Community Development Block Grants: Program Offers Recipients	 
Flexibility but Oversight Can Be Improved (28-JUL-06,		 
GAO-06-732).							 
                                                                 
The Community Development Block Grant (CDBG) program provides	 
funding for housing, economic development, and other community	 
development activities. In fiscal year 2006, Congress		 
appropriated about $4.2 billion for the program. Administered by 
the Department of Housing and Urban Development (HUD), the CDBG  
program provides funding to metropolitan cities and urban	 
counties, known as entitlement communities, and to states for	 
distribution to nonentitlement communities. This report discusses
(1) how recipients use CDBG funds, including the extent to which 
they comply with spending limits, (2) how HUD monitors		 
recipients' use of CDBG funds, and (3) how HUD holds recipients  
that have not complied with CDBG program requirements		 
accountable. To address these objectives, we visited 20 	 
recipients, analyzed HUD data, and interviewed HUD staff.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-732 					        
    ACCNO:   A57628						        
  TITLE:     Community Development Block Grants: Program Offers       
Recipients Flexibility but Oversight Can Be Improved		 
     DATE:   07/28/2006 
  SUBJECT:   Accountability					 
	     Block grants					 
	     Community development				 
	     Community development programs			 
	     Cost control					 
	     Program evaluation 				 
	     Interorganizational relations			 
	     Community Development Block Grant			 

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GAO-06-732

     

     * Report to Congressional Committees
          * July 2006
     * COMMUNITY DEVELOPMENT BLOCK GRANTS
          * Program Offers Recipients Flexibility but Oversight Can Be
            Improved
     * Contents
          * Results in Brief
          * Background
          * 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
               * Almost All Funded Activities Benefit Low- and
                 Moderate-Income People, but the Criteria for Defining Target
                 Areas Are Allowed to Vary
               * HUD Does Not Centrally Maintain the Data Needed to Determine
                 Compliance with Statutory Spending Limits on Public Service
                 Activities and Administration and Planning
                    * Congress Has Provided Some Exceptions to the Public
                      Service Spending Limit
                    * 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
          * 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
               * HUD Has Limited Staff and Travel Funds to Devote to CDBG
                 Monitoring
               * HUD Has Made Little Effort to Involve Field Staff in Plans
                 to Redesign IDIS
          * 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
               * Guidance Could Help Ensure Sanctions Are Appropriate
          * Conclusions
          * Recommendations for Executive Action
          * Agency Comments and 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
          * Acquisition
     * Comments from the Department of Housing and Urban Development
          * GAO Comments
     * GAO Contact and Staff Acknowledgments

                 United States Government Accountability Office

Report to Congressional Committees

GAO

July 2006

COMMUNITY DEVELOPMENT BLOCK GRANTS

      Program Offers Recipients Flexibility but Oversight Can Be Improved

                                       a

GAO-06-732

COMMUNITY DEVELOPMENT BLOCK GRANTS

Program Offers Recipients Flexibility but Oversight Can Be Improved

  What GAO Found

HUD data show that CDBG recipients spend the largest percentage of their
grants on public improvements (such as water lines and streets) and
housing, but HUD does not centrally maintain the data needed to determine
compliance with statutory spending limits. Due to the lack of centralized
data, GAO was not able to determine the extent to which all recipients
have complied with statutory spending limits on public services (such as
health and senior services) and administration and planning. However, data
provided by HUD for the 100 most populous entitlement communities, which
received about one-third of the CDBG funds allocated in fiscal year 2006,
showed that not all of these entitlement communities complied with the
limits. Of the 100 communities, 3 exceeded their public service spending
limit, and 1 exceeded the administration and planning spending limit.
Given that entitlement communities collectively spend at or close to the
limits, it is important for HUD to be able to report on the extent of
their individual compliance with these limits.

HUD uses a risk-based approach to monitor CDBG recipients; however, it has
not developed a plan to replace monitoring staff or fully involved its
field staff in plans to redesign an information system they use to monitor
recipients. HUD's monitoring strategy calls for its field offices to
consider various risk factors when determining which recipients to review
because it has limited monitoring resources, and its workload has
increased as its staffing levels have decreased. For example, 13 of the 42
field offices that oversee CDBG recipients do not have a financial
specialist to evaluate the financial operations of each recipient, and 39
percent of CDBG monitoring staff is eligible to retire within the next 3
years. Despite these statistics, HUD has not developed a plan to hire
staff with needed skills or manage upcoming retirements. Finally, although
the Integrated Disbursement and Information System (IDIS) is a tool that
HUD field staff use to monitor, HUD headquarters has solicited little
input from them on efforts to redesign IDIS.

Although it has issued a clear policy stating what actions it will take
when entitlement communities fail to meet the statutory requirement that
funds be spent in a timely manner, HUD has not developed similar guidance
establishing a consistent framework for holding CDBG recipients
accountable for deficiencies identified during monitoring. For
deficiencies other than being slow to expend funds, HUD has the
flexibility to institute sanctions ranging from issuing a warning letter
to advising the recipient to return funds. Although its field offices have
great flexibility when taking sanctions, HUD has not issued guidance
establishing a framework to ensure that they are treating recipients that
commit similar infractions equitably. We found instances in fiscal year
2005 where treatment seemed inconsistent. For example, several field
offices found that recipients had not documented that a funded activity
met any one of the program's three national objectives, but took different
actions. In the continued absence of guidance, HUD lacks a means to better
ensure consistency in the sanctioning process.

                 United States Government Accountability Office

Contents

  Letter 1

Results in Brief 2 Background 5 Recipients Fund a Variety of Activities,
but HUD Lacks Centralized

Data Showing Compliance with Statutory Spending Limits 12 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 23 HUD Has
Implemented a Clear Timeliness Policy, but Has Not Issued

Similar Guidance on Other Enforcement Actions 32 Conclusions 36
Recommendations for Executive Action 38 Agency Comments and Our Evaluation
38

  Appendixes

                                       Appendix I: Appendix II: Appendix III:

Appendix IV:

    Appendix V:

Objectives, Scope, and Methodology 40

Selected States' Methods of Distributing Funds 45

Activities Funded by the Recipients That GAO Visited 50 Public
Improvements 50 Housing 53 Public Services 56 Economic Development 58
Acquisition 60

Comments from the Department of Housing and Urban Development 61 GAO
Comments 64

    GAO Contact and Staff Acknowledgments 67

Table 1:

  Tables

Table 2: Table 3: Table 4: Table 5: Table 6:

Categories of Eligible CDBG Activities 9 Percentage of CDBG Recipients
Monitored, FY 2001-2005 24 Number of Times CDBG Recipients Were Monitored,
FY 2001-2005 26 Sanctions Taken against CDBG Recipients, FY 2003 - 2005 34
20 Recipients That GAO Visited 41 Information on How 10 States Distribute
Their CDBG Funds 46

  Figures

Contents

Figure 1: CDBG Appropriations, 1990 - 2006 6 Figure 2: FY 2005 CDBG
Expenditures, All Recipients 13 Figure 3: FY 2005 CDBG Expenditures,
Entitlement Communities

and States 14 Figure 4: Activities Funded by Recipients That We Visited 15
Figure 5: FY 2005 CDBG Expenditures, by National Objective 17 Figure 6:
Number of Recipients Eligible to Use Alternative Criteria

for Defining Low- and Moderate-Income Areas 18 Figure 7: Sanctions Taken
as Result of FY 2005 Monitoring

Reviews, by Type 35 Figure 8: Boys and Girls Club in West Point, Georgia
50 Figure 9: Renovated Briggs Playground Pool in Attleboro,

Massachusetts 52 Figure 10: Corron Farm Park in Kane County, Illinois 53
Figure 11: Single Family Housing Rehabilitation in Greeley,

Colorado 54 Figure 12: Loaves and Fishes Community Food Pantry in
Naperville,

Illinois 56 Figure 13: Heartland Financial Building in Dubuque, Iowa 59

                                 Abbreviations

CDBG            Community Development Block Grant Program                  
CPD             Office of Community Planning and Development               
ESG             Emergency Shelter Grants Program                           
GAO             Government Accountability Office                           
GMP             Grants Management Process System                           
HOME            HOME Investment Partnerships Program                       
HOPWA           Housing Opportunities for Persons with AIDS Program        
HUD             Department of Housing and Urban Development                
IDIS            Integrated Disbursement and Information System             
OMB             Office of Management and Budget                            
PART            Program Assessment Rating Tool                             

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A

United States Government Accountability 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. Turner Chairman, Subcommittee on Federalism

and the Census Committee on Government Reform House of Representatives

The Honorable Tom A. Coburn Chairman, Subcommittee on Federal Financial

Management, Government Information, and International Security Committee
on Homeland Security and

Governmental Affairs United States Senate

The Community Development Block Grant (CDBG) program is the federal
government's principal community development program. It provides funding
for housing, economic development, neighborhood revitalization, and other
community development activities. In fiscal year 2006, Congress
appropriated approximately $4.2 billion for the program. Administered by
the Department of Housing and Urban Development (HUD), the CDBG program
provides funding to metropolitan cities and urban counties, known as
entitlement communities, and to states for distribution to nonentitlement
communities. The program provides annual grants on a formula basis that
takes into account population, poverty, housing overcrowding, the age of
the housing, and any change in an area's growth in comparison with that of
other areas. The activities undertaken with program funds must (1)
principally benefit low- and moderate-income persons, (2) aid in the
prevention or elimination of slums or blight, or (3) meet urgent community
development needs.

The CDBG program has undergone few fundamental changes since Congress
created it in 1974. However, the administration's fiscal year 2006 budget
proposed consolidating the program with other community and economic
development programs in the Department of Commerce and

                                Results in Brief

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.1 We selected these recipients based on factors
such as geographic dispersion, funding level, and need.2 During these
visits, we interviewed staff, toured funded projects, and reviewed 144
recipient files. We also visited four nonentitlement communities. We
analyzed Integrated Disbursement and Information System (IDIS) data on
expenditures and Grants Management Process (GMP) System data on the extent
of HUD monitoring. We determined that the data were sufficiently reliable
for the purposes of this report. Finally, we reviewed HUD's program
regulations and guidance and interviewed headquarters and field staff. We
performed our work from July 2005 to July 2006 in accordance with
generally accepted government auditing standards. Appendix I provides
additional details on our scope and methodology.

Results in Brief

HUD data show that CDBG recipients spend the largest percentage of their
grants on public improvements (such as water lines and street
improvements), housing, and administration and planning, but HUD does not
centrally maintain the data needed to determine compliance with statutory
spending limits on public services (such as health and senior services)
and on administration and planning. In terms of the activities most often
funded, some differences exist in how entitlement communities and states
have used their funds. In fiscal year 2005, HUD data showed that

1The 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.

Page 2 GAO-06-732 Community Development Block Grants

entitlement communities-cities and urban counties-spent 27 percent of
their funds on housing, 24 percent on public improvements, and 17 percent
on administration and planning. Other activities they funded to a lesser
extent included public services, acquisition of property, and economic
development. During that same time period, HUD data showed that the
nonentitlement communities funded by states spent 54 percent of their
funds on public improvements, 17 percent on housing, and 15 percent on
economic development. Because HUD's information systems do not maintain a
record of data adjustments needed to calculate compliance, we were not
able to determine the extent to which all recipients have complied with
the statutory spending limits on public services and administration and
planning. However, data collected by HUD from its field offices for the
100 most populous entitlement communities showed that not all complied
with the limits.3 These 100 entitlement communities received about
one-third of the CDBG funds allocated in fiscal year 2006. Of the 100
entitlement communities, 3 exceeded their public service spending limit,
and 1 exceeded the administration and planning spending limit. Given that
HUD data show that entitlement communities collectively spend at or close
to the limits, it is important for HUD to be able to report on the extent
of their individual compliance with these limits.

HUD uses a risk-based approach to monitor CDBG recipients; however, it has
not developed a plan to ensure that it has enough staff with the skills
needed to conduct monitoring or fully involved its field staff in plans to
redesign an information system they use to monitor recipients. Consistent
with our internal control standards, HUD has developed a formal risk
analysis process for its field offices to follow when determining which
recipients to review.4 The factors considered include the size of the
recipient's grant, the complexity of the activities that a recipient
undertakes, and how long it has been since the department last reviewed a
recipient. HUD's field offices generally followed this process when
determining which recipients to review in fiscal year 2005. Our analysis
of the extent of HUD monitoring showed that HUD reviewed most, but not
all, CDBG recipients at least once in the 5-year period from fiscal year
2001 through fiscal year 2005. Specifically, HUD reviewed all but 255
recipients

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.

4GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).

Page 3 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 staff to devote to CDBG
monitoring and its CDBG workload has increased as its staffing levels have
decreased. For example, 13 of the 42 field offices overseeing CDBG
recipients do not have a financial specialist to evaluate the financial
operations of each recipient, and 39 percent of CDBG monitoring staff is
eligible to retire within the next 3 years. Despite these statistics, HUD
has not developed a plan to hire staff with needed skills or help manage
upcoming retirements. Further, IDIS-the system that HUD uses to conduct
on-site and off-site monitoring-does not contain all of the information
that HUD needs to monitor recipients' performance. For example, HUD field
staff told us that the data in IDIS are not always current because some
recipients do not update it quarterly, as HUD recommends. HUD is currently
redesigning IDIS, but it has solicited limited input from its field staff
on its development plans.

Although it has issued a clear policy stating what actions it will take
when entitlement communities fail to meet the statutory requirement that
funds be spent in a timely manner, HUD has not developed similar guidance
establishing a consistent framework for holding CDBG recipients
accountable for deficiencies identified during monitoring. HUD has set a
timeliness standard for entitlement communities and established a grant
reduction policy for recipients that exceed the standard. For deficiencies
other than being slow to expend funds (such as funding an ineligible
activity or failing to document that an activity meets one of the
program's national objectives), HUD has the flexibility to assess
sanctions ranging from issuing a warning letter to advising the recipient
to return CDBG funds. Although its field offices have great flexibility
when making sanctions, HUD has not issued guidance establishing a
consistent framework to ensure that these offices are treating recipients
that commit similar infractions equitably. In conducting our work, we
found instances in fiscal year 2005 where findings that appeared to be
similar were associated with different enforcement actions. For example,
several field offices found that recipients had not documented that a
funded activity met a national objective, but took different actions. One
office advised the recipient to pay back funds. If the recipient could not
provide further documentation, the second office planned to advise the
recipient to provide written assurance that it would not fund that type of
activity again, while the third office stated that it might disallow the
expenditures.

Treatment can continue to appear inconsistent in the absence of guidance
to better ensure consistency and transparency in the sanctioning process.

This report contains four recommendations designed to improve HUD's
processes for monitoring communities' use of CDBG funds. We recommend that
HUD centrally maintain the data needed to determine compliance with
statutory spending limits, develop a plan for replacing an aging
workforce, solicit additional input from its field staff on the user
requirements for IDIS, and consider developing guidance on sanctioning
CDBG recipients. We provided a draft of this report to HUD for its review
and comment. In response, HUD provided a letter with comments that are
technical in nature. In addition, we received oral comments from the
Office of Community Planning and Development's Comptroller stating that,
overall, HUD agrees with our findings, conclusions, and recommendations.

Background

The Housing and Community Development Act of 1974 combined seven
categorical programs to form the CDBG program. The objective of the
program is to develop viable urban communities by providing decent housing
and a suitable living environment and expanding economic opportunities,
principally for persons of low and moderate income. Program funds can be
used on housing, economic development, neighborhood revitalization, and
other community development activities. As shown in figure 1, CDBG
appropriations have fluctuated over time.

Figure 1: CDBG Appropriations, 1990 - 2006 Real dollars in billions
Constant dollars in billions (2005)

6 6

5

5

4

4

3

3

2 2

1 1

    0 0 '06 '05 '04 '03 '02 '01 '00 '99 '98 '97 '96 '95 '94 '93 '92 '91 '90 '06
    '05 '04 '03 '02 '01 '00 '99 '98 '97 '96 '95 '94 '93 '92 '91 '90

Fiscal year Fiscal year

Total appropriations

Formulaallocation

Source: HUD appropriations data.

Note: The formula allocation represents the portion of CDBG funds that is
available for distribution to entitlement communities and states after
Congress sets aside funds for special purposes.

After funds are set aside for special purposes such as the Indian CDBG
program and allocated to insular areas, the annual appropriation for CDBG
formula funding is split so that 70 percent is allocated among eligible
metropolitan cities and counties (referred to as entitlement communities)
and 30 percent among the states to serve nonentitlement communities.5
Entitlement communities are (1) principal cities of metropolitan areas,
(2) other metropolitan cities with populations of at least 50,000; and (3)
qualified urban counties with populations of at least 200,000 (excluding
the

5Total set-asides for fiscal year 2006 are $467 million. Under the Indian
CDBG program, HUD provides competitive grants to federally recognized
Indian tribes and to certain tribal organizations. The four insular areas
are American Samoa, Guam, the Northern Mariana Islands, and the Virgin
Islands.

Page 6 GAO-06-732 Community Development Block Grants

population of entitled cities).6 Currently, 1,128 entitlement communities
receive CDBG funds, which is up from 866 entitlement communities in fiscal
year 1990; 50 states also receive CDBG funds.7 HUD distributes funds to
entitlement communities and states based on the higher yield from one of
two weighted formulas that consider factors such as population, poverty,
housing overcrowding, the age of the housing, and any change in an area's
growth in comparison with that of other areas. HUD ensures that the total
amount awarded is within the available appropriation by reducing the
individual grants on a pro rata basis.

Entitlement communities may carry out activities directly or may award
funds to subrecipients to carry out agreed-upon activities. Subrecipients
can be governmental agencies such as public housing authorities or park
districts; private nonprofits such as private social service agencies,
community development corporations, or operators of homeless shelters; and
certain private, for-profit entities that facilitate economic development.
Whenever an entitlement community uses a subrecipient, it must enter into
a signed, written agreement with that subrecipient that includes a
statement of work-which describes the work to be performed, the schedule
for completing the work, and the budget-and the recipient's recordkeeping
and reporting requirements.

Every activity funded by entitlement communities and states must meet one
of three national program objectives. Activities undertaken must (1)
principally benefit low- and moderate-income persons, (2) aid in the
prevention or elimination of slums or blight, or (3) meet urgent community
development needs. Recipients must use at least 70 percent of their funds
for activities that principally benefit low- and moderate-income people
over a period of 1, 2, or 3 years, as specified by the recipient.
Generally, an activity is considered to principally benefit low- and
moderate-income people if 51 percent or more of those benefiting meet the
definition. However, the CDBG statute includes an exception that enables
certain

6The Office of Management and Budget (OMB) defines metropolitan areas. A
principal city is the largest city of a metropolitan area or a city that
meets specified statistical criteria.

7Although 118 of the 1,128 entitlement communities no longer meet the
definition, they remain entitlements due to a statutory provision that
allows communities that qualified for at least 2 years to remain qualified
indefinitely. These 118 entitlement communities were allocated about $100
million in fiscal year 2005. The 50 state recipients include Puerto Rico
but not Hawaii because it has permanently elected not to receive state
CDBG program funding. HUD awards funds for the nonentitlement areas in
Hawaii directly to the three eligible counties.

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.8 Area benefit activities are activities that
benefit all of the residents in a particular geographic area, such as a
park, community center, or streets. Entitlement communities that may
utilize this exception are those that have a limited number of census
tracts with a majority low- and moderate-income population, and the
exception extends to the 25 percent of census tracts within the
entitlement community's boundaries having the highest percentages of low-
and moderate-income persons.

Recipients can only use their CDBG funds on 26 eligible activities. For
reporting purposes, HUD classifies these eligible activities into eight
broad categories, as defined in table 1. Some of the activities that can
be funded, such as loans for housing rehabilitation, generate program
income for recipients that must be used to fund additional activities.
There are statutory limitations on the amounts that recipients may spend
in two specific areas. Pursuant to provisions in annual appropriations
laws, recipients may only use up to 20 percent of their annual grant plus
program income on planning and administrative activities. Recipients may
also only use up to 15 percent of their annual grant plus program income
on public service activities.9 Entitlement communities comply with these
requirements by limiting the amount of funds they obligate for these
activities during the program year, while states limit the amount they
spend on these activities over the life of the grant.

842 U.S.C. S: 5305(c)(2)(A)(ii).

9Public service activities funded through community based development
organizations-organizations authorized under 24 C.F.R. 570.204 to carry
out special activities such as economic development or new housing
construction-are not subject to the public service spending limit.

Page 8 GAO-06-732 Community Development Block Grants

                Table 1: Categories of Eligible CDBG Activities

Category            Description                                            
Acquisition         Includes the acquisition of real property, clearance   
                       and                                                    
                       demolition, and relocation                             
Administration and  Includes planning, general program administration, and 
                       indirect                                               
planning            costs                                                  
Economic            Includes financial assistance to for-profit businesses 
                       and the                                                
development         rehabilitation of publicly or privately owned          
                       commercial or                                          
                       industrial property                                    
Housing             Includes the rehabilitation of residential properties, 
                       direct                                                 
                       homeownership assistance, and code enforcement         
Public improvements Includes public facilities such as homeless shelters   
                       and                                                    
                       neighborhood facilities and improvements to water and  
                       sewer                                                  
                       lines and streets                                      
Public services     Includes health services, senior services, child care  
                       services, and                                          
                       employment training                                    
Repayments of       Repayments of loans obtained using current and future  
                       CDBG                                                   
Section 108 loans   allocations as collateral                              
Other               Includes nonprofit organization capacity building and  
                       assistance                                             
                       to institutions of higher learning                     

Source: HUD data.

Recipients must submit a strategic plan that addresses the housing,
homeless, and community development needs in their jurisdictions at least
once every 5 years. The plan covers CDBG and three other formula grant
programs administered by HUD-the HOME Investment Partnerships (HOME)
Program, the Emergency Shelter Grants (ESG) Program, and the Housing
Opportunities for Persons with AIDS (HOPWA) Program.10 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

10The HOME program provides federal assistance to participating
jurisdictions for housing rehabilitation, rental assistance, home-buyer
assistance, and new housing construction. The ESG program provides
homeless persons with basic shelter and essential supportive services by
assisting with the operational costs of shelter facilities. The HOPWA
program provides housing assistance and related supportive services to
persons living with human immunodeficiency virus/acquired immunodeficiency
syndrome (HIV/AIDS).

11Recipients have different program year start and end dates that often
coincide with their jurisdictions' fiscal year.

objectives outlined in their strategic and action plans. HUD staff use
detailed checklists to review recipients' strategic and annual actions
plans as well as their annual performance reports.

HUD's Office of Community Planning and Development (CPD) administers the
CDBG program through program offices at HUD headquarters and 42 field
offices located throughout the United States. The headquarters offices set
program policy, while staff in the 42 field offices monitor recipients.
Each field office is headed by a CPD director. CPD has a total authorized
staff of approximately 800-about 200 at headquarters and 600 in the field.
CPD field offices are responsible for a broad range of grant management
activities that include annual review and approval of entitlement grantee
action plans, preparation and execution of grant agreements, review of
entitlement grantee annual performance reports, managing homeless program
competition to include reviewing over 4,500 applications; preparing
conditional award letters; reviewing and approving technical submission
for conditionally approved grants; setting up budgets for each grant in
Line of Credit Control System; executing grant agreements and grant
closeout activities, providing technical assistance to entitlement and
competitive grantees, and recapturing unobligated/unexpended grant funds,
as well as monitoring activities.

In September 2005, CPD issued a new monitoring handbook. The handbook
states that monitoring is an integral management control technique and
that the goal of monitoring is to determine compliance, prevent/identify
deficiencies, and design corrective actions to improve or reinforce
program participant performance. It contains two chapters on monitoring
the CDBG program, and these chapters include 29 exhibits for field office
staff to use when monitoring CDBG recipients.

HUD staff use two major information systems to monitor the use of CDBG
funds-IDIS and GMP. Developed in fiscal year 1996, IDIS is a management
information system that consolidates planning and reporting processes
across HUD's four formula grant programs. The recipients use this system
to enter information on their plans, establish projects and activities to
draw down funds, and report accomplishments. The GMP system, created in
fiscal year 1997, records information such as HUD's monitoring of
recipients, provision of technical assistance, and review of recipients'
plans and performance reports. The system is designed for use by HUD staff
to ensure that funds are being expended properly and to provide
information on recipient progress.

In April 1999, we issued a report on HUD's oversight of CDBG and CPD's
three other formula grant programs.12 At that time, we found that HUD's
monitoring did not ensure that the programs' objectives were being met or
that recipients were managing their funds appropriately. We also noted
that IDIS did not provide the information necessary to accurately assess
recipients' performance and thus did not compensate for HUD's breakdowns
in monitoring. Specifically, we reported that IDIS (1) provided ample
opportunity for major problems with data entry and did not allow such
problems to be corrected easily, (2) did not provide timely and accurate
information, and (3) had difficulty producing reports. Because of the
actions HUD took in response to our recommendations in this report, we
removed CPD's programs from our high-risk list in 2001.13

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.

12GAO, Community Development: Weak Management Controls Compromise
Integrity of Four HUD Grant Programs, GAO/RCED-99-98 (Washington, D.C.:
Apr. 27, 1999). 13GAO, High-Risk Series: An Update, GAO-01-263
(Washington, D.C.: January 2001). 14 GAO/AIMD-00-21.3.1.

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

While the data that HUD collects on CDBG expenditures show that CDBG
recipients fund a variety of activities, HUD does not centrally maintain
the data needed to determine if recipients are complying with statutory
spending limits. According to HUD's data, CDBG recipients spend the
largest percentage of their funding on public improvements and housing
activities. Further, recipients report that the vast majority of
activities they fund meet the national objective of principally benefiting
low- and moderate-income persons; however, 359 recipients are currently
eligible for an exception that allows them to expand the definition of
low- and moderate-income areas. There are statutory spending limits on
public services and administration and planning, but HUD's information
systems do not maintain all the data needed to determine the extent of
compliance with these limits. Finally, HUD has implemented a new
performance measurement system to improve its ability to obtain consistent
data on accomplishments attained with CDBG funds.

    CDBG Recipients Use the Majority of Their Grants to Fund Public Improvements
    and Housing Activities

CDBG recipients spend the largest percentage of their funding on public
improvements and housing activities. In fiscal year 2005, recipients spent
about $4.8 billion in CDBG funds to address a wide range of local needs.
Approximately $508 million (or 10 percent) of these total expenditures
were from program income generated by previous CDBG activities. As shown
in figure 2, CDBG recipients spent 32 percent of their total funds on
public improvements and 25 percent on housing in fiscal year 2005. Within
the category of public improvements, recipients spent the largest
percentage of their funds on water and sewer improvements. Under the
housing category, the single activity that received the most funding was
single-unit residential rehabilitation.

Figure 2: FY 2005 CDBG Expenditures, All Recipients

0.5% Other 2.7% Section 108 loan repaymentsAcquisition

Economic development

Public services

Administration and planning

Housing Public improvements

Source: GAO analysis of IDIS data.

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
funding using a formula method. For examples of how selected states
distribute their CDBG funds, see appendix II.

Figure3: FY 2005 CDBG Expenditures, Entitlement Communities and States
CDBG expenditures by entitlement communities CDBG expenditures by states

Source: GAO analysis of IDIS data.

As a result of the flexibility inherent in the CDBG program, the types of
activities that entitlement communities and states fund within each broad
category vary considerably. During our site visits, many of the recipients
we interviewed stated that the flexibility afforded by CDBG was one of the
program's strengths. Figure 4 illustrates the variety of activities funded
by the recipients we visited. More detailed descriptions of various
activities funded by the recipients we visited can be found in appendix
III.

Figure 4: Activities Funded by Recipients That We Visited

 Sources: GAO (top two photos); City of Beloit, Wisconsin (middle two photos);
                  Civil Technology, Inc. (bottom two photos).

    Almost All Funded Activities Benefit Low- and Moderate-Income People, but
    the Criteria for Defining Target Areas Are Allowed to Vary

Of the three national program objectives, recipients report that the vast
majority of activities they fund under the CDBG program meet the objective
of principally benefiting low- and moderate-income persons. However, some
recipients can use different criteria when defining low- and
moderate-income areas. As shown in figure 5, entitlement communities
reported that 91 percent of the activities they funded in fiscal year 2005
principally benefited low- and moderate-income persons; states reported
that 96 percent of their activities met this national objective. The
remaining activities funded, excluding activities coded for administration
and planning,sought to eliminate slums or blight, addressed urgent needs,
or were missing a national objective code. For the small percentage of
activities missing a code, we could not determine which national objective
was met. According to a HUD official, activities missing a national
objective code were also administration and planning activities, however,
we could not verify this statement based on our analysis of HUD's IDIS
data.

Figure 5: FY 2005 CDBG Expenditures, by National Objective Entitlement
communitiesStates

Source: GAO analysis of IDIS data.

Note: Entitlement communities reported that 0.1 percent of the activities
they funded addressed urgent needs. Numbers do not add to 100 percent due
to rounding. The figure excludes expenditures coded as administration and
planning, which are presumed to meet a national objective.

A special statutory exception allows certain entitlement communities to
count activities that benefit fewer than 51 percent low- and
moderate-income people as meeting the corresponding national objective.
This exception allows the recipient to use the first 25 percent of all
census tracts in its jurisdiction to qualify as meeting the national
objective. For example, if a city or county consists of 40 census tracts,
only 4 of which contain 51 percent or more low- and moderate-income
persons, that recipient can also consider the 6 census tracts with the
next highest percentages of low- and moderate-income persons as low- and
moderate-income census tracts.

Currently, 359 of the 1,128 cities and urban counties that receive CDBG
funds are eligible to use this exception. These recipients' exception
percentages range from a high of 50.9 percent to a low of 18.5 percent.
The exception percentage indicates the minimum percentage of low- and
moderate-income people that must live in an area for an activity funded in
that area to meet the low- and moderate-income national objective. As
shown in figure 6, the majority of recipients eligible for the exception
had an exception percentage higher than 40 percent; 39 CDBG recipients had
a percentage less than 30 percent. Although a recipient is eligible to use
this exception, it may not take advantage of it for all of the activities
it funds. First, the exception only applies when the activity-such as a
park, community center, or streets-serves an identified geographic area.
Many activities, such as public services, benefit low- and moderate-income
people, not an area. Also, in cases where the recipient has both areas
that contain a majority of low- and moderate-income people and areas that
qualify for the exception, it may choose to fund only activities that are
in its areas with a majority of low- and moderate-income people.

Figure 6: Number of Recipients Eligible to Use Alternative Criteria for
Defining Lowand Moderate-Income Areas Number of CDBG recipients150

135

      50.9 to44.9 to 39.9 to 34.9 to Less

45.0 40.0 35 30.0 than 30 Exception percentage range

Source: GAO analysis of HUD data.

    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.15 Entitlement communities enter these manual adjustments into IDIS
at the end of each program year for the sole purpose of creating financial
summary reports that show, among other things, the two spending limit
calculations. Entitlement communities include these reports in the annual
performance reports that they submit to HUD's 42 field offices for review.
After they are prepared, the reports are saved in HUD's mainframe computer
for only 5 days due to limited system capacity.

With respect to determining state compliance, data are even more limited.
IDIS does not currently generate reports that show the spending limit
calculations for states. The calculations that are used to determine an
entitlement community's compliance do not work for states because a
state's compliance is determined based on the percentage of each grant
that is spent on public services and administration and planning instead
of the percentage of each program year's obligations, as is the case for
entitlement communities. Therefore, according to the HUD official that
heads the state CDBG program, field staff currently determine compliance
with the spending limits during on-site monitoring and when grants are
fully spent. However, the official noted that future design enhancements
to IDIS will allow HUD to more easily generate information on state
compliance with these spending limits.

Without a record of data adjustments needed to calculate entitlement
community compliance and data on state compliance, HUD cannot provide
timely assurance that recipients are adhering to the spending limits. For
example, when information on compliance with the administrative and
planning spending limit was recently requested from HUD for a House

15These manual adjustments reflect amounts that affect the calculation but
are not included in IDIS.

Page 19 GAO-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.16
The agency provided the data that were readily available but noted that
the data could not be used to determine compliance with the spending
limit. HUD stated that it would have to collect additional information on
certain manual adjustments to give the committee a more accurate picture
of compliance with the limit.

In the absence of centralized data on all recipients, we requested that
HUD contact its field offices to provide data on the extent to which the
100 most populous entitlement communities had complied with the statutory
spending limits in program year 2004. These entitlement communities
received about one-third of the CDBG funds allocated in fiscal year
2006.17 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 1 exceeded the administration and planning spending limit. HUD
could not provide similar data on the extent to which individual states
have complied with the spending limits because, as described earlier, IDIS
does not generate reports that track state compliance with the limits.
According to the head of the state CDBG program, compliance with the
limits has never really been a concern for states because they
collectively spend well below the statutory maximums.

Congress Has Provided Some Exceptions to the Public Service Spending Limit

Some recipients are allowed, due to a special provision, to use more than
15 percent of their funds for public services. By law, entitlement
communities that used in excess of 15 percent of CDBG funds received for
public service activities in fiscal year 1982 or 1983 are allowed to
continue to use the higher of the actual dollar amount or percentage of
assistance in either of those years. Due to this provision, a total of 41
entitlement communities are allowed to use more than the 15 percent they
would have been allowed if they were subject to the cap. For example, the
city of

16House Committee on Government Reform, Bringing Communities into the 21st
Century: A Report on Improving the Community Development Block Grant
Program, Report 109-365, January 31, 2006.

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.

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.19

Not All Staff and Overhead Costs Funded with CDBG Are Subject to the
Planning and Administration Spending Limit

The expenses subject to the spending limit on administration and planning
do not reflect all of the staff and overhead costs being funded with CDBG.
CDBG recipients are allowed by regulation to incorporate into individual
activity budgets delivery costs such as architectural and engineering
expenses, legal expenses, insurance, permit fees, taxes, and similar
expenses if such expenses are directly attributable or integral to
carrying out an eligible activity. These expenses are not counted toward
the 20 percent administrative and planning spending limit. With the
exception of housing rehabilitation administration and code enforcement,
HUD does not track staff costs charged to various eligible activities. In
fiscal year 2005, CDBG recipients spent $153 million on housing
rehabilitation administration and $133 million on code enforcement-about 6
percent of total expenditures. While funds charged to planning and
administration are presumed to meet the program's national objectives, HUD
requires recipients to document that any staff or overhead costs charged
to other eligible activities meet a national objective.

    HUD Has Established a New Performance Measurement System to Track Program
    Accomplishments

HUD has established a new performance measurement system to better track
accomplishments achieved with CDBG funds. IDIS currently contains data on
CDBG-funded accomplishments, but the data are incomplete and inconsistent.
First, HUD has not always required recipients to enter accomplishment
data; therefore, data on the older projects are incomplete.

19This 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 GAO-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 national level.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

20OMB, Department of Housing and Urban Development PART Assessments,
February 2005. OMB uses its Program Assessment Rating Tool (PART) to
assess and improve program performance so that the federal government can
achieve better results. PART looks at all factors that affect and reflect
program performance including program purpose and design; performance
measurement, evaluations, and strategic planning; program management; and
program results.

Page 22 GAO-06-732 Community Development Block Grants

outcome of various activities such as housing and economic development.
For this training, HUD has developed a training manual and guidebook that
contains information on measuring outcomes achieved with CDBG funds. The
department has made these materials available to all recipients on its Web
site. At the close of our review, these activities were too new to assess
their effectiveness.

  Although HUD Uses a Risk-Based Approach to Monitor CDBG Recipients, It Lacks a
  Plan to Replace Monitoring Staff and Has Not Fully Involved Field Staff in Its
  Plans to Redesign IDIS

While HUD has implemented a risk-based monitoring strategy for the CDBG
program, it has not developed a plan to ensure that it has enough staff
with the skills needed to conduct monitoring or fully involved its field
staff in plans to redesign IDIS, an information system they use to monitor
recipients. Consistent with our internal control standards, HUD has
established a risk assessment process to identify CDBG recipients for
review.21 HUD's monitoring strategy calls for its field offices to
consider various risk factors when determining which recipients to review
because it has limited monitoring resources, and its workload has
increased as its staffing levels have decreased. For example, 13 of the 42
field offices overseeing CDBG recipients do not have a financial
specialist, and 39 percent of its field staff is eligible to retire within
the next 3 years. Despite these statistics, HUD has not developed a plan
to hire staff with needed skills or help manage upcoming retirements.
Finally, although IDIS is one of the tools that HUD field staff use to
monitor recipients, HUD headquarters has solicited little input from them
on efforts to redesign IDIS.

    HUD's Monitoring Strategy Focuses on High-Risk Recipients

HUD's monitoring of the CDBG program focuses on high-risk recipients. Each
year, CPD sets a formal monitoring goal. Its goal in fiscal year 2005 was
for CPD as a whole and each of its field offices to monitor a minimum of
20 percent of their formula and competitive recipients.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

21 GAO/AIMD-00-21.3.1.

22This 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 CDBG Recipients Monitored, FY 2001-2005

                                                                Percentage of
                                       Recipients Recipients not   recipients 
Fiscal year    Total recipients    monitored        monitored    monitored 
2001                        1,067          366            701         34.3 
2002                        1,078          408            670         37.8 
2003                        1,088          363            725         33.4 
2004                        1,158          373            785         32.2 
2005                        1,165          349            816         30.0 

Source: GAO analysis of GMP data.

Note: Total recipients consist of entitlement communities, states, and
insular areas (American Samoa, Guam, the Northern Mariana Islands, and the
Virgin Islands).

HUD's monitoring policy calls for HUD staff to focus on high-risk
recipients when selecting CDBG recipients for review. Consistent with our
internal control standards, HUD has developed a formal risk analysis
process for its field offices to use when determining which recipients to
review.24 Field office staff rate recipients on various factors that fall
under the following four categories: financial, management, satisfaction,
and services.25 The

23The two offices that did not monitor 20 percent of their recipients in
fiscal year 2005 were Fort Worth, Texas and Philadelphia, Pennsylvania.
According to HUD officials, the Fort Worth office did not meet its goal
because it was very involved in the Hurricane Katrina disaster recovery
process. The Philadelphia office did not meets its goal because the staff
person assigned to complete the remaining two monitoring visits passed
away suddenly.

24 GAO/AIMD-00-21.3.1.

25The financial factors considered include the size of the grant, how
timely the recipient has been in expending its grant funds, and the extent
to which the recipient has received program income. The management factors
evaluated include the complexity of the activities that a recipient
undertakes, the timeliness and accuracy of the recipient's submissions, a
recipient's staff capacity, and how long it has been since HUD last
monitored the recipient on site. The satisfaction factors examined include
whether the recipient has received citizen complaints and how responsive
the recipient has been to any citizen complaints. The service factors
considered are whether the recipient has met the program's national
objectives and complied with the limitation on public service
expenditures.

staff total the scores from each factor and assign recipients a final
score on a 100-point scale. At each field office, a CPD management
representative then conducts a review to ensure the validity and
consistency of the scores. HUD considers recipients that receive a score
of 51 or greater to be high risk; it considers those with a score of 30 to
50 to be medium risk; and those with less than 30 it considers to be low
risk. Recipients that receive a high-risk rating are subject to
monitoring, unless a management representative approves an exception. CPD
management representatives can approve an exception if (1) the HUD Office
of Inspector General is auditing the recipient; (2) they determine that
monitoring is administratively infeasible in the current year, given other
monitoring actions; or (3) they have other reasons-such as HUD recently
monitored the recipient or it monitored another program administered by
the recipient. Field office staff must review high-risk recipients on site
unless they reviewed them on site in the last 2 years, and the purpose of
the monitoring is to validate the implementation of corrective actions.
Medium- and low-risk recipients can be reviewed using remote, or off-site,
monitoring.

Our review of data from GMP-the system that field staff use to record the
results of the risk analysis process and any monitoring performed-showed
that HUD's field offices followed the risk analysis process in all but 16
cases in fiscal year 2005. For fiscal year 2005, HUD designated 164
recipients as high risk. Out of these 164 recipients, GMP data showed that
107 were monitored, 41 were granted an exception, and 16 were not
monitored or provided an exception.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.

not monitored or granted an exception either because its field staff
misunderstood the exception requirements or the field office responsible
for monitoring the recipient experienced a staffing shortfall. However,
despite not monitoring these 16 high-risk recipients, 8 of the 12
responsible field offices monitored recipients that they did not consider
high risk.

Further, we found that HUD reviewed most, but not all, CDBG recipients at
least once in the 5-year period from fiscal year 2001 through fiscal year
2005. As shown in table 3, our analysis of GMP data showed that HUD
monitored all but 255 recipients in fiscal years 2003 through 2005. These
255 recipients received about $525 million in fiscal year 2005 funding.
When we expanded our analysis to 4 years (fiscal years 2002 through 2005),
we determined that HUD had monitored all but 140 recipients that received
a total of about $239 million in fiscal year 2005. During the 5-year
period from fiscal year 2001 through 2005, HUD did not monitor 84
recipients that received a total of about $132 million in fiscal year
2005.

      Table3: Number of Times CDBG Recipients Were Monitored, FY 2001-2005

Number of times 3-year period (FY           4-year period    5-year period 
monitored       2003-2005)a                 (FY 2002-2005)b  (FY           
                                                                2001-2005)c   
Not monitored                           255              140            84 
Once                                    588              502           396 
Twice                                   190              300           352 
Three times                              33               94           151 
Four times                              N/A               21            48 
Five times                              N/A              N/A            16 

Source: GAO analysis of GMP data.

aWe 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.

bWe 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.

cWe 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 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.29 
Another 14 files did not note which national objective the activity was 
supposed to meet. Additionally, 46 files we reviewed showed no evidence 
of monitoring by the recipient.30 In contrast, recipients we visited tended
to have signed agreements with their subrecipients as required by program 
regulations. Of the 90 cases that involved a subrecipient, 87 files contained 
a signed subrecipient agreement, and 76 of the 87 agreements contained the 
five required elements we tested. When HUD reviews files during its 
monitoring, it finds similar occurrences. Fifty-seven percent of HUD's fiscal 
year 2005 reviews resulted in at least one finding. In total, HUD's fiscal 
year 2005 monitoring resulted in 581 findings and 447 concerns.31 Examples of
cited findings included not documenting a national objective, funding an
ineligible activity, poor recordkeeping, and incomplete subrecipient
requirements.

    HUD Has Limited Staff and Travel Funds to Devote to CDBG Monitoring
	 
HUD employs a risk-based monitoring approach because it has limited staff
and travel funds to devote to CDBG monitoring. CPD's staffing levels have
decreased nationwide, as its CDBG workload has increased. From fiscal year
1993 to the beginning of fiscal year 2006, the number of CPD field office
staff decreased from 751 to 599, a decline of 20 percent. During the same
time period, the number of entitlement communities grew from 889

28We reviewed documentation on 134 projects, of which 4 involved multiple
activities or files, for a total of 144 files.

29The 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.

31A 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.

to 1,128, an increase of 27 percent. This increase in workload has had a
greater effect on certain CPD field offices. As of February 2006, the
average number of CDBG recipients per program representative was nearly
four.32 The number of recipients per representative exceeded this average
at 20 of the 42 CPD field offices and was six or more at three offices.33
The HUD official responsible for CPD field office staff told us he would
like to have more staff but has to get the work done with what he has.
Additionally, CPD program representatives in their role as program
monitors oversee other HUD programs, including three other formula grant
programs, homeless programs, and a number of smaller competitive grant
programs. For example, at the Chicago CPD office, each representative
monitors four to six formula grants, as well as approximately 100
competitive grants. Although they represent fewer dollars than the formula
grant programs, the competitive grant programs require more monitoring,
according to CPD program managers. The programs are generally administered
by small nonprofit organizations that experience a large amount of staff
turnover. Further, there were 9,705 active competitive grants in fiscal
year 2005.

A number of CPD field offices also do not have a financial analyst.
Financial analysts are important because they evaluate the financial
operations of each recipient and ensure that CPD's monitoring activities
adequately address any financial vulnerabilities in CPD programs and
related capacity concerns. They help field offices review budget
submissions, financial report submissions, independent audit reports, and
drawdown requests. As of late April 2006, 13 of the 42 CPD field offices
did not have a financial analyst. These 13 field offices averaged a CDBG
portfolio of $60 million. In offices we visited that did not have a
financial analyst, other staff assumed some of the responsibilities of a
financial analyst, but these staff had other responsibilities as well and
lacked the specialized skills of a financial analyst.

Staffing shortages may worsen in the future because many current CPD field
staff are eligible to retire. As of February 2006, 39 percent of CPD field
staff was eligible to retire within the next 3 years. If we include those
eligible for early retirement, the percentage increases to 59 percent
within

32A 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 CPD Director. Denver field office officials told us
that the office could lose all but one of its program representatives to
retirement in the next 5 years.

HUD has not developed a plan to hire staff with needed skills, such as
financial analysts, or to help CPD manage upcoming retirements. Our
internal control standards state that agencies, as part of their human
capital planning, should consider how to retain valuable employees, plan
for their eventual succession, and ensure continuity of needed skills and
abilities.34 According to a HUD official, HUD has taken a number of steps
to manage its CPD workforce, such as hiring interns and implementing a
leadership development program. However, these efforts do not specifically
address the need to hire financial analysts and replace the staff that
will become eligible for retirement in the next few years. According to
internal control standards, an agency should have a specific and explicit
workforce planning strategy that allows for identification of current and
future human capital needs and a formal recruiting and hiring plan with
explicit links to skill needs the agency has identified.35

HUD internal reviews and the HUD Inspector General have also noted that
limited staffing has negatively impacted CPD's monitoring. In fiscal year
2004, 11 of the 12 internal management reviews, known as Quality
Management Reviews, performed at CPD field offices noted staffing
issues.36 For example, the reports noted that one office might not meet
its monitoring goals due to significant loss of staff and that staff at
two offices had an unbalanced workload. Also, one report noted that the
field office needed a financial analyst for oversight of $113 million in
CPD program funds. Furthermore, in a June 2004 report on CPD management
controls, the HUD Inspector General observed that reductions in field
office staffing

34 GAO/AIMD-00-21.3.1.

35GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G
(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

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 findings and added that
field offices will also reduce the amount of staff participating in a
monitoring visit in order to reduce travel costs. According to the
headquarters official that manages CPD's field offices, he has to balance
the travel needs of all 42 field offices when allocating limited travel
funds. To help the field offices better plan their travel, he has begun
providing them with quarterly, rather than monthly, allocations of funds.

    HUD Has Made Little Effort to Involve Field Staff in Plans to Redesign IDIS
	 
HUD is currently redesigning IDIS but has solicited limited input from its
field staff. IDIS, a tool that HUD field staff use to conduct on-site and
off-site monitoring, has shortcomings that limit its usefulness as a
monitoring tool. IDIS was designed to be a real-time information system
providing financial disbursement, tracking, and reporting functions for
CPD. In our April 1999 report, we noted that the system was not providing
needed information, and our current work indicates that, despite HUD
improvements to the system, it still is not providing all the information
needed to monitor recipients' performance. During our site visits, field
office staff noted that (1) the data in IDIS are not always current
because some recipients do not update it quarterly, as HUD recommends and
(2) the accomplishment data in IDIS are not as reliable as the financial
data. As

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-0001 (June 2004).

Page 30 GAO-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 IDIS, the National Academy of Public
Administration found that (1) IDIS allows data input errors and omissions,
(2) the ability to manipulate data for reporting purposes is limited, and
(3) HUD staff and recipients have expressed frustration with using the
system.38

To improve the usefulness of IDIS, HUD is currently reengineering the
system. The department has obligated $9.4 million for development of the
new system. One problem with the initial development of IDIS was that HUD
did not adequately consider input from end users. HUD has attempted to
address this problem in the statement of work for the new system by
stating that the contractor should gather requirements from HUD
stakeholders and recipients. Specifically, the contractor was to work with
HUD's field offices to identify issues with the current accomplishment
reporting, hold sessions with both field office staff and recipients to
solicit user requirements pertaining to reports, and develop a draft
prototype to solicit HUD stakeholder and recipient feedback on proposed
navigation approaches. Soliciting input from end users on their
requirements is consistent with best practices for system development. Our
guidance on information technology investment management states that (1)
investment control processes should ensure that key customers and business
needs for each project are identified and that the users are engaged in
this process and (2) users should participate in project management
throughout a project's or system's life cycle to ensure that it supports
the organization's business needs and meets users' needs.39

Contrary to the IDIS statement of work and our guidance on information
technology investment management, HUD headquarters and its contractor have
solicited little input from field staff. As the HUD staff tasked with
monitoring CDBG recipients, field staff are the users that rely most
heavily on IDIS as a monitoring tool. Although HUD headquarters and the

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 CDBG Performance Measures into IDIS
(Washington, D.C.: February 2005).

39GAO, Information Technology Investment Management: A Framework for
Assessing and Improving Process Maturity, GAO-04-394G Version 1.1
(Washington, D.C.: March 2004).

Page 31 GAO-06-732 Community Development Block Grants

contractor have held only one session with field staff, they have already
drafted a document outlining the system's functional requirements.
According to the HUD official that is overseeing development of the new
system, the one session held with field staff was unproductive; therefore,
they plan to wait until they are making decisions regarding the standard
reports that the system will generate to solicit additional input from
field office staff. If HUD's plans to involve its field staff in efforts
to improve IDIS are limited to soliciting input regarding the new system's
reporting capabilities, the other factors that have limited IDIS'
effectiveness as a monitoring tool may not be addressed.

  HUD Has Implemented a Clear Timeliness Policy, but Has Not Issued Similar
  Guidance on Other Enforcement Actions

Although HUD has issued a clear policy stating what actions it will take
when entitlement communities fail to meet the statutory requirement that
funds be spent in a timely manner, it has not developed similar guidance
establishing a consistent framework for holding CDBG recipients
accountable for deficiencies identified during monitoring. Because federal
law requires HUD to ensure timely expenditure of entitlement funds, HUD
has set a timeliness standard for entitlement communities and established
a grant reduction policy for recipients that exceed the standard. As it
monitors CDBG recipients, however, HUD has the flexibility to assess other
sanctions ranging from issuing a warning letter to advising the recipient
to pay back CDBG funds. HUD headquarters has not issued guidance that
describes the conditions under which each type of sanction should be
taken, and we found instances in fiscal year 2005 where findings that
appeared to be similar were associated with different enforcement actions.

    HUD's Timeliness Policy Has Reduced the Number of Entitlement Communities
    That Are Slow to Expend Funds

By implementing a timeliness standard, HUD has reduced the number of
entitlement communities that are slow to expend funds. Federal law
requires HUD to review CDBG entitlement communities to determine if they
have carried out their CDBG-assisted activities in a timely manner.40 It
considers an entitlement community to be timely if, 60 days prior to the
end of the recipient's current program year, the amount of entitlement
grant funds available under grant agreements but undisbursed by the U.S.
Treasury was not more than 1.5 times the entitlement grant amount for its

40While HUD encourages states to expend their funds in a timely manner,
its timely expenditure standard does not apply to them. Federal law only
requires states to distribute their funds to nonentitlement communities in
a timely manner. HUD does not have the statutory authority to impose a
timely expenditure standard for states.

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. If it still did not meet the 1.5
standard at the end of its next program year, HUD would reduce its next
grant by how much it exceeded the standard, unless HUD determined that the
lack of timely spending was due to factors beyond the recipient's control.
For example, if a recipient's annual grant was $1 million and its 60-day
ratio was 1.57, the maximum amount of the reduction would be $70,000 (0.07
times $1 million).

Since the implementation of this grant reduction policy, the number of
untimely entitlement communities has gone down from 140 in November 2001
to 65 as of April 2006. Of the 65 recipients that were untimely as of
April 2006, 8 had a 60-day ratio above 2.0. The remaining recipients had
60-day ratios between 1.51 and 2.0. Although HUD could not provide a list
showing the total number of recipients that have been untimely for only a
year since the inception of the standard, it has tracked the total number
that were untimely for 2 consecutive years and, therefore, subject to
grant reduction. As of April 2006, 14 recipients had been subject to grant
reduction. Of these 14, HUD only reduced three recipients' funding. It
granted exceptions to six recipients due to factors such as natural
disasters that triggered Presidential disaster designations and did not
take action against three because HUD failed to provide proper notice to
the recipient when it first became untimely. The remaining two had moved
under the 1.5 standard quickly, and HUD decided not to reduce their
grants.

    Guidance Could Help Ensure Sanctions Are Appropriate
	 
When they identify deficiencies other than failing to meet the timeliness
standard, HUD's field offices have the flexibility to determine which
sanctions are warranted based on the conditions identified. As shown in
table 4, HUD's monitoring of CDBG recipients during fiscal years 2003 to
2005 resulted in approximately 1,900 findings and about 350 sanctions. In
fiscal year 2005, HUD assessed 95 sanctions, including about $1.6 million
in financial sanctions.

        Table 4: Sanctions Taken against CDBG Recipients, FY 2003 - 2005

Fiscal                                                 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: GAO 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.

41If the recipient fails to take corrective or remedial action that
resolves the deficiency to the satisfaction of HUD, HUD may impose more
severe sanctions, such as terminating payments to the recipient. However,
HUD may impose these sanctions only after, in most circumstances, the
recipient is provided an opportunity for a hearing before an
administrative law judge.

42The 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.

Figure 7: Sanctions Taken as Result of FY 2005 Monitoring Reviews, by Type

Source: GAO analysis of GMP data.

Note: Numbers do not add to 100 percent due to rounding. In one of the few
cases where HUD advised a recipient to change a payment, it advised the
recipient to reimburse expenses improperly charged to others. In the one
case where HUD advised a recipient to reprogram funds, it advised the
recipient to shift the funds to an eligible activity. The other sanctions
that HUD took included advising recipients to provide additional
documentation, collect additional information on people served, or report
activities differently in IDIS.

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

43 GAO/AIMD-00-21.3.1.

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.

     o Inability to support meeting a national objective: When one field
       office found that a recipient could not support that an activity met a
       national objective, it asked the recipient to provide either more
       documentation or a written assurance that it would not fund that type
       of activity in the future. In contrast, another field office advised a
       recipient that could not document that an activity met a national
       objective to reimburse its line of credit. In another instance, a
       field office stated that it might disallow expenditures if the
       recipient could not document that an activity met a national
       objective.
     o Documenting environmental reviews: When one field office determined
       that a recipient had not documented any follow-up compliance actions
       for projects where mitigating measures for environmental compliance
       were identified, even after the office had previously identified the
       lack of follow up as a concern, it advised the recipient to submit
       documentation showing that follow-up actions had been taken. In
       another case where a field office determined that a recipient had
       failed to fully document its environmental reviews, that field office
       advised the recipient to suspend disbursement of funds for all
       activities until it put in place revised environmental review
       procedures and the appropriate level of environmental review had been
       carried out.

Guidance providing HUD's 42 field offices with a range of appropriate
actions for identified deficiencies could help to provide greater
transparency and accountability, and it could better ensure consistency of
sanctions for similar infractions.

                                  Conclusions
											 
Many communities use their CDBG funds to benefit their residents and
increase the economic health of the community. One of the cited strengths
of the program is its flexibility, which allows communities to make
decisions locally about the best use of the funds in their community.
Given the program's flexibility, it is critical that HUD ensure that
recipients use funds in a manner that is consistent with the purposes of
the program. While there are statutory spending limits on public services
and planning and administration, HUD does not centrally maintain the data
needed to determine compliance with these spending limits in a timely
manner.

Entitlement communities collectively spend at or close to the limits on
public services and planning and administration. Therefore, it is
important for HUD to be able to report on the extent of entitlement
community compliance with these limits. Without these data readily
available, HUD cannot provide timely assurance that recipients are
adhering to these limits.

With program funding being cut as the number of grant recipients
increases, it is essential for HUD to ensure that recipients use funds
properly. Because it has limited monitoring resources, HUD has implemented
a risk-based process to identify recipients for review. However, HUD faces
challenges as it carries out these responsibilities. First, a large
percentage of the field staff responsible for monitoring CDBG recipients
will be eligible for retirement within the next 3 years. HUD has not
developed a plan for replacing this vital program expertise. HUD has
established an internship program and other initiatives to develop senior
leaders, but such activities will not, in themselves, replace experienced
professionals. Without such a plan, HUD has no way to ensure continuity of
needed skills and abilities. Second, HUD is reengineering IDIS-the system
that it relies on to monitor recipients it cannot review on-site-to
address a number of shortcomings in the system, but its plans to involve
HUD field staff in these efforts are limited to soliciting input regarding
the new system's reporting capabilities. If it does not fully involve all
of the system's stakeholders in the reengineering process, as it failed to
do when initially developing the system, HUD runs the danger of repeating
past development mistakes and having to live with a flawed system that
limits its monitoring abilities. Developing a system that better meets the
monitoring needs of HUD field staff has increased in importance in an
environment where the number of monitoring staff is declining as the
workload is increasing.

While allowing for judgment and flexibility, an effective monitoring
program should also make it transparent to recipients what actions may be
taken if deficiencies are found. HUD has established a clear policy
stating that it will reduce an entitlement community's grant funds if it
fails to spend its funds in a timely manner, and, as a result, the number
of untimely recipients has dropped. However, HUD has not developed similar
guidance laying out a framework of enforcement actions that may be taken
when certain deficiencies are identified during monitoring, and we found
instances where findings that appeared to be similar were associated with
different enforcement actions. Such guidance could establish the
parameters within which field offices should operate, while still allowing
for flexibility to address individual situations. Issuing guidance could
also help HUD's management provide greater transparency and accountability
to the sanctioning process.

  Recommendations for Executive Action
  
In order to improve HUD's oversight of the CDBG program, we recommend
that the Secretary of Housing and Urban Development direct the Assistant
Secretary for Community Planning and Development to take the following
four actions:

     o Maintain in IDIS the data needed to determine compliance with the
       statutory limitations on expenditures for public service activities
       and administration and planning.
     o Develop a plan for ensuring the proper mix of skills and abilities and
       replacing an aging CPD workforce.
     o Look for additional opportunities to solicit field staff input on IDIS
       user requirements.
     o Consider developing guidance for the CDBG program that details what
       conditions should be considered when taking corrective actions and
       what specific conditions warrant different types of corrective
       actions.

  Agency Comments and Our Evaluation

We provided HUD with a draft of this report for review and comment. We
received oral comments from the Office of Community Planning and
Development's Comptroller on July 12, 2006, addressing our key findings,
conclusions, and recommendations. He stated that, overall, HUD agrees with
our findings, conclusions, and recommendations. In addition, HUD provided
a letter from the General Deputy Assistant Secretary for Community
Planning and Development with comments that were technical in nature. This
letter and our response to each of the comments appear in appendix IV. HUD
also provided other oral technical comments that were incorporated where
appropriate.

As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from
the date of this letter. At that time, we will send copies of this report
to the Ranking Minority Member, Subcommittee on Housing and Community
Opportunity, House Committee on Financial Services; Ranking Minority

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 [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 V.

William B. Shear

Director, Financial Markets and Community Investment

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.1 In selecting the recipients located in large
metropolitan areas, we considered geographic dispersion, funding level,
need,2 and proximity to a HUD field office and state capital. We selected
the smaller recipients outside large metropolitan areas based on their
population and location. Of the 20 recipients we visited, 4 were states, 2
were urban counties, and 14 were cities. We also visited four

1We 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 HUD developed for its recent
study on the formula used to distribute CDBG funds. See U.S. Department of
Housing and Urban Development, Office of Policy Development and Research,
CDBG Formula Targeting to Community Development Need (Washington, D.C.:
February 2005).

Appendix I Objectives, Scope, and Methodology

nonentitlement communities funded by the states of Georgia and Maryland.3
We interviewed the eight HUD field offices that monitor the grantees we
visited and interviewed staff at HUD headquarters.4 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                          Recipient                                    
Atlanta metropolitan area     Atlanta, Georgia State of Georgia            
Baltimore metropolitan area   Baltimore, Maryland Baltimore County,        
                                 Maryland State of Maryland                   
Boston metropolitan area      Boston, Massachusetts Attleboro,             
                                 Massachusetts Commonwealth of Massachusetts  
Chicago metropolitan area     Chicago, Illinois Kane County, Illinois      
                                 Naperville, Illinois                         
Denver metropolitan area      Denver, Colorado Greeley, Colorado State of  
                                 Colorado                                     
Los Angeles metropolitan area Los Angeles, California Gardena, California  
                                 Santa Monica, California                     
Other                         Beloit, Wisconsin Dubuque, Iowa Warner       
                                 Robins, Georgia                              

Source: GAO.

3These 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.

Page 41 GAO-06-732 Community Development Block Grants Appendix I
Objectives, Scope, and Methodology

To determine how the communities that receive CDBG funds use those funds,
we reviewed CDBG program regulations to determine how recipients are
allowed to use their funds. We then analyzed IDIS data on activities
funded as of September 30, 2005, to determine (1) the activities most
often funded by recipients in fiscal year 2005, (2) any differences
between the activities most often funded by entitlement and state
recipients in fiscal year 2005, and (3) the percentage of activities
funded in fiscal year 2005 that met each of the three national program
objectives. For examples of how communities use their funds, we relied on
documentation provided by the 20 recipients we visited and pictures we
took during our site visits. We had planned to use IDIS data to examine
the extent to which CDBG recipients were complying with the statutory
spending limits on public services and planning and administration but
determined that (1) IDIS did not save some of the data needed to determine
compliance by entitlement communities and (2) IDIS data cannot be used to
determine states' compliance with the limits. Therefore, we requested data
from HUD showing the percentage of funds spent by selected recipients on
public services as well as on planning and administration. We initially
requested data on the 200 entitlement communities that received the most
funding, but HUD could only provide data on the 100 most populous
entitlement communities within our time frames. We then analyzed that data
to determine how many had exceeded the two spending limits in program year
2004. We also analyzed HUD data to determine the number of recipients
eligible for the special exception that allows certain recipients to count
activities that benefit fewer than 51 percent low- and moderateincome
persons as meeting the low- and moderate-income national objective in
fiscal year 2006. To determine the status of HUD's efforts to implement a
performance measurement system, we reviewed the notices published in the
Federal Register and guidance on HUD's Web site as well as interviewed HUD
officials.

To identify how HUD monitors communities' use of CDBG funds, we reviewed
HUD's monitoring guidance to determine which tools it uses to monitor
recipients. To gain an understanding of HUD's formal monitoring, we
reviewed documentation on its risk analysis process and interviewed the
HUD headquarters officials responsible for setting monitoring policy as
well as HUD field staff responsible for performing the monitoring. We
analyzed data from HUD's Integrated Performance Reporting System (HIPRS)
to determine if the Office of Community Planning and Development (CPD) met
its monitoring goal in fiscal year 2005. We interviewed a knowledgeable
agency official regarding the data and determined that they were
sufficiently reliable for the purposes of this

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 IDIS and discussed
them with the responsible HUD official.

To assess the extent to which the recipients we visited have complied with
CDBG program regulations, we reviewed 144 project files.5 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.6 If we determined that a
project selected for review was terminated after it was awarded, we
selected a replacement project. When reviewing the files, we looked for
(1) documentation showing that the activity funded met a national
objective, (2) a subrecipient agreement that included the information
required in the program regulations (if applicable), and (3) evidence that
the recipient had monitored the activity.

To determine the extent to which HUD has held recipients that have not
complied with CDBG program requirements accountable for their actions, we
reviewed the CDBG program regulations to determine what sanctions HUD can
take against recipients. We reviewed HUD's policy on timely expenditure of
funds and analyzed data on the number of untimely recipients as of April
2006. We also analyzed GMP data to determine the number of sanctions that
HUD had taken in fiscal years 2003 to 2005 and the specific types of
sanctions it took in fiscal year 2005. In addition, we

5We reviewed documentation on 134 projects, of which 4 involved multiple
activities or files, for a total of 144 files.

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.

Page 43 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.

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.1 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.

1The Commonwealth 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 planned 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

                Colorado Georgia Maryland Massachusetts New York

FY 2005    $12,428,946    $44,692,413    $8,944,527     $38,578,167       $54,423,586    
allocation                                                                
Program    April 1 to     July 1 to June July 1 to June April 1 to March  January 1 to   
year       March 31       30             30             31                December 31    
Breakdown  o  Housing     o  Annual      o  Community   o  Community      o  Annual      
of         (32.3%)  o     competition    development    development (54%) competition    
allocation Business       (77%)  o       (72%)  o        o  Housing       (60%)  o       
           financing      Immediate      Business and   development       Economic       
           (32.3%)  o     threat and     economic       support (12%)  o  development    
           Public         danger (1%)  o development    Economic          (35%)  o       
           facilities and Employment     (25%)  o       development (6%)  Imminent       
           community      incentives     Technical      o                 threat (2%)  o 
           development    (16%)a  o      assistance     Mini-entitlements  Technical     
           (32.3%)  o     Redevelopment  (1%)  o  State (23%)b  o         assistance     
           Technical      fund (3%)  o   administration Reserves (2%)  o  (1%)  o  State 
           assistance     Technical                     Technical         administration 
           (1%)  o  State assistance                    assistance        (2%)           
           administration (1%)  o State                                   
           (2%)                                                           
                          administration (2%)           (1%)  o  State    
                                    (2%)                administration    
                                                        (2%)              
                                         o  Public                                       
                          o  Demographic purpose  o     o  Financial                     
           o  Project     need  o        Project impact feasibility  o    o  Municipal   
           impact  o      Program         o  Project    Affordability  o  poverty score  
Evaluation Public and     feasibility  o management  o  Readiness to      o  Program     
criteriad  private         Program       Local          proceed  o        impact  o      
           commitments  o strategy  o    commitment  o  Developer         Outstanding
            Management    Project impact Project        capacity  o  Site performance
           capability      o  Leverage   feasibility  o and design  o     
                          of additional   Sources and   Cost              
                          resources      use            effectiveness     
                          o  Urgent need of funds  o    o  Community      
                                         Readiness to   needs score       
                                         proceed  o                       
                                         Past                             
                                         performance                      

  Application Applications Annual       Applications All programs Annual       
  deadline    accepted     competition  accepted at  accept       competition  
              until all    accepts      set time     applications accepts      
              funds are    applications each year.   at set time  applications 
              allocated.   at a set                  each year,   at set times 
                           time each                 except       each         
                           year, but                 economic     year, but    
                           all other                 development, all other    
                           programs                  which        programs     
                           accept                    accepts      accept       
                           applications              applications applications 
                           until all                              on a first   
                           funds are                  until all   come, first- 
                           allocated.                 funds are   served       
                                                     allocated.   basis, until 
                                                                  all funds    
                                                                  are          
                                                                  allocated.   

           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   July 1 to June  January 1 to July to June     February 1 to 
December       30                  December 30                  January 31 
31                            31                         

     o Community revitalization (31%)
     o Scattered site housing (29%)
     o Infrastructure (11%)
     o Housing development (4%)
     o Economic development (20%)
     o Urgent needs (2%)
     o Technical assistance (1%)
     o State administration (2%)
     o Community housing improvement (15.6%)
     o Homeless assistance (1%)
     o Formula allocation (42.5%)
     o Water and sewer (19.2%)
     o Economic development (12.3%)
     o Downtown revitalization (4.6%)
     o Discretionary grant (1%)
     o Micro enterprise business development (0.4%)
     o New horizon (0.2%)
     o Technical assistance (1%)
     o State administration (2.2%)
     o Annual competition (13%)
     o Cities (24%)
     o Towns (38%)
     o Counties (38%)
     o State administration (2%)
     o Basic grant (34%)
     o Competitive fund (61%)
     o Emergency grant (2%)
     o Technical assistance (1%)
     o State administration (2%)
     o Community development (61%)
     o Texas capital (15%)
     o Colonia (13%)c
     o Planning and capacity building (1%)
     o Disaster relief fund (4%)
     o Texas community development program- small towns environment program
       (3%)
     o Technical assistance (1%)
     o State administration (2.2%)
     o Severity of needs
     o Local commitment
     o Feasibility
     o Rotatione
     o Capacity
     o Market demand
     o Job creation
     o Community distress
     o Administrative capacity
     o Past performance
     o Program design and impact
     o Cost effectiveness
     o Leverage and coordination
     o Magnitude and severity of need
     o Third party support
     o Impact of problem on residents in affected area
     o Basic grant distributes funds evenly among 51 nonentitlement
       communities
     o Competitive fund distributes funds based on past performance, project
       impact, feasibility, and number of beneficiaries
     o Emergency grant distributes funds on a case-by-case basis
     o Project impact
     o Community needs
     o Feasibility
     o Leverage ratio
     o Management capacity
     o Past performance

Community revitalization and scattered site housing accept applications at
set times. All other programs accept applications until all funds are
allocated.f

All programs accept applications at a set time each year, except for
Economic development, Discretionary grant and New horizon, which accept
applications until all funds are allocated.

All programs accept applications at a set time each year, except Annual
competition, which accepts applications until all funds are allocated.

Basic grant and competitive fund accept applications at a set time period
each year. Emergency grant accept applications when an urgent need occurs.

All programs accept applications at a set time each year or when a natural
disaster occurs.

Appendix II Selected States' Methods of Distributing Funds Appendix II
Selected States' Methods of Distributing Funds

(Continued From Previous Page)
                Colorado Georgia         Maryland Massachusetts  New York     
Incentives   None     Available for   None     No incentives, None         
or                    certain                  but all        
application           applicants               communities    
bonuses               proposing                have a         
offered               projects in              community wide 
                         revitalization           needs score    
                         areas.                   that can help  
                                                  their chances  
                                                  of receiving   
                                                  an award.      
Matching     None     Annual          None     None           Economic     
requirement           competition                             development  
                         grantees must                           requires     
                         match 5 percent                         applicants   
                         of awards                               to match at  
                         ranging from                            least 60     
                         $300,001 to                             percent of   
                         $500,000 and 10                         total        
                         percent for                             project      
                         awards over                             costs for    
                         $500,000.                               which CDBG   
                                                                 funds are    
                                                                 being        
                                                                 requested.   

North Carolina   Ohio                Pennsylvania Puerto Texas             
                                                      Rico  
Economic         Economic            None         None   None              
development      development                             
offers           considers                               
additional       applicants to be                        
funding for jobs more competitive in                     
created in state the selection                           
designated       process if they                         
communities.     create jobs for                         
                    low- and                                
                    moderate-income                         
                    individuals.                            
Economic         Economic            None         None   Disaster relief   
development      development                             applicants must   
requires most    requires applicants                     match awards      
grantees to      to leverage funds                       based on          
match at least   from other sources.                     population size;  
25 percent of    All other programs                      the larger the    
awards received. do not require a                        population, the   
                    match, but it can                       larger the match  
                    make applicants                         required. All     
                    more competitive in                     other programs    
                    the selection                           require a match   
                    process.                                to be competitive 
                                                            in the selection  
                                                            process.          

Source: GAO analysis of state data.

aThe Employment Incentive Program awards grants to nonentitlement
communities to offer loans to private-for-profit entities that create
and/or retain jobs for persons who are low- and moderate-income.

bThe Mini Entitlement Program awards grants to nonentitlement communities
based on multiple parameters that other grantees are not required to meet,
including population, percentage of low- and moderate-income persons, age
of housing stocks, and population density.

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 Colonia 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
families in the county. f

The Housing development program has two components-one accepts
applications at a set time each year and the other accepts applications
until all funds are allocated.

Appendix III

Activities Funded by the Recipients That GAO Visited

During our review of the CDBG program, we visited 16 entitlement
communities and four states. Additionally, we visited four nonentitlement
communities funded by two of the states we visited (Georgia and Maryland).
These recipients funded the following examples of public improvement,
housing, public service, economic development, and acquisition activities.

                              Public Improvements
										
West Point, Georgia (a nonentitlement community) used $500,000 in CDBG
funds awarded by the state of Georgia to build a new Boys and Girls Club
(see fig. 8). According to the city's application for funds, the old Boys
and Girls Club did not have an accessible entry, had several leaks in the
roof that could only be temporarily repaired, did not have load bearing
walls, and had a mechanical system that appeared to be well beyond its
reasonable life expectancy. The total budget for the project was $721,500,
including operating costs. According to the application, the club plans on
serving 200 children, 180 of which are from low- and moderate-income
families.

              Figure8: Boys and Girls Club in West Point, Georgia

Source: GAO.

Former location of Boysand Girls Club (left). New location and building
for Boysand Girls Club (right).

o  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

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 cleaning clothes. In addition to the
money provided by the state, the city of Poulan provided $40,000. Over 70
percent of residents that benefited from the new water lines had low- and
moderate-incomes.

     o 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.
     o 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.

Appendix III Activities Funded by the Recipients That GAO Visited

     Figure 9: Renovated Briggs Playground Pool in Attleboro, Massachusetts

Source: GAO.

o  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.

Appendix III Activities Funded by the Recipients That GAO Visited

                         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).

Appendix III Activities Funded by the Recipients That GAO Visited

Source: GAO.

     o 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
       weatherstripping and caulking.
     o 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

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.

     o Chicago, Illinois provided $5.9 million in CDBG funds to build
       Wentworth Commons. Wentworth Commons provides affordable housing to
       families and individuals that were formerly homeless or at risk of
       homelessness. To qualify to live at Wentworth, applicants must make 60
       percent or less of the area median income. Overall, there are 51 units
       at the site: 24 efficiency apartments, 15 three-bedroom apartments, 9
       two- bedroom apartments, and 3 four-bedroom apartments. The site also
       features supportive services such as case management, employment
       training, and leadership development. The building is environmentally
       friendly and energy efficient. It uses solar energy to generate
       electricity into the building's electrical distribution system, which
       offsets electrical use. The total cost of the project was $13 million.
     o Los Angeles, California runs a "Handyworker" Program that provides
       minor home repair services to low-income senior citizens or homeowners
       with disabilities. The program helps keep housing from deteriorating
       by funding repairs that homeowners could not otherwise afford. In
       program year 2004, the city budgeted $2,000,000 in CDBG funds for the
       program. Grants of up to $5,000 per client were available for repairs
       or home improvements that address home safety, accessibility, and
       security issues. Improvements include exterior and interior painting,
       minor finish work, the installation of disability grab bars and
       accesiblity ramps, minor plumbing, and other repairs. Through this
       program, the city is working to preserve the existing stock of
       affordable housing. The city's goal for program year 2004 was to
       provide 1,552 households "Handyworker" services.
     o Caroline County, Maryland (a nonentitlement community) began receiving
       state of Maryland CDBG funds in 2002 to rehabilitate housing for low-
       and moderate-income households. Since 2002, the county has received
       $575,000 in CDBG funds to rehabilitate 51 homes. Additionally, the
       county also received $17,250 in CDBG funds in 2003 to complete a
       housing study. The county told us that the CDBG funds have also helped
       the county leverage $10,250 from the U.S. Department of Agriculture
       for housing rehabilitation.
     o Baltimore County, Maryland conducts a Single Family Rehabilitation and
       Emergency Repair Program. Since the inception of the program, the

       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, refinance, or transfer of
property. During ownership, the county allows homeowners to make certain
repairs and home improvements.

                                Public Services

Naperville, Illinois provided $19,223 in program year 2005 funding for the
Loaves and Fishes Community Food Pantry (see fig. 12). The food pantry
provides groceries that ensure a healthy diet to Naperville's low-income
and homeless clients. According to Loaves and Fishes, 3,000 Naperville
residents live in poverty. On a weekly basis, the food pantry provides 250
families with the equivalent of three bags of groceries to last for a
2-week period. In 2005, the food pantry provided: services to over 1,500
families, home delivery to over 100 seniors and individuals with
disabilities, and over 1,800 holiday food distributions.

                                  Source: GAO.

Appendix III Activities Funded by the Recipients That GAO Visited

     o 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.
     o Santa Monica, California provided $242,442 in program year 2005 CDBG
       funding toward the SAMOSHEL homeless shelter. SAMOSHEL provides 110
       shelter beds to homeless adults, and expects to serve up to 500
       persons annually with their emergency shelter. Additionally, the
       shelter provides services such as access to medical and mental health
       services, permanent and transitional housing programs, domestic
       violence intervention, counseling and case management, and substance
       abuse recovery support and employment services.
     o 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.
     o 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.
     o 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.

       Appendix III Activities Funded by the Recipients That GAO Visited

  Economic Development

o  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.

o  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.

Appendix III Activities Funded by the Recipients That GAO Visited

                         Source: City of Dubuque, Iowa.

       Appendix III Activities Funded by the Recipients That GAO Visited

     o As of the 2003/2004 fiscal year, the city of Gardena, California had
       expended $490,755 in CDBG funds revitalizing their Van Ness Corridor.
       The goal of the revitalization was to strengthen the economic vitality
       of the city, provide employment opportunities, stimulate quality
       retail development, and create a sustainable economic base for the
       city. The city provided funds to businesses along the corridor to
       eliminate slum and blight. CDBG assistance has included financial
       assistance for facade and exterior improvements, providing block wall
       and infrastructure improvements along the corridor, conducting a
       business survey to develop and implement a business outreach program,
       and providing an on-going graffiti abatement and removal program.
     
  Acquisition
  
  	  o The state of Colorado provided $250,000 in CDBG funds to help a health
clinic in Lafayette, Colorado acquire property to build a new facility.
Clinica Campesina is a community health center serving the needs of the
low-income, uninsured residents of Southeastern Boulder, Broomfield, and
Western Adams Counties. Ninety-six percent of the patients that the clinic
serves are at or below 200 percent of the federal poverty line. The
clinic's patients are predominately children under the age of 13 (38
percent) and women of childbearing age (28 percent). The total project
budget was $1.3 million.

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.)

See comment 1.

See comment 2.

See comment 3.

See comment 4.

Appendix IV Comments from the Department of Housing and Urban Development

                                 See comment 5.

                                 See comment 6.

                                 See comment 7.

Appendix IV Comments from the Department of Housing and Urban Development

                                 See comment 8.

                                 See comment 9.

                        See comment 10. See comment 11.

                                See comment 12.

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.

1. 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.
2. 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.
3. Our report acknowledges that any additional guidance that HUD develops
       for its field staff taking sanctions could allow for the consideration
       of individual situations. Because individual situations may vary, we
       stated that such guidance could establish a framework, or parameters,
       within which field offices should operate. Although HUD points to
       several forms of guidance in its comment, none of them specifically
       addresses the concerns raised in this report. The regulatory language
       in 24 C.F.R. 570.910(a) states that corrective actions should be
       designed to (1) prevent a continuation of the performance deficiency;

(2) mitigate, to the extent possible, the adverse effects or consequences
of the deficiency; and (3) prevent a recurrence of the deficiency. While

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 finding or concern,
but it does not help field office staff determine which sanction may be
appropriate if the deficiency results in a finding. Finally, as we
mentioned in our response to the previous comment, the additional handbook
HUD referenced was issued in 1992, while the CPD Monitoring Handbook was
issued in 2005. Given the great flexibility that exists when taking
sanctions, we believe it would be useful to provide field office staff
further guidance to ensure they are treating recipients that commit
similar infractions equitably.

1. We revised the report to include the suggested text.
2. 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.
3. We agree that the meetings referenced by HUD can be helpful in sharing
       information on current operational issues with IDIS. However, the
       meetings that HUD has referenced are either regularly scheduled
       management meetings or training on HUD's new performance measurement
       system. None of these meetings are the field office sessions that are
       specifically mentioned in the statement of work for the reengineered
       IDIS system. When we asked about the status of sessions that the
       statement of work said would be held with field staff regarding user
       requirements, accomplishment reporting, and proposed navigation
       approaches, the HUD official that is overseeing development of the new
       system stated that these sessions would not be held until late summer
       2006 at the earliest, although a functional requirements document had
       already been drafted. Further, additional statements made by that
       official and HUD's written comments indicate that the focus of future
       meetings with field staff will only be on reporting requirements. We
       continue to believe that soliciting input from end users on system
       requirements is consistent with best practices for system development
       and recommend that field office staff should participate in project
       management throughout the system's life cycle to ensure that the
       completed system supports both HUD's business needs and the end user
       field office needs.

Appendix IV Comments from the Department of Housing and Urban Development

1. We agree that monitoring low- or medium-risk grantees can serve a
       useful and valid program purpose, especially considering the large
       number of grantees designated as such. The report acknowledges that
       HUD policy permits the monitoring of medium- and low-risk recipients
       by noting that they can be reviewed using remote, or off-site,
       monitoring. Therefore, we made no change to the report.
2. 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.
3. We revised the text as suggested.
4. 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.
5. 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.

Appendix V

                     GAO Contact and Staff Acknowledgments

  GAO Contact
  
William Shear, (202) 512-8678

  Staff Acknowledgements
  
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.

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