boundaries. Because
limitations in the data did not allow tracking all the funding data to
local levels, GAO used a system that used population and commuting
relationships to classify census tracts and then classify each county as
rural or urban based on the county's dominant commuting pattern.

The 86 programs in 2002-2004 provided approximately $200 billion in total
economic development funding, about $150 billion of which could be tracked
to the county level or below. However, the amount of funding provided to
rural areas varied widely by program, agency, state, and region. These
calculations were complicated by significant problems with the data from
the programs that federal agencies were reporting to Census. Although all
federal agencies are required to submit obligations data for their
programs quarterly, 44 of the programs GAO analyzed did not report any
data or reported incomplete or inaccurate data for all or part of fiscal
years 2002, 2003, or 2004. As a result, the reported obligations were off
by more than $11 billon. Further, some 19 programs provided no information
on obligations of about $4.5 billion, and another 25 programs reported
amounts that varied significantly from actual obligations. The FAADS
reporting requirement has been in place since 1982. But a lack of
knowledge among program officials about the requirement and poor oversight
has affected compliance with it.

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