Community Development: CDFI Fund Can Improve Its Systems to Measure,
Monitor, and Evaluate Awardees' Performance (Chapter Report, 07/15/98,
GAO/RCED-98-225).

Pursuant to a legislative requirement, GAO reviewed the performance of
the Community Development Financial Institutions (CDFI) Fund, focusing
on: (1) the first round of awards in the CDFI and Bank Enterprise Award
(BEA) programs and the strategic plan that the Fund developed under the
Government Performance and Results Act of 1993; (2) the Fund's
development of systems to measure, monitor, and evaluate the awardees'
performance; and (3) BEA's impact on banks' lending and investment in
CDFIs and distressed communities.

GAO noted that: (1) for fiscal year 1996, the Fund complied with the
CDFI Act's requirements for negotiating performance goals and measures
based on the awardees' business plans; (2) moreover, these goals and
measures are consistent with the CDFI program's mission of promoting
economic revitalization and community development; (3) however, because
the CDFI Act provides no specific guidance for evaluating performance
measures, GAO applied the Results Act's standards to the goals and
measures that the Fund negotiated in assistance agreements with the 1996
awardees; (4) GAO found that the Fund could improve the nature,
completeness, and specificity of these goals and measures; (5) GAO's
evaluation of the awardees' assistance agreements revealed an emphasis
on measures of activity, rather than on measures of accomplishment; (6)
as a result, the assistance agreements focus primarily on what the
awardees will do, rather than on how their activities will affect the
distressed communities; (7) GAO's evaluation also revealed occasional
omissions of measures for key aspects of goals and widespread omissions
of baseline data and information on target markets; (8) primarily
because of staffing limits, the Fund has just begun to develop mandated
monitoring and evaluation systems; (9) given that most awardees have
just recently signed their assistance agreements, it is still too early
to assess their progress; (10) the impact of the BEA program on banks'
lending and investment in CDFIs and distressed communities is difficult
to isolate from the impact of regulatory and other economic incentives;
(11) moreover, because the Fund did not require banks to report material
changes in rewarded investments, it did not have a systematic way of
learning about any such changes; (12) the Fund is not authorized to
address what banks do with their award funds; however, most awardees
have reported that they have reinvested at least a portion of their
awards in community development activities; (13) the Fund's current
strategic plan contains all of the elements required by the Results Act
and suggested by the Office of Management and Budget's implementing
guidance; (14) however, these elements generally lack the clarity,
specificity, and linkage with one another that the act envisioned; (15)
in addition, the plan does not describe the relationship of its
activities to similar ones in other government agencies, and it does not
indicate whether or how the Fund coordinated with other agencies in
developing the plan; and (16) these difficulties are similar to those
experienced by other federal agencies in implementing the Results Act's
requirements.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-98-225
     TITLE:  Community Development: CDFI Fund Can Improve Its Systems to 
             Measure, Monitor, and Evaluate Awardees'
             Performance
      DATE:  07/15/98
   SUBJECT:  Strategic planning
             Community development
             Economic development
             Economically depressed areas
             Financial institutions
             Reporting requirements
             Funds management
IDENTIFIER:  Community Development Financial Institutions Fund
             Bank Enterprise Award Program
             
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Cover
================================================================ COVER


Report to Congressional Committees

July 1998

COMMUNITY DEVELOPMENT - CDFI FUND
CAN IMPROVE ITS SYSTEMS TO
MEASURE, MONITOR, AND EVALUATE
AWARDEES' PERFORMANCE

GAO/RCED-98-225

CDFI Fund's Performance

(385685)


Abbreviations
=============================================================== ABBREV

  BEA - Bank Enterprise Award
  CDFI - Community Development Financial Institutions
  CRA - Community Reinvestment Act
  OMB - Office of Management and Budget
  SBA - Small Business Administration
  SBIC - Small Business Investment Company
  SSBIC - Specialized Small Business Investment Company

Letter
=============================================================== LETTER


B-279437

July 15, 1998

Congressional Committees

This report responds to a mandate in the Riegle Community Development
and Regulatory Improvement Act of 1994 (P.L.  103-325) that GAO
report on the Community Development Financial Institutions (CDFI)
Fund, including its structure, governance, and performance.  However,
as agreed with your offices, the report does not discuss the
structure and governance of the Fund because the Department of the
Treasury's Inspector General is conducting an audit to address these
issues.  The report evaluates how well the Fund is meeting its
performance goals and objectives through its two primary
programs--the CDFI program and the Bank Enterprise Award program--and
considers opportunities for improving their management.  In addition,
the report provides an assessment of the Fund's strategic plan. 
Finally, the report makes recommendations designed to improve the
Fund's performance. 

We are sending copies of this report to the appropriate congressional
committees and to the Secretary of the Treasury.  Copies are
available to others upon request. 

If you have any questions, please contact me at (202) 512-7631. 
Major contributors to this report are listed in appendix II. 

Sincerely yours,

Judy A.  England-Joseph
Director, Housing and Community
 Development Issues

List of Committees

The Honorable Alfonse D'Amato
Chairman
The Honorable Paul Sarbanes
Ranking Minority Member
Committee on Banking, Housing, and
 Urban Affairs
United States Senate

The Honorable Christopher S.  Bond
Chairman
The Honorable Barbara A.  Mikulski
Ranking Minority Member
Subcommittee on VA, HUD, and
 Independent Agencies
Committee on Appropriations
United States Senate

The Honorable Spencer Bachus
Chairman
The Honorable Bernard Sanders
Ranking Minority Member
Subcommittee on General
 Oversight and Investigations
Committee on Banking and Financial Services
House of Representatives

The Honorable Jerry Lewis
Chairman
The Honorable Louis Stokes
Ranking Minority Member
Subcommittee on VA, HUD, and
 Independent Agencies
Committee on Appropriations
House of Representatives


EXECUTIVE SUMMARY
============================================================ Chapter 0

PURPOSE

Access to credit and investment capital is essential for creating and
retaining jobs, developing affordable housing, revitalizing
neighborhoods, and promoting the growth of small businesses.  In
economically distressed communities, where access to credit and
investment capital through conventional sources is often limited,
private for-profit and nonprofit community development financial
institutions (CDFI), such as nonprofit loan funds and community
development credit unions, provide lending and investment services. 
In 1994, recognizing that such institutions were often having
difficulty meeting the demand for their services, the Congress
created the CDFI Fund.  The Fund currently seeks to expand access to
credit and other financial services in distressed communities,
primarily through two programs:  The CDFI program provides financing
and technical assistance to CDFIs, while the Bank Enterprise Award
program rewards banks and thrifts for providing similar services to
CDFIs and economically distressed communities. 

Responding to a mandate in the 1994 authorizing legislation,\1

this report evaluates the performance of the Fund by focusing on the
first round of awards in the CDFI and Bank Enterprise Award programs,
which the Fund made in 1996, and reviews the strategic plan that the
Fund developed under the Government Performance and Results Act of
1993 to guide its activities.  Because awardees in the CDFI program
are just beginning to report preliminary results, the report's
discussion of this program focuses primarily on the Fund's
development of systems to measure, monitor, and evaluate the
awardees' performance.  In contrast, because banks have largely
completed the activities for which the Fund agreed to reward them,
the report's discussion of the Bank Enterprise Award program focuses
mainly on the program's impact on banks' lending and investment in
CDFIs and distressed communities. 

BACKGROUND

Currently located within the Department of the Treasury, the CDFI
Fund received appropriations totaling $225 million from fiscal year
1995 through fiscal year 1998.  From 10 full-time-equivalent
positions in fiscal year 1995, the Fund's staff has grown to 35 such
positions in fiscal year 1998, 28 of which were filled as of May
1998. 

The Fund's overall performance is subject to the Community
Development Banking and Financial Institutions Act of 1994 (CDFI
Act),\2 which established the Fund.  Its performance is also subject
to the Results Act and the Office of Management and Budget's (OMB)
implementing guidance.  The Results Act seeks to improve the
management--and hence the effectiveness and efficiency--of federal
programs by establishing a system for agencies to set goals for
performance and measure the results.  The centerpiece of this system
is a long-term (at least 5-year) strategic plan, against which
agencies assess and report annually on their progress.  The Fund
completed its first strategic plan in September 1997. 

Through financial and technical assistance, the CDFI program supports
community-based financial institutions, such as nonprofit community
development loan funds, community development credit unions,
microenterprise loan funds, and community development venture capital
funds.  In accordance with the CDFI Act, applicants are selected on
the basis of, among other things, a 5-year business plan in which
they project the impact of their planned activities on an
economically distressed community.  Applicants must also indicate how
they will at least match their CDFI award with funds from nonfederal
sources.  After selecting awardees, the Fund negotiates performance
goals, measures, and benchmarks with each one and enters into an
assistance agreement, which includes a schedule for performance
measurement, requirements for quarterly and annual reports, and
provisions for sanctions if the awardee does not comply with the
assistance agreement, including the performance goals.  The Fund must
monitor the awardee's performance for the duration of the assistance
agreement, generally 5 years or more, and conduct evaluations using
the performance schedule in the assistance agreement. 

The Bank Enterprise Award program rewards banks for increases in
lending and investments in CDFIs or in distressed communities.  An
award is generally equal to 15 percent of an increased investment in
a CDFI or 5 percent of an increase in direct investment in a
distressed community completed over a 6-month assessment period. 
Because the program rewards banks for activities that they accomplish
with their own money, the CDFI Act establishes no postaward
monitoring role for the Fund and places no restrictions on banks'
uses of the award funds. 

For the first round of awards, completed in 1996, the Fund selected
31 of 268 CDFIs applying for the CDFI program and 38 of over 50 banks
applying for the Bank Enterprise Award program.  As of January 1998,
the Fund had entered into assistance agreements with 26 of the 31
CDFIs.  The Fund reserved about $37 million for awardees in the CDFI
program and $13.1 million for awardees in the Bank Enterprise Award
program.  To obtain general information about the CDFI field, GAO
surveyed 925 community-based financial institutions nationwide, and
to understand the perspectives of awardees in both programs, GAO
conducted case studies at six CDFIs and five banks. 

RESULTS IN BRIEF

For fiscal year 1996, the Fund complied with the CDFI Act's
requirements for negotiating performance goals and measures based on
the awardees' business plans.  Moreover, these goals and measures are
consistent with the CDFI program's mission of promoting economic
revitalization and community development.  However, because the CDFI
Act provides no specific guidance for evaluating performance
measures, GAO applied the Results Act's standards to the goals and
measures that the Fund negotiated in assistance agreements with the
1996 awardees.  GAO found that the Fund could improve the nature,
completeness, and specificity of these goals and measures.  GAO's
evaluation of the awardees' assistance agreements revealed an
emphasis on measures of activity, such as the number of loans made,
rather than on measures of accomplishment, such as the net number of
jobs created or retained.  As a result, the assistance agreements
focus primarily on what the awardees will do, rather than on how
their activities will affect the distressed communities.  GAO's
evaluation also revealed occasional omissions of measures for key
aspects of goals and widespread omissions of baseline data and
information on target markets.  Primarily because of staffing limits,
the Fund has just begun to develop mandated monitoring and evaluation
systems.  Given that most awardees have just recently signed their
assistance agreements, it is still too early to assess their
progress. 

The impact of the Bank Enterprise Award program on banks' lending and
investment in CDFIs and distressed communities is difficult to
isolate from the impact of regulatory and other economic incentives,
such as the need to comply with federal banking requirements for
investing in economically distressed areas or the desire to develop
markets in these areas.  Moreover, because the Fund did not require
banks to report material changes in rewarded investments, it did not
have a systematic way of learning about any such changes.  The Fund
is not authorized to address what banks do with their award funds;
however, most awardees have reported that they have reinvested at
least a portion of their awards in community development activities. 

The Fund's current strategic plan contains all of the elements
required by the Results Act and suggested by OMB's implementing
guidance.  However, these elements generally lack the clarity,
specificity, and linkage with one another that the act envisioned. 
In addition, the plan does not describe the relationship of its
activities to similar ones in other government agencies, and it does
not indicate whether or how the Fund coordinated with other agencies
in developing the plan.  These difficulties are similar to those
experienced by other federal agencies in implementing the Results
Act's requirements.  The Fund is taking steps to address most of the
difficulties. 

PRINCIPAL FINDINGS


--------------------
\1 Riegle Community Development and Regulatory Improvement Act of
1994 (P.L.  103-325, Sept.  23, 1994). 

\2 This legislation is title I, subtitle A, of the Riegle Community
Development and Regulatory Improvement Act of 1994. 


      STRONGER PERFORMANCE
      MEASURES WOULD PROVIDE A
      BETTER BASIS FOR MONITORING
      AND EVALUATING
      ACCOMPLISHMENTS IN THE CDFI
      PROGRAM
-------------------------------------------------------- Chapter 0:0.1

The Fund complied with the CDFI Act's requirements for establishing
performance measures for awardees in the CDFI program.  However,
because the CDFI Act provides very limited guidance for evaluating
performance measures, GAO drew on the Results Act's standards, as
interpreted by OMB's guidance. 

While recognizing that both activity and accomplishment measures are
useful for evaluating performance, the Results Act and its guidance
encourage the use of accomplishment measures.  Accomplishment
measures monitor the effects associated with agencies' activities,
while activity measures simply track agencies' actions.  GAO's
analysis of the 1996 awardees' assistance agreements revealed a
preponderance of activity measures.  In the 26 agreements, which
contained 165 performance measures, 131, or about 79 percent, were
activity measures.  By contrast, GAO's analysis of (1) the six case
study awardees' business plans and (2) the responses of 623 CDFIs to
GAO's survey revealed a far greater use of accomplishment measures. 
According to most of the case study awardees, difficulties in
isolating and measuring the results of community development efforts,
concerns about the effects of factors outside the awardees' control,
and concerns about the Fund's possible imposition of sanctions for
not meeting performance benchmarks inhibited the awardees' use of
accomplishment measures in the assistance agreements. 

According to the Results Act and its guidance, goals and measures
should provide a clear picture of intended performance.  GAO found
that the awardees' goals and measures had varying degrees of clarity. 
For instance, most goals and measures were related; however, in some
agreements, the measures did not address all key aspects of the
goals.  Clarity in performance measurement is also best achieved
through the use of specific units, well-defined terms, baseline and
target values and dates, and information about the population to be
served.  While the measures in the agreements were generally specific
and well defined, 95 percent lacked baseline values and 93 percent
lacked baseline dates.  The majority also had specific information
about the areas or population to be served, but this information was
not cross-referenced to the awardee's defined target market.  Fund
officials told GAO that they used baseline values and dates and
information about the target market, contained in other documents
from the awardee, in negotiating the performance measures, but this
information did not appear in the assistance agreement itself. 
Including such information in the assistance agreement is important
because it establishes a context for understanding the significance
of the benchmark ranges, ensures that the Fund and the awardee have
an agreed-upon basis for measuring performance, and facilitates an
evaluation of the awardee's performance. 

Although the Fund is requiring awardees to submit quarterly and
annual reports so that it can monitor their performance, it lacks
documented postaward monitoring procedures for assessing their
compliance with their assistance agreements, determining the need for
corrective actions, and verifying the accuracy of the information
collected.  In addition, the Fund has not yet established procedures
for evaluating the impact of awardees' activities.  Primarily because
of statutorily imposed staffing restrictions in fiscal year 1995 and
subsequent departmental hiring restrictions, the Fund has had a
limited number of staff to develop and implement its monitoring and
evaluation systems.  In fiscal year 1998, it began to hire management
and professional staff to develop monitoring and evaluation policies
and procedures. 

Quarterly reports submitted by 19 of the 1996 awardees through
December 1997 show that these awardees had made over 1,300 loans
totaling about $52 million and had provided technical assistance to
480 individuals or businesses. 


      IMPACT OF THE BANK
      ENTERPRISE AWARD PROGRAM ON
      BANKS' ACTIVITIES IS
      DIFFICULT TO ASSESS
-------------------------------------------------------- Chapter 0:0.2

The impact of the Bank Enterprise Award program on banks' lending and
investment is difficult to isolate from the impact of regulatory and
economic incentives.  Although the prospect of receiving an award
motivated some banks, others said that their decision to invest in
areas targeted by the program was dictated largely by the need to
comply with the Community Reinvestment Act of 1977, as amended,\3
which encourages banks to invest in all areas of the communities they
serve, or by the desire to maintain market share, compete with other
banks, build up markets, or improve community relations in the
targeted areas.  Unlike the 1977 act, however, the Bank Enterprise
Award program requires that banks not only invest in distressed areas
but also increase their investments over and above what they have
been doing. 

The Fund did not require 1996 awardees to notify it of material
changes in their rewarded investments.  Consequently, the Fund did
not know about the dissolution of a CDFI in which one of GAO's case
study banks had invested.  The CDFI was dissolved after the bank
received an award of $37,500.  The bank subsequently reinvested its
pro rata share of the CDFI's capital in another CDFI.  The Fund has
since begun to require that banks report material changes to their
rewarded investments. 

GAO's case study banks reported using their award money to expand
their existing investments in community development.  According to
the Fund, most of the 1996 awardees also used at least a portion of
their awards to further the program's objectives.  However, neither
GAO nor the Fund determined whether the banks' reinvestment of
awarded funds met the Bank Enterprise Award program's objectives. 


--------------------
\3 12 U.S.C.  2901 et seq. 


      THE FUND'S STRATEGIC PLAN
      DOES NOT YET FULFILL THE
      REQUIREMENTS FOR EFFECTIVE
      IMPLEMENTATION OF THE
      RESULTS ACT
-------------------------------------------------------- Chapter 0:0.3

The Fund's current strategic plan contains all of the elements
required by the Results Act including a mission statement, strategic
goals and objectives, and strategies to achieve the goals and
objectives.  However, these elements generally lack the clarity,
specificity, and linkage with one another that the Results Act
envisioned.  Although the plan identifies key external factors that
could affect the Fund's mission, it does not relate these factors to
the Fund's strategic goals and objectives and does not indicate how
the Fund will take the factors into account when assessing awardees'
progress.  And while the plan discusses options for evaluating the
Fund's effectiveness, it does not include a schedule for future
evaluations. 

The Fund's strategic plan makes only one reference to coordination
with other entities, even though many other public and private
agencies are involved in community and economic development.  In the
federal government, the departments of Agriculture, and Housing and
Urban Development, and the Small Business Administration, for
example, operate such programs.  Interagency coordination is
important to ensure that crosscutting efforts reinforce rather than
duplicate one another. 

The shortcomings that GAO has identified in the Fund's strategic plan
are similar to those that GAO found in reviewing 27 other federal
agencies' plans.  The Fund is refining and updating its plan and
expects to complete a revision by August 1998. 

RECOMMENDATIONS

To strengthen performance measurement in the CDFI program, GAO
recommends that the Secretary of the Treasury instruct the Director
of the Fund to review the assistance agreements and establish
reporting requirements to encourage the greater use of accomplishment
measures without the threat of sanctions, ensure that the performance
measures address all key aspects of the related goals, and specify
baseline dates and values and target markets. 

AGENCY COMMENTS

GAO provided a draft of this report to the Department of the Treasury
for its review and comment.  GAO met with the CDFI Fund's Director
and Deputy Director for Policy and Programs to discuss the draft. 
These officials generally agreed with the information presented and
offered a number of technical and/or clarifying comments that GAO
incorporated throughout the report.  The officials' comments are
addressed in more detail at the end of each applicable chapter. 

While the Fund officials agreed with GAO's conclusion that the Fund
should encourage awardees in the CDFI program to increase their
reporting of accomplishments, they disagreed with the draft report's
proposal that the performance schedule in the assistance agreement is
the appropriate place for such reporting.  As an alternative, the
officials suggested that awardees report accomplishments in an annual
impact report that the Fund plans to require.  These accomplishments
would not be subject to sanctions, and awardees would be sanctioned
only if they failed to submit the required reports.  Because this
alternative should achieve GAO's, and the Fund's, objective of
increasing awardees' reporting of accomplishments, GAO revised the
relevant conclusion and recommendation accordingly.  The Fund
officials agreed with GAO's other two recommendations for revising
the content of future assistance agreements. 


INTRODUCTION
============================================================ Chapter 1

Access to credit and investment capital is essential for creating and
retaining jobs, developing affordable housing, revitalizing
neighborhoods, and promoting the development and growth of small
businesses.  Over the past three decades, community-based financial
institutions have demonstrated that strategic lending and investment
activities tailored to the unique characteristics of underserved
communities can be effective in improving the economic well-being of
these communities and of the people who live in them. 

To help create new and expand existing financial institutions that
specialize in serving distressed communities, the Congress, in the
Community Development Banking and Financial Institutions Act of 1994,
established the Community Development Financial Institutions (CDFI)
Fund.  In creating the Fund, the Congress recognized that the number
of CDFIs was limited, most were small, and many were having
difficulty raising capital needed to meet the demands for their
products and services.  The CDFI Fund currently provides needed
capital primarily through two programs--the CDFI program, which makes
awards directly to qualifying CDFIs, and the Bank Enterprise Award
(BEA) program, which provides awards to insured depository
institutions for investing in CDFIs and/or distressed communities. 

This report responds to a requirement in the 1994 legislation that we
report on the Fund's structure, governance, and performance 30 months
after the appointment of an Administrator for the Fund.  However, as
agreed with your offices, the report does not discuss the structure
and governance of the Fund because the Department of the Treasury's
Inspector General is conducting an audit addressing these issues. 
Our report evaluates how well the Fund is meeting its performance
goals and objectives through the CDFI and BEA programs and considers
opportunities for improving their implementation.  In addition,
because this report focuses on the Fund's performance, it reviews the
strategic plan developed under the Government Performance and Results
Act of 1993 (Results Act) to guide the Fund's other activities. 


   THE CDFI FUND:  ORGANIZATION
   AND FUNDING HISTORY
---------------------------------------------------------- Chapter 1:1

The 1994 act established the CDFI Fund as a wholly owned government
corporation.  Subsequent legislation\1 placed the Fund within the
Department of the Treasury and gave the Secretary of the Treasury all
of the powers and rights to manage the Fund, as set forth in the
authorizing legislation.  Figure 1.1 displays the Fund's
organization. 

   Figure 1.1:  Organization of
   the CDFI Fund

   (See figure in printed
   edition.)

Source:  CDFI Fund's annual report for fiscal year 1997. 

The 1994 legislation also created an Advisory Board to advise the
Fund on policy issues.  The Fund's Advisory Board consists of 15
members, including representatives from the departments of
Agriculture, Commerce, Housing and Urban Development, the Interior,
and the Treasury and from the Small Business Administration, as well
as nine private citizens appointed by the President. 

From fiscal year 1995 through fiscal year 1998, the Fund received
appropriations totaling $225 million.  The Fund's appropriations can
be obligated over 2 years; therefore, the total budget authority
available to the Fund in any given year is the current year's
appropriation plus any unspent funding from the previous year's
appropriation.  Figure 1.2 shows the Fund's appropriations by fiscal
year. 

   Figure 1.2:  Appropriations
   Received by the Fund, Fiscal
   Years 1995-98

   (See figure in printed
   edition.)

Source:  CDFI Fund's annual report for fiscal year 1997. 

Of the amounts appropriated to the Fund, not more than $5.5 million
may be used in a single fiscal year to pay the Fund's administrative
costs and expenses.  The remaining appropriations have been committed
primarily to the CDFI and BEA programs.  Under the act, one-third of
the amounts appropriated for programs in any fiscal year must be made
available to the BEA program. 

The fiscal year 1995 budget proposed an estimated 30
full-time-equivalent staff positions for the Fund.  However, the 1995
Rescissions Act limited the Fund to 10 full-time-equivalent positions
in fiscal year 1995.  During fiscal year 1997, the Fund's staffing
increased to 14 full-time-equivalent positions.  For fiscal year
1998, the Fund is authorized 35 full-time-equivalent positions, and
the Fund's management intends to fill all of the vacant positions by
the end of the fiscal year.  The Fund's administrative budget remains
capped at $5.5 million. 


--------------------
\1 P.L.104-19 (July 27, 1995) and P.L.104-34 (Apr.  26, 1996). 


   COMMUNITY DEVELOPMENT FINANCIAL
   INSTITUTIONS PROGRAM
---------------------------------------------------------- Chapter 1:2

Under the CDFI program, the Fund invests in CDFIs to promote their
long-term ability to serve economically distressed communities. 
Specifically, the Fund provides financial and technical assistance to
CDFIs to enhance their ability to make loans and investments and to
provide services for economically distressed communities, targeted
populations, or both.  CDFIs are private profit-making and nonprofit
financial institutions that focus on providing financial services to
distressed geographic areas and populations that are underserved by
conventional lenders and investors.  The following are among the
types of organizations that qualify for funding under the program:\2

  -- Community Development Bank:  A community development
     organization centered around a bank or savings and loan that
     combines the structure and expertise of a profit-making
     financial institution with a commitment to a distressed place or
     population. 

  -- Community Development Credit Union:  A financial cooperative
     owned and operated by lower-income persons.  It provides
     financial services to its members, including savings and
     checking accounts and loans for homes, cars, or other personal
     needs. 

  -- Nonprofit Community Development Loan Fund:  A financial
     intermediary that raises capital from individuals and
     institutional investors, churches, businesses, and foundations,
     at below-market rates, and relends these funds primarily to
     community-based organizations and businesses and nonprofit
     developers in low-income urban or rural communities. 

  -- Microenterprise Loan Fund:  An entity that receives funding from
     a private or nonprofit foundation, government agency, or private
     bank and generally provides technical assistance and loans,
     ranging from as little as $500 to $10,000, to start up or expand
     self-help business opportunities for low-income individuals. 

  -- Community Development Venture Capital Fund:  An entity that
     provides managerial support, along with equity and debt with
     equity features, to businesses (typically manufacturing-based)
     located in low-income communities. 

Although two types of CDFIs--community development banks and credit
unions--are regulated and insured by the Federal Deposit Insurance
Corporation and the National Credit Union Share Insurance Fund,
respectively, the remaining types of CDFIs are generally unregulated. 

Each year, the Fund solicits applications for awards from CDFIs
seeking assistance.  An organization's application must include a
comprehensive business plan covering 5 years or more and describing
how the organization plans to meet the needs of its investment area,
its targeted population, or both.  While an applicant is given
considerable flexibility in designating an investment area, the area
must meet objective criteria for economic distress developed by the
Fund.  An investment area may include a variety of geographic units
reflecting the neighborhoods, areas, or markets that the applicant
serves or proposes to serve. 

The Fund awards assistance competitively, using selection criteria
that include the quality of an applicant's business plan, the extent
and nature of the plan's impact on community development, and the
experience and background of the applicant's management team.  This
assistance may be in the form of, for instance, an equity investment,
a grant, a loan, and/or technical assistance.  In the CDFI program,
there were 31 awardees in fiscal year 1996 and 48 awardees in fiscal
year 1997. 

To receive any financial assistance through the CDFI program, a CDFI
must be certified by the Fund, obtain matching funding from
nonfederal sources, and enter into an assistance agreement with the
Fund.  The Fund certifies a CDFI after determining, among other
things, that it has a primary mission of promoting community
development, its predominant business activity is lending or
investing in development, and it serves (an) economically distressed
investment area(s) or targeted population(s).  The Fund's
certification signifies that a CDFI is eligible to participate in the
CDFI program, but it does not constitute an opinion on the CDFI's
financial viability or indicate that the CDFI will receive an award. 
While the program's regulations allow an uncertified CDFI to apply
and be selected for an award, the CDFI will not receive financial
assistance until it has been certified.  The Fund requires CDFIs to
be recertified every 2 years.  As of March 1998, the Fund had
certified 205 CDFIs.  While the total number of CDFIs nationwide that
could be certified by the Fund is unknown, GAO surveyed 925 community
development organizations that described their organization as a type
of CDFI (see app.  I). 

To meet the requirement for matching funds, an awardee must obtain
assistance from nonfederal sources that is at least equal in form and
value to the Fund's federal assistance.  The awardee must provide the
Fund with written documentation that it has received either a firm
commitment from the provider of the matching funds or the matching
funds themselves.  This provision is intended to ensure that no
federal funds are released until other resources have been leveraged. 

After selecting the awardees for a given funding round, the Fund
begins negotiating an assistance agreement with each awardee.  When
both parties have agreed upon all of the elements, the Fund and the
awardee enter into an assistance agreement by signing the negotiated
document.  Each agreement is tailored to the nature of the
CDFI--regulated or unregulated--and the type of assistance given to
the awardee.  The Fund generally disburses funds after an agreement
has been signed and the awardee has met the requirements for matching
funds and certification. 

A key negotiated element of the assistance agreement is a performance
schedule for the Fund to use in evaluating the awardee's performance. 
This schedule includes performance goals and measures, benchmarks,
and an expected evaluation date.  Each agreement also requires the
CDFI to provide quarterly and annual reports on its financial
condition and progress toward meeting its performance goals.  In
addition, the agreement allows the Fund to apply sanctions, or
remedies, that range from changing the goals to requiring the awardee
to repay the award if it does not achieve at least a satisfactory
level of performance by the evaluation date. 

Each year, the Fund must evaluate each awardee's performance using
the performance goals, measures, and benchmarks in the awardee's
assistance agreement.  The Fund describes performance goals as
qualitative goals and measures as quantitative indicators of the
extent to which the awardee has achieved the goals.  Benchmarks
define levels of performance, ranging from outstanding to
unacceptable, which are assessed at specific dates.  Awardees often
attach "assumptions" to their goals and measures to identify factors
beyond their control, such as the continuation of external funding,
that may affect the achievement of their goals. 


--------------------
\2 Other types of community-based organizations that may qualify for
awards from the CDFI Fund include community development corporations,
community action agencies, neighborhood housing service
organizations, housing loan funds, and small business loan funds. 


   BANK ENTERPRISE AWARD PROGRAM
---------------------------------------------------------- Chapter 1:3

The purpose of the BEA program is to encourage insured depository
institutions\3 to increase (1) their investments in certified CDFIs
and (2) their lending and provision of other financial services in
economically distressed communities.  According to the Department of
the Treasury, there are significant gaps in these communities' access
to capital and the market potential in them is one that banks often
do not recognize or understand.  By creating an incentive for banks
to increase activities in these communities, the BEA program seeks to
make it easier for mainstream sources of capital to serve low-income
people. 

To encourage increased investment, the BEA program rewards banks on
the basis of the amount by which they increase their investments and
other financial services over a 6-month assessment period (compared
with the preceding 6-month, or baseline, period).  A bank applying
for an award must demonstrate that it plans to invest in or otherwise
support a CDFI that is certified by the Fund and/or that the lending
and other financial services it plans to undertake are otherwise
eligible under the BEA program's guidelines and regulations.  These
guidelines and regulations spell out (1) the kinds of services for
which the program will grant an award, such as business, consumer,
agricultural, or single-family mortgage lending, and (2) the economic
and other characteristics that define an area as a "distressed"
community, which all of the banks' rewarded increases in activity
must serve.\4 Investments in certified CDFIs are eligible for awards
of up to 33 percent of the amount by which banks increase their
investments,\5 whereas lending and other services in distressed
communities are eligible for awards of 5 percent of the increased
investment.  In its application for an award, a bank may include not
only its plans for specific investments in CDFIs, loans, or services
that it knows it will undertake but also good-faith estimates of
eligible activities that it expects to undertake. 

As long as the Fund (1) has determined that banks have met all of its
criteria for awards from the BEA program and (2) has sufficient BEA
funds available, it announces that the banks that have applied
successfully have won awards.  However, the Fund does not disburse a
bank's award immediately.  Instead, it disburses the award funds to
the extent that the bank provides adequate documentation and other
assurances that it has completed the increased investments and/or
activities for which it received the award.  The Fund disburses award
funds in increments when a bank completes its increased activities in
increments.  For example, if a bank increased its investment in a
certified CDFI in two equal installments, it could seek and the Fund
would disburse half of its award after the first installment; the
Fund would retain the second half until the bank had completed the
second installment.  For the 1997 awardees, the Fund gives an award
on the basis of a bank's commitment to increase an activity over a
period of up to 3 years\6 so long as the bank makes that commitment
and begins to fund it during the 6-month assessment period.  As a
result, the Fund may take up to 3 years after approving an award to
disburse all of the award. 

Once a bank has received its award funds, it may do anything it wants
with them because the legislation creating the program places no
restrictions on their use.  The Fund has no authority, for example,
to require banks to invest their award funds for specific purposes or
to report on the uses to which they have put the funds. 


--------------------
\3 Insured depository institutions are banks and savings associations
("thrifts") whose deposits are insured by the Federal Deposit
Insurance Corporation.  For simplicity of presentation, the balance
of this report refers to these institutions as "banks."

\4 Increased investments in CDFIs are eligible for awards so long as
the Fund has certified the CDFI in which a bank is investing and the
CDFI has made at least one investment in an economically distressed
area.  An area is economically distressed, according to the BEA
program, if its poverty rate is at least 30 percent and its
unemployment rate is at least one and one-half times the national
average. 

\5 A bank can receive an award of up to 15 percent for making an
equity investment in a CDFI; 11 percent for loans and other technical
assistance to CDFIs; and up to 33 percent if the bank itself is a
CDFI providing loans, technical assistance, or deposits to other
CDFIs.  An equity investment may be a grant, stock purchase, purchase
of a partnership interest, purchase of a limited liability company
membership interest, loan made on such terms that it has
characteristics of equity, or any other investment the Fund deems to
be an equity investment. 

\6 The 1996 awardees had up to 5 years to increase an activity. 


   THE RESULTS ACT
---------------------------------------------------------- Chapter 1:4

In the 1990s, the Congress established a statutory framework to
address long-standing weaknesses in federal operations, improve
federal management practices, and provide greater accountability for
achieving results.  This framework included as its essential elements
the Results Act and key financial management and information
technology reform legislation:  the Chief Financial Officers Act of
1990--as expanded by the Government Management Reform Act of
1994--and the Paperwork Reduction Act of 1995 and the Clinger-Cohen
Act of 1996, respectively.  Taken together, these legislative
initiatives seek to respond to a need for accurate, reliable, and
integrated budget, financial, and program information for
congressional and executive branch decision-making. 

The goal-setting and performance measurement and improvement system
envisioned by the Results Act is the centerpiece of this framework
and starts with a requirement that each executive agency develop and
periodically update a strategic plan covering a period of at least 5
years.  This strategic plan is to include elements such as the
agency's mission statement, long-term goals and objectives, and
strategies for achieving these goals and objectives.  Under the
Results Act, the first of these plans was due by September 30, 1997. 
With the submission of the fiscal year 1999 budget, agencies are also
required to prepare annual performance plans that establish
connections between the long-term strategic goals outlined in the
strategic plans.  Finally, the act requires that each agency report
annually on the extent to which it is meeting its annual performance
goals and the actions needed to achieve or modify any goals that have
not been met.  The first of these reports, on programs' performance
for fiscal year 1999, is due by March 31, 2000. 

The Fund is required by the Department of the Treasury to provide the
Secretary with a strategic plan that complies with the provisions of
the Results Act.  The Fund submitted its plan on September 23, 1997. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:5

Our objectives for this assignment were to evaluate (1) the progress
of the CDFI Fund in developing performance measures for awardees in
the CDFI program and systems to monitor and evaluate their progress
in meeting their performance goals, as well as the accomplishments
they have reported to date; (2) the performance of banks under the
BEA program, the impact of the program on banks' investment
activities and on economically distressed communities, and the uses
to which banks have put their award funds; and (3) the Fund's
progress in meeting the Results Act's requirements for strategic
planning and the steps the Fund could take to improve its management. 
Our report focuses on the first round of awards, which the Fund made
in 1996. 

To accomplish our first objective, we reviewed the Fund's process for
setting goals and developing performance measures with the 1996
awardees and discussed the Fund's performance measurement system with
responsible officials at the Fund's headquarters in Washington, D.C. 
We also randomly selected six awardees as case studies to gain these
awardees' perspectives on the process of developing performance
measures.  In addition, we conducted a national survey of 925 CDFI
organizations to obtain information on the performance measurement
and monitoring systems used in the CDFI field.  We reviewed the
Fund's statutory, regulatory, and other reporting and monitoring
requirements and spoke with officials at the Fund and at our case
studies to assess the Fund's progress in developing systems for
monitoring and evaluating awardees' progress.  Finally, we reviewed
quarterly progress reports submitted by 19 of the 1996 awardees and
held discussions with case study officials to assess the awardees'
progress. 

To accomplish our second objective, we reviewed the Fund's guidance,
policies, procedures, and other materials on the BEA awards process
and discussed these and other issues related to the program with
responsible Fund officials.  We obtained data on the banks'
performance from the Fund's status report on activities completed as
of January 1998.  In addition, we conducted case studies of five
awardees that, collectively, provided the full range of activities
for which banks can receive awards. 

To accomplish our third objective, we reviewed the Fund's most recent
strategic plan, developed in September 1997 in accordance with the
Results Act's requirements and OMB's guidance.\7 We judged the
quality of the plan as a whole and of its primary components, using
our knowledge of the program and using guidance developed by GAO for
evaluating agencies' strategic plans.\8

We provided a draft of this report to the CDFI Fund for its review
and comment.  The Fund's comments are addressed at the end of each
applicable chapter. 

We performed our review from July 1997 through June 1998 in
accordance with generally accepted government auditing standards.  We
relied on data provided to us by the Fund, by awardees in both the
CDFI and the BEA programs, and by CDFIs responding to our survey.  A
more detailed discussion of our methodology appears in appendix I. 


--------------------
\7 OMB Circular A-11, part 2:  Preparation and Submission of
Strategic Plans (June 1997). 

\8 Agencies' Strategic Plans Under GPRA:  Key Questions to Facilitate
Congressional Review, May 1997 Version 1 (GAO/GGD-10.1.16). 


BETTER PERFORMANCE MEASURES ARE
NEEDED TO MONITOR AND EVALUATE THE
CDFI PROGRAM'S ACCOMPLISHMENTS
============================================================ Chapter 2

In entering into assistance agreements with the 1996 awardees in the
CDFI program, the Fund complied with the CDFI Act's requirements for
negotiating performance measures based on the awardees' business
plans.  However, opportunities exist for the Fund to improve the
nature, completeness, and specificity of the performance measures
that it negotiates with future awardees.  Our evaluation of the 1996
assistance agreements revealed (1) an emphasis on measures of
activity, such as the number of loans made, rather than on measures
of accomplishment, such as the net number of jobs created or
retained; (2) the occasional omission of measures for key aspects of
goals; and (3) the widespread omission of baseline data and
information on target markets, needed to track progress over time. 
Including more requirements in the assistance agreements for
reporting accomplishments could help to keep both the awardees and
the Fund focused on the primary purposes of the CDFI program, and
using more complete and specific goals and measures could facilitate
the Fund's monitoring and evaluation of awardees' performance. 

The Fund is just beginning to develop mandated monitoring and
evaluation systems.  It has established reporting requirements for
awardees to collect information for monitoring their performance, and
it is developing postaward monitoring procedures for using this
information to assess their compliance with their assistance
agreements.  Although the Fund has published some "success stories,"
it has not established a system for evaluating the impact of
awardees' activities. 

Most CDFIs only recently signed their assistance agreements. 
Therefore, any reports of progress are limited and preliminary. 
Furthermore, the many different types of CDFIs support different
types of activities and use different performance measures, making
any general assessment of their progress difficult. 


   PROGRESS IN DEVELOPING
   PERFORMANCE MEASURES IS MIXED
---------------------------------------------------------- Chapter 2:1

The CDFI Fund's progress in developing performance goals and measures
for awardees in the CDFI program is mixed.  On one hand, as of
January 1998, the Fund had entered into assistance agreements with 26
of the 31 CDFIs that received awards in 1996 and had disbursed
approximately $31 million of the $37 million set aside for this first
round of awards under the program.  As the CDFI Act requires, these
agreements include performance measures that (1) were negotiated with
the awardees and (2) are generally based on the awardees' business
plans.  On the other hand, the performance goals and measures that
the Fund negotiated with the 1996 awardees fall somewhat short of the
standards for performance measures established in the Results Act. 
Because the CDFI Act provides no further guidance on developing
performance measures, we drew on the Results Act's standards for our
evaluation, even though the performance measures in the assistance
agreements are not subject to the Results Act. 

In part, the CDFIs' widespread use of activity measures, rather than
accomplishment measures, is attributable to concerns about isolating
the results of community development initiatives from the influences
of other factors, which may be beyond the awardees' control.  In
addition, related concerns about the Fund's possible imposition of
sanctions appear to further deter the use of accomplishment measures. 
However, accomplishment measures are important to focus attention on
the desired results of the Fund's investments and can, in our view,
be negotiated so as to address these concerns.  Lack of written
guidance on developing performance measures for the 1996 awardees may
be partly responsible for the occasional omission of measures for key
aspects of some goals.  Finally, baseline data and data on target
markets generally do not appear in the assistance agreements. 
Although we found that these data were generally available in other
documents--and, according to Fund officials, were used in setting
performance levels--their absence from the agreements could hinder
the efficient evaluation of awardees' performance. 


      THE FUND MET THE CDFI ACT'S
      REQUIREMENTS
-------------------------------------------------------- Chapter 2:1.1

In total, the Fund negotiated 87 performance goals and 165
performance measures in the 26 assistance agreements that it signed
with awardees through January 1998.  These goals and measures were
consistent with the CDFI program's mission of promoting economic
revitalization and community development and were generally based on
the awardees' business plans. 


         THE FUND DEVISED A
         FLEXIBLE SCHEDULE FOR
         NEGOTIATING PERFORMANCE
         MEASURES
------------------------------------------------------ Chapter 2:1.1.1

To provide a framework for negotiation, the Fund developed a
performance schedule that proved flexible enough for the many
different types of CDFIs to tailor their performance measures to
their particular activities.  This schedule appears in each of the
1996 assistance agreements and is intended to be a complete
description of each awardee's planned performance for the period of
the award (generally 5 years or more).  Besides performance goals and
measures, the schedule includes benchmarks (expressed in ranges) for
evaluating the awardee's level of performance as of the evaluation
date and, optionally, at one or more interim dates.  Finally, the
schedule includes assumptions about external factors (i.e., factors
outside the awardee's control) that could affect the awardee's
performance.  Table 2.1 illustrates the schedule, using one of the
more comprehensive schedules prepared by a 1996 awardee. 



                                    Table 2.1
                     
                      Sample Performance Schedule for a 1996
                                     Awardee

-------------  -----------------------------------------------------------------
Goal\a         Significantly improve the economic value of residential real
               estate in investment areas through community development
               activities, including the provision of loans for home purchases
               and home improvements.

Measure        Total number of new loans made by the awardee for home purchases
               in the investment area during the performance period. Loans made
               may be secured by first or second mortgages.
--------------------------------------------------------------------------------
                                        Evaluation date     Interim benchmark\b
                                      --------------------  --------------------
Benchmark       Performance                       12/31/01               6/30/99
--------------  --------------------  --------------------  --------------------
                Outstanding                    450 or more           225 or more
                Good                               400-449               200-224
                Satisfactory                       350-399               175-199
                Below expectations                 250-349               125-174
                Unacceptable                  249 or fewer          124 or fewer
--------------------------------------------------------------------------------
-------------  -----------------------------------------------------------------
Assumptions    1.The willingness of corporations, foundations, governments,
               religious organizations, and other philanthropic sources to
               support community development lending remains relatively stable
               or increases.

               2.Interest rates will remain reasonably stable, allowing the
               awardee to continue to engage in tandem lending (lending in
               support of first mortgages by other lenders, such as banks) at
               resulting mortgage payment levels affordable to borrowers in the
               awardee's investment areas.

               3.The investment areas' economic conditions will not decline
               substantially.

               4.Property tax rates will not increase substantially.

               5.The reputation of local public schools will not decline in a
               manner that diminishes the attractiveness of the investment areas
               as places to live.

               6.The rate of inflation will not increase.
--------------------------------------------------------------------------------
\a This goal was accompanied by three other measures.  The second
measure was the total number of loans made by the awardee for major
home improvements (defined as improvements costing at least $5,000)
in the investment area.  The third measure was the total number of
loans made by the awardee for minor home improvements (defined as
improvements costing less than $5,000) in the investment area.  The
last measure was the change in the median sales price of single
family houses in the awardee's target market. 

\b Although interim benchmarks were optional in the 1996 agreements,
most of the 1996 awardees set such benchmarks 2 to 3 years after the
date of signing their assistance agreement. 

The performance schedule documents the results of the negotiations
between the Fund and the awardee and sets forth the standards that
the Fund will use to hold the awardee accountable for its use of the
Fund's money.  If the awardee does not achieve at least a
satisfactory level of performance for each measure, the Fund has the
authority to impose sanctions (referred to as remedies), set forth
elsewhere in the assistance agreement.  Sanctions vary in severity. 
While some, such as requiring a change in the awardee's performance
goals, are relatively minor, others, such as requiring the repayment
of any assistance that has been distributed to the awardee and/or
barring the awardee from applying for any future assistance from the
Fund, are much more severe. 


         PERFORMANCE GOALS WERE
         GENERALLY BASED ON
         AWARDEES' BUSINESS PLANS
------------------------------------------------------ Chapter 2:1.1.2

Our analysis of six 1996 awardees' assistance agreements shows that
their performance goals were generally based on the awardees'
business plans, as the CDFI Act requires.  In some instances, the
performance goals in the agreements also incorporated updates or
adjustments reflecting changes that occurred after the business plans
were submitted with the awardees' application packages.  For example,
the Fund instructed the awardees to incorporate in their performance
goals any changes that had taken place in their funding, operations,
and/or target markets.  In addition, Fund staff told us that they
considered the performance projected in some of the business plans to
be overly optimistic, and they said they used their expertise in CDFI
subfields (e.g., loan funds, credit unions, venture capital funds) to
help the awardees set more realistic, reachable benchmarks. 

Both the business plans and the performance goals in the assistance
agreements supported the CDFI program's mission of promoting economic
revitalization and community development.  The business plans, which
formed the most significant component of each awardee's application
package, were required to include information about the anticipated
impact of the awardee's planned activities on the target community. 
These plans served, in large measure, as the basis for selecting
awardees to participate in the program.  The plans also provided the
basis for negotiating the performance goals and measures in the
assistance agreements.  According to our analysis, 98 percent of the
performance goals in the assistance agreements were consistent with
the CDFI program's mission of promoting economic revitalization and
community development.  However, as discussed below, the business
plans we reviewed incorporated more accomplishment measures than the
awardees' assistance agreements. 


   RESULTS ACT SETS STANDARDS FOR
   IMPROVING FUTURE PERFORMANCE
   MEASUREMENT
---------------------------------------------------------- Chapter 2:2

The Results Act, supplemented by Circular A-11, the Office of
Management and Budget's (OMB) implementing guidance, and a GAO
document entitled The Results Act:  An Evaluator's Guide to Assessing
Agency Annual Performance Plans (GAO/GGD-10.1.20, Apr.  1998)
provides more explicit guidance for developing performance goals and
measures than the CDFI legislation.\1 Although the Results Act does
not apply to awardees, it establishes the federal government's
standards for performance measurement, and its provisions apply to
all federal agencies, including the Department of the Treasury, of
which the CDFI Fund is a part.  Thus, consistency between the
awardees' performance goals and measures and the provisions of the
Results Act will facilitate the Fund's compliance with the Results
Act. 

In broad terms, the Results Act and its guidance (1) consider
measures of accomplishments (outcomes) preferable to measures of
activities (outputs); (2) recommend the use of objective measures
that adequately indicate progress towards the performance goals; and
(3) say that the goals and measures should be measurable and
quantifiable. 


--------------------
\1 We refer to these three documents as "the Results Act and its
guidance" throughout this chapter. 


         MEASURES IN AGREEMENTS
         FOCUS MORE ON ACTIVITIES
         THAN ON ACCOMPLISHMENTS
------------------------------------------------------ Chapter 2:2.0.1

According to the Results Act and its guidance, both activity and
accomplishment measures can be useful.  However, the act and guidance
regard accomplishment measures as better indicators of a program's
results because they describe the effects of an organization's
activities on the populations that are expected to be served.  The 26
assistance agreements that we reviewed contain relatively few
accomplishment measures.  Of the 165 measures, we identified 25, or
about 15 percent, that were accomplishment measures.  As a result,
the assistance agreements focus primarily on what the awardees will
do, rather than on how their activities will affect the distressed
communities.  This limited use of accomplishment measures contrasts
with the widespread use of such measures that the CDFI field reported
to us and that we observed in the business plans of our six case
study awardees. 

To determine how the CDFI field assesses progress toward meeting its
goals, we surveyed 925 CDFIs nationwide and received responses from
623 of them.  Among the respondents were 24 of the 26 CDFIs that had
signed (closed) assistance agreements as of January 1998.  According
to the responses we received, the CDFIs commonly use both
accomplishment and activity measures to assess their progress.  For
example, 91 percent of the CDFIs providing lending services
identified at least one quantifiable lending accomplishment measure,
and nearly 60 percent identified three or more such measures.\2 The
responses of the 24 CDFIs with closed assistance agreements were
consistent with the responses of the CDFIs who responded to our
survey and indicated a wider use of accomplishment measures than we
observed in the assistance agreements of these 24 CDFIs.  Table 2.2
compares the use of accomplishment measures as reported to us by the
24 awardees and as shown in their assistance agreements. 



                                    Table 2.2
                     
                        Use of Accomplishment Measures, as
                     Reported by 24 Awardees and as Shown in
                           Their Assistance Agreements

                                              Number of awardees
                              --------------------------------------------------
Accomplishment measure
reported by at least half of
the awardees responding to
the survey and providing                Reported using       Used accomplishment
services (number providing              accomplishment                measure in
services in parentheses)\a           measure in survey      assistance agreement
----------------------------  ------------------------  ------------------------
Economic development (n = 24)
--------------------------------------------------------------------------------
Number of businesses                                16                         0
 created, retained, or
 expanded
Net number of jobs created                          15                         4
 or retained

Lending services (n = 23)
--------------------------------------------------------------------------------
Net increase in lending                             16                         0
 during awardee's
 performance period
Number of borrowers who                             15                         0
 perform successfully on
 existing loans
Stories of borrowers'                               14                         0
 success

Technical assistance, training, and customer counseling (n =
--------------------------------------------------------------------------------
Success rates for                                   12                         0
 organizations receiving
 services

Nonlending services for deposit customers or members (n = 10)
--------------------------------------------------------------------------------
Increase in depositors'/                             8                         1
 members' savings
Increase in number of                                7                         1
 depositors/members
Increased use of banking or                          6                         2
 depositor/member services
Stories of members' success                          5                         0

Capital Investment (n = 10)
--------------------------------------------------------------------------------
Number of businesses awardee                         7                         0
 helped to retain or expand
Increase in business assets,                         5                         0
 salary and wage expenses,
 revenues, and/or profits
Number of businesses still                           5                         0
 in operation
--------------------------------------------------------------------------------
\a More than 35 additional accomplishment measures were used by fewer
than half of the awardees responding to the survey and providing
specific services.  However, six of these additional measures were
used only nine times in assistance agreements. 

Source:  GAO's analysis of data for 24 of the 31 1996 awardees
gathered through GAO's nationwide survey of CDFIs and review of
awardees' assistance agreements. 

When we compared the types of performance measures that our six case
study awardees used in their business plans and in their assistance
agreements, we found that the awardees generally included both
activity and accomplishment measures in their business plans but were
less likely to include accomplishment measures in their assistance
agreements.  For example, one awardee, a community development loan
fund, included several activity measures (e.g., the number of loans
made and the dollar volume of the loans) and accomplishment measures
(e.g., the number of jobs created, stabilized, and upgraded) in its
business plan.  By contrast, the awardee included only activity
measures (e.g., the number and dollar volume of loans made) in its
assistance agreement.  Another awardee, a microenterprise loan fund,
included both activity measures (e.g., the number and dollar volume
of loans disbursed) and accomplishment measures reflecting the
potential effect of these loans (e.g., increases in business assets
and in the number of new jobs) in its business plan.  In its
assistance agreement, however, the awardee included only activity
measures (e.g., the number and dollar volume of loans disbursed). 
Only one of the six case study awardees included an accomplishment
measure in its assistance agreement that did not appear in its
business plan. 

According to most of the case study awardees and Fund officials who
negotiated with the awardees, the 1996 awardees were reluctant to
incorporate accomplishment measures into their assistance agreements
for two major reasons.  First, they were concerned about being able
to demonstrate that their activities had produced specific effects in
distressed communities.  Second, they were concerned that the Fund
might impose sanctions if they could not achieve results that were,
to some extent, beyond their control. 

Both the case study awardees and Fund officials recognized that it is
difficult to isolate the effects of a CDFI's community development
activities from the effects of external factors, such as economic,
social, and political conditions.  Because they could not demonstrate
a direct causal link between these activities and results in the
community, they tended to negotiate measures of activities--what the
awardees were doing--rather than measures of accomplishments--how
their activities were improving economic conditions in distressed
communities.  While this approach is understandable, it goes beyond
the requirements of performance measurement.  Specifically,
performance measurement is intended to identify and track the changes
associated with a program but does not require the establishment of
an exclusive causal link between a program and an observed change. 
Establishing a direct causal link is a more complex task, often
requiring controlled studies or statistical analyses, and is the
purpose of impact analysis, discussed later in this chapter. 
Nevertheless, tracking changes associated with a program is important
because it focuses attention on, and provides an indication of, the
program's results. 

The 1996 awardees were also reluctant to incorporate accomplishment
measures into their assistance agreements because they were concerned
about the Fund's possible imposition of sanctions.  As several
awardees pointed out, accomplishments may be subject to outside
factors and can, therefore, be harder to control than activities. 
Consequently, most of these awardees did not want to be held
contractually accountable for meeting benchmarks for accomplishment
measures over which they had limited control.  As is clear from the
array of assumptions set forth in the performance schedule
illustrated in figure 2.1, an awardee's performance may be subject to
many factors beyond the awardee's control--including the continuation
of funding from other sources, interest rates, economic conditions,
property taxes, the reputation of the local public schools, and the
rate of inflation. 

The application of sanctions is at the Fund's discretion, and the
Fund has not yet demonstrated how it will apply sanctions for poor
performance.  The 1996 awardees were, therefore, uncertain about how
the Fund would use sanctions.  Even though the Fund stipulated in the
1996 assistance agreements that it would generally not impose the
more severe sanctions--that is, those requiring the repayment of
assistance or reducing or terminating assistance--for failure to meet
the benchmarks, the perceived threat of sanctions limited the types
of measures considered during the negotiation of performance measures
and benchmarks, according to three of the six case study awardees. 

For the 1997 awardees, the Fund has revised both the performance
schedule and the assistance agreement.  As table 2.3 illustrates, the
revised schedule reduces the duration of the benchmarks from 5 years
to 1 year.  The revised agreement reintroduces the potential use of
all the sanctions for unacceptable performance.  Thus, the Fund could
require the 1997 awardees to repay the assistance they have received
if they do not meet their benchmarks.  According to a senior Fund
official, the Fund changed the duration of the benchmarks to
facilitate compliance with the statutory requirement that it submit
an annual report on awardees' performance and to more effectively
promote awardees' accomplishment of their business plans.  He also
indicated that the Fund reintroduced the potential use of all
sanctions so that it would have a full range of options available to
address instances of noncompliance.  However, with less time to reach
the benchmarks and potentially stiffer sanctions for not reaching
them, the awardees may be further deterred from using accomplishment
measures.  Alternatively, limiting the application of sanctions to
measures over which awardees have control could allow the Fund to
address instances of noncompliance without discouraging the use of
accomplishment measures. 



                                    Table 2.3
                     
                       Sample Performance Schedule for 1997

-------------  -----------------------------------------------------------------
Goal\a         Enhance and support the start-up or expansion of microenterprises
               by significantly increasing access to microloans.

Measure        Number of new microloans made annually during the performance
               period. A microloan is defined as a loan of $25,000 or less made
               to a borrower for business purposes.
--------------------------------------------------------------------------------
                                Annual evaluation for the year ending
                      ----------------------------------------------------------
Bench
marks  Performance      12/31/98    12/31/99    12/31/00    12/31/01    12/31/02
-----  -------------  ----------  ----------  ----------  ----------  ----------
       Outstanding    10 or more  15 or more  20 or more  25 or more  30 or more
       Good                  8-9       12-14       16-19       20-24       24-29
       Satisfactory          6-7        9-11       12-15       15-19       18-23
       Below                 3-5         5-8        6-11        8-14        9-17
        expectations
       Unacceptable   Fewer than  Fewer than  Fewer than  Fewer than  Fewer than
                               3           5           6           8           9
--------------------------------------------------------------------------------
------------------  ------------------------------------------------------------
Assumptions         1.Interest rates will remain stable.

                    2.External funders will continue to provide grants to
                    support technical assistance for borrowers.
--------------------------------------------------------------------------------
\a This goal was accompanied by one other measure--the total dollar
amount of new microloans made annually during the performance period. 


--------------------
\2 The most frequently cited quantifiable lending accomplishment
measures were the number of borrowers who perform successfully on
existing loans, any change in default rates, and any change in
delinquency rates. 


         MEASURES WERE RELATED TO
         GOALS BUT DID NOT ALWAYS
         ADDRESS ALL OF THEIR KEY
         ASPECTS
------------------------------------------------------ Chapter 2:2.0.2

According to the Results Act and its guidance, performance measures
should adequately indicate progress toward the performance goal.  To
determine, for the 1996 agreements, whether the 165 performance
measures indicated progress towards meeting the 87 goals, we
systematically assessed whether the measures had a clear, apparent,
or commonly accepted relationship to the intended goals and whether
the measures appropriately represented the goals without showing any
bias\3 in measuring progress toward them.  We found that about 96
percent of the measures were related to the goals and about 84
percent were unbiased.  For example, one community development credit
union's goal was to significantly expand the availability of
financial services to its members.  The measures that accompanied
this goal were the number of new checking accounts opened, the number
of ATM cards issued, and the number of credit cards issued.  These
measures were related to and appropriately represented the goal
because they were limited to financial services that the credit union
currently offered to its members. 

The Results Act and its guidance also indicate that performance
measures should address all key aspects of goals.  Although we did
not attempt to quantify the degree to which groups of measures
addressed all key aspects of goals, we observed that there were
differences in the extent to which goals were adequately addressed. 
In some instances, a group of two or three measures did not address
certain key aspects of a stated goal: 

  -- One awardee's goal was to "alleviate poverty by providing
     substantial loans and technical assistance to promote
     entrepreneurship and sustainable businesses." The awardee's
     assistance agreement included three measures for providing
     loans--the dollar amount of loans disbursed to nonprofit
     organizations, the number of borrowers receiving loans from the
     awardee, and the number of borrowers remaining in operation
     since the loans were made to them.  However, the assistance
     agreement included no measures pertaining to entrepreneurship or
     technical assistance. 

In other instances, the measures as a group seemed to address all key
aspects of the goal: 

  -- One awardee's goal was to "increase job opportunities by
     encouraging the start-up of new businesses and the expansion of
     existing businesses." The associated measures were "the net
     increase in the number of full- and part-time jobs in businesses
     financed by the awardee as of April 1997," and "the net increase
     in salaries and wage expenses of businesses financed by the
     awardee as of April 1997." If we assume that the awardee will be
     funding only business start-ups or expansions, then the measures
     address the key aspects of increasing job
     opportunities--increasing the number of full- and part-time jobs
     and increasing wage expenses. 


--------------------
\3 Bias, in this context, means choosing measures that would limit
observations so as to inflate or understate progress toward a goal. 


         UNITS AND TERMS WERE
         SPECIFIC BUT LACKED
         BASELINE DATA AND DID NOT
         REFER TO THE TARGET
         MARKET
------------------------------------------------------ Chapter 2:2.0.3

Under the Results Act and its guidance, performance goals should be
measurable and quantifiable.  These characteristics, which are
important to facilitate monitoring and evaluation, are best achieved
through the use of specific units, well-defined terms, and baseline
and target (end) values and dates.  Identifying the geographic areas
or populations to be served in the goal statements\4 also makes
monitoring and evaluation easier.  Our analysis showed that the
performance goals and measures in the 1996 assistance agreements had
most of these features: 

  -- All of the goals had at least one measure with a defined unit,
     such as a "loan," and most (95 percent) of the units were at
     least minimally specific (e.g., "housing loans"). 

  -- In nearly all (95 percent) of the goals and measures, the terms
     were generally known or, if not known, defined. 

  -- Essentially all (99 percent) of the goals and measures had
     target values and dates that, together, comprise the benchmark
     (see fig.  2.1). 

While the performance measures in the 1996 performance schedules had
several measurable or quantifiable features, they generally lacked
baseline information.  Specifically, 95 percent of the goals and
measures lacked baseline values and 93 percent lacked baseline dates. 
Including such values and dates in the performance schedule is
important because it establishes a context for understanding the
significance of the benchmark ranges and ensures that the Fund and
the awardee have an agreed-upon basis for measuring performance. 

Fund officials told us that they used specific baseline dates and
values in negotiating the benchmarks for awardees' performance
measures.  For some case study awardees, we were able to identify
this information in other documents.  However, having to refer to
other documents to obtain this information undermines the assistance
agreement as a ready reference for understanding and assessing
progress toward an awardee's stated goals. 

We also analyzed whether the goal statements identified the
populations served by the awardees.  The majority (83 percent) of the
goals and measures identified the geographic areas or populations to
be served; however, the level of detail varied widely.  For instance,
some specified "the investment area" (e.g., a particular geographic
area that can help define an awardee's target market), while others
simply identified a particular city or portion of a state (e.g.,
southwest Pennsylvania).  Still others provided no information about
the geographic areas or populations to be served.  Moreover, it was
often unclear how the area or group identified in a measure was
related to the target market defined in the awardee's certification
documentation.  If information about the target market does not
appear in the performance schedule, the schedule creates no context
for understanding why specific measures are targeted to particular
groups or areas.  Like the omission of baseline information, the
omission of information about the target market is inconsistent with
the usefulness of the performance schedule as a ready reference for
understanding and assessing progress toward an awardee's goal. 


--------------------
\4 A goal statement includes a goal and one or more associated
measures. 


         THE FUND IS TAKING STEPS
         TO IMPROVE PERFORMANCE
         MEASURES
------------------------------------------------------ Chapter 2:2.0.4

Limitations in the 1996 awardees' goals and measures can be
attributed to several factors, including the recent implementation of
the Results Act at all federal agencies, understaffing at the Fund
and lack of training in the Results Act's provisions for its staff,
and lack of written guidance and training for the 1996 awardees on
developing goals and measures.  Over time, the Fund, like other
federal agencies, has become more familiar with the Results Act, and
it conducted training in April 1998 for its staff on the act's
provisions.  The Fund is also hiring additional management and
program staff to help implement the CDFI program.  Finally, the Fund
conducted a workshop for the 1997 awardees on the closing process for
the assistance agreements.  This workshop included more substantial
guidance on drafting performance goals and measures. 


   MANDATORY MONITORING AND
   EVALUATION SYSTEMS ARE NOT YET
   IN PLACE
---------------------------------------------------------- Chapter 2:3

Although the Fund has developed reporting requirements for awardees
to collect information for monitoring their performance, it lacks
documented postaward monitoring procedures for assessing their
compliance with their assistance agreements, determining the need for
corrective actions, and verifying the accuracy of the information
collected.  In addition, the Fund has not yet established procedures
for reporting and evaluating the impact of awardees' activities.  The
effectiveness of the Fund's monitoring and evaluation systems will
depend, in large part, on the accuracy of the information being
collected.  Primarily because of statutorily imposed staffing
restrictions in fiscal year 1995 and subsequent departmental hiring
restrictions, the Fund has had a limited number of staff to develop
and implement its monitoring and evaluation systems.  In fiscal year
1998, it began to hire management and professional staff to develop
monitoring and evaluation policies and procedures. 


      THE FUND HAS DEVELOPED
      REPORTING REQUIREMENTS BUT
      LACKS POSTAWARD MONITORING
      PROCEDURES
-------------------------------------------------------- Chapter 2:3.1

The CDFI Act stipulates that the Fund shall require each CDFI
receiving assistance to submit an annual report on its activities,
financial condition, success in meeting its performance goals, and
success in satisfying the terms and conditions of its assistance
agreement.  Before the Fund could review an awardee's progress, it
had to establish financial and performance reporting requirements
based on the awardee's assistance agreement.  It then had to develop
monitoring procedures to ensure that the required reports were
received, reviewed, and acted upon as necessary. 

To develop reporting requirements, the Treasury's Office of Inspector
General identified for the Fund the types of information that it
should collect.  The May 1996 Inspector General's report\5 identified
the information that awardees needed to report quarterly and annually
so that the Fund could assess their financial condition, performance,
and compliance with the terms and conditions of their assistance
agreements.  The report also suggested that the information furnished
by the awardees be supplemented with audited financial statements and
reviews of the awardees' organizations.  Such reviews typically
include desk reviews and site visits.\6

The Fund's reporting requirements meet the CDFI program's statutory
review requirements, and the 1996 assistance agreements incorporate
the Inspector General's suggested reporting requirements.  Awardees
are therefore required to provide both quarterly and annual reports
on their progress in achieving their performance goals, submit
financial statements certifying their financial viability, and report
any changes in their operations that could materially affect their
ability to meet the terms and conditions of their assistance
agreements. 

Although the Fund has established reporting requirements for
awardees, it lacks documented monitoring procedures for tracking and
reviewing the data submitted in the quarterly and annual reports,
according to an independent audit recently completed by KPMG Peat
Marwick.\7 To develop these procedures, the audit recommended, among
other things, that the Fund

  -- develop written monitoring procedures,

  -- continue to design and develop a portfolio-monitoring database
     system, and

  -- track the receipt of all required reports for all awardees. 

Fund staff told us that they had not previously developed postaward
monitoring procedures because of the CDFI Fund's initial staffing
restrictions and shortages.  Now that the Fund has hired additional
staff, it has turned its attention to correcting the weaknesses
identified by the auditors.  The Fund has established a system for
tracking the receipt of quarterly and annual reports and the
financial statements submitted by awardees.  In addition, the Fund
has hired two key staff--(1) a chief financial officer for management
to oversee all aspects of the Fund's administrative operations,
accounting, reporting, management controls, budget, portfolio
monitoring, and compliance with laws and regulations and (2) an
awards manager to conduct an initial assessment of the Fund's
monitoring requirements, recommend a monitoring and assessment
process for the Fund's awardees, and integrate these monitoring
recommendations into the design of the Fund's awards database. 

In addition to the weaknesses identified by KPMG Peat Marwick, we
found that the Fund has not yet developed written guidance for
verifying the information provided by awardees when they are
reporting quarterly or annually on their performance.  Furthermore,
the Fund has not established plans or procedures for conducting
periodic desk audits or site visits or for otherwise verifying the
accuracy of the reported performance information.  Staffing
restrictions go a long way toward explaining why the Fund has not yet
developed such written guidance or procedures. 

The Fund may be able to take advantage of the expertise of the
independent auditors that conduct annual audits of the awardees to
verify some of the information on performance that the awardees
report to the Fund.  Since the Fund is required in the assistance
agreements to provide guidance to the independent auditors, this
guidance could require that the audits, at a minimum, verify the
results of activity-based performance measures and financial data. 
Providing this guidance would enable the Fund to leverage the
expertise of the independent auditors in verifying both financial and
performance information.  To date, the Fund has provided the auditors
only with verbal guidance, at their request.  This guidance focused
on the financial audit and did not address the verification of
reported performance data.  While providing verbal guidance may meet
the provision of the assistance agreement, it does not ensure the
same degree of consistency that would be derived from written
guidelines.  Fund staff have indicated that they intend to develop
written guidance for the Fund's own auditors and independent auditors
during fiscal year 1998. 

Monitoring the compliance of awardees will require reviews by staff
who understand CDFIs and can systematically assess their progress and
evaluate their compliance with their assistance agreements.  For
example, each year, for the terms of their agreements, the 26 1996
awardees whose agreements we reviewed will be required to submit a
total of 104 quarterly reports and 26 annual reports.  For each
report, the Fund will need to assess the awardee's compliance with
(1) agreed-upon performance benchmarks, (2) financial soundness
covenants, and (3) requirements for serving target markets.  The Fund
will also need to decide how to respond when an awardee's compliance
is less than satisfactory.  Such a decision will likely involve
analyzing the awardee's operations, the target market, and the
influence of the external factors identified in the performance
schedule. 

The Fund is developing procedures for reviewing awardees' quarterly
and annual reports and following up, as necessary, on any preliminary
indications of noncompliance with provisions of the assistance
agreements.  When all 31 of the 1996 agreements and all 48 of the
1997 agreements are executed, the Fund will be receiving 316
quarterly reports and 79 annual reports each year.  This volume will
grow as the Fund makes future awards under the CDFI program. 
Currently, the program staff who will be reviewing these reports will
also be responsible for certifying CDFIs and closing agreements with
later awardees.  As the volume and complexity of the Fund's
monitoring responsibilities grow,\8 the Fund is likely to need
additional monitoring capacity. 


--------------------
\5 Community Development Financial Institutions Fund Award Monitoring
Procedures (OIG-96-E15, May 1996). 

\6 A desk review includes analyzing available documentation and
making telephone calls to management personnel.  This type of review
is not as comprehensive as a site visit and provides only limited
assurance that a program or organization is functioning properly.  A
site visit includes a comprehensive review of an organization's
accounting records and procedures, as well as detailed interviews
with the organization's key management personnel. 

\7 KPMG Peat Marwick reviewed the Fund's internal controls in
auditing the CDFI program's financial statements.  The findings of
this audit, issued in February 1998, are included in the CDFI Fund's
annual report for fiscal year 1997. 

\8 If the Fund continues to average about 40 awardees per year, it
will, at the end of 5 years, be receiving approximately 1,000
quarterly and annual reports each year. 


      SYSTEMATIC EVALUATION HAS
      NOT YET BEGUN
-------------------------------------------------------- Chapter 2:3.2

The CDFI Act and the associated Conference Report\9

establish requirements for evaluating and reporting on the CDFI
program.  The act specifies that the Fund is to annually evaluate and
report on the activities carried out by the Fund and the awardees. 
The Conference Report elaborates, stating that the Fund's annual
"performance report" will (1) analyze and compare the overall
leverage of federal assistance with private resources\10 and (2)
determine the impact of spending these resources on the program's
investment areas, targeted populations, and qualified distressed
communities.  To generate data for these analyses, the statute
requires the awardees to report annually on their progress in
carrying out their assistance agreements and to compile such data as
the Fund considers pertinent on the gender, race, ethnicity, national
origin, or other characteristics of individuals served by the
awardees to ensure that the targeted populations and low-income
residents of investment areas are adequately served. 

As directed by the Conference Report, the Fund has published an
estimate of the private funding leveraged by the CDFI program. 
According to the Fund's second annual report, the $37 million in
assistance awarded to CDFIs in 1996 will leverage approximately three
to four times that amount in new capital over the next several years. 
This estimate is based on discussions with CDFIs and CDFI trade
association representatives, not on financial data collected from the
awardees.  Eventually, to better comply with the leveraging
requirement, the Fund will need to develop and disseminate to
awardees a method for calculating how much nonfederal assistance they
are able to leverage with their awards.  In addition, the Fund will
need to develop a method for aggregating the leveraging ratios of the
individual awardees into a leveraging ratio for the entire CDFI
program. 

To determine the effect of awardees' expenditures on the CDFI
program's investment areas, targeted populations, and qualified
distressed communities, the Fund has thus far compiled and published,
in its 1996 and 1997 annual reports, general descriptions of a few
CDFIs' activities and anecdotes about individuals served by selected
CDFIs.  These reports, however, do not include analyses of the
gender, race, ethnicity, national origin, or other characteristics of
individuals served by the awardees.  This demographic information has
just started to become available to the Fund through the 1996
awardees' annual reports. 

It is still too early for the Fund to conduct a comprehensive
evaluation of the CDFI program's impact.  The Fund made its first
investment in a CDFI just 17 months ago, and data for a comprehensive
evaluation are not yet available.  Eventually, however, the Fund will
need to conduct systematic research and analysis to determine the
impact of awardees' expenditures.  Although the CDFI Act does not
indicate how the Fund is to perform impact analyses, in prior work on
economic development programs, we have reported\11 that they must be
based on research that associates economic improvements in investment
areas with a program's expenditures and accounts for the influence of
other factors.  As noted, isolating the impact of community
development initiatives from other influences is a particularly
challenging task.  Satisfying the Conference Report's requirement for
impact analyses, in our view, will be a long-term, ongoing commitment
for the Fund that will require expertise in evaluation and procedures
for systematically gathering and analyzing information as it becomes
available. 

Fund officials have acknowledged that their evaluation efforts must
be enhanced, and they have planned or taken actions toward
improvement.  For instance, the Fund has begun hiring staff to
conduct and/or supervise research and evaluations and has revised the
assistance agreements for the 1997 awardees to require that they
submit annual impact reports.  However, although the Fund has
recently hired a program manager for policy and research, it has not
yet reached a final decision on what information it will require from
the awardees for the Fund to use in evaluating the program's impact. 
Two key sources of information about the program's impact are
available for each awardee--the business plan, which includes a
community impact section describing the awardee's projected
accomplishments over a 5-year period, and the performance schedule,
to the extent that it includes performance information for
accomplishment measures.  The Fund also has to determine how it will
integrate awardees' reported performance and the lessons learned from
related research in the CDFI field into its evaluation plans. 


--------------------
\9 House Report 103-652 (Aug.  2, 1994). 

\10 Assistance other than technical assistance shall be matched with
funds from nonfederal sources on the basis of not less than one
dollar for each dollar provided by the Fund.  The matching funds must
be at least comparable in form and value to the funds provided by the
Fund.  The Fund cannot provide any assistance to the awardee until
the commitment for matching funds has been secured. 

\11 Economic Development:  Limited Information Exists on the Impact
of Assistance Provided by Three Agencies(GAO/RCED-96-103, Apr.3,
1996). 


   REPORTS OF 1996 AWARDEES'
   PROGRESS ARE PRELIMINARY AND
   DIFFICULT TO SUMMARIZE
---------------------------------------------------------- Chapter 2:4

Given that most CDFIs only recently signed their assistance
agreements, reports of accomplishments in the CDFI program are
limited and preliminary.  Furthermore, given that the different types
of CDFIs support different types of activities and use different
performance measures, any general summary of their performance will
be difficult. 


      EARLY QUARTERLY REPORTS
      DESCRIBE AWARDEES'
      ACTIVITIES TO DATE
-------------------------------------------------------- Chapter 2:4.1

The vast majority of the 1996 awardees signed their assistance
agreements between March 1997 and October 1997.  Therefore, the Fund
has only begun to receive the quarterly reports it requires on their
performance.  Through February 1998, the Fund had received 41
quarterly reports from 19 CDFIs.  Sixteen of these CDFIs submitted
either two or three quarterly reports while the other three CDFIs,
which had closed their agreements with the Fund later in 1997,
submitted one report.  As of February 1998, the Fund had received
three annual reports.  Neither the Fund nor an independent auditor
had verified the accuracy of any of the data submitted in either the
quarterly or the annual reports received by the Fund. 

The 19 CDFIs that submitted quarterly reports through December 1997
include at least one of each of the five principal types of CDFIs
introduced in chapter 1, as well as two other types of CDFIs--an
intermediary for community development corporations that provides
CDFIs with financial and technical assistance and a multifaceted
community development corporation that manages more than one type of
activity--a loan fund and a credit union.  Figure 2.1 breaks down the
19 CDFIs by type. 

   Figure 2.1:  Distribution of
   CDFIs That Submitted Quarterly
   Reports, by Type

   (See figure in printed
   edition.)

Source:  GAO's analysis of data from the CDFI Fund. 

To analyze the performance reported by the 1996 awardees through
February 1998, we categorized the 165 performance measures included
in the 26 assistance agreements that we reviewed.  These measures
fell into over 40 different categories, from lending to investment to
training.  The different types of CDFIs both resemble and differ from
one another in the types of activities they support and in the
performance measures they use.  For example, all 10 of the nonprofit
loan funds make loans, and many use the same performance
measures--increases in the total numbers and dollar amounts of loans
made and increases in net assets--but the different funds make
different kinds of loans, from loans to small businesses; to loans
for major home improvements; to loans to borrowers who are elderly,
disabled, or have special needs.  One of the loan funds also uses a
unique performance measure--increases in the number of new loan
products--to track its progress in supporting innovative activities. 
Examples of new loan products include loans for child care facilities
and loans for community water and wastewater systems. 

Given the variety of measures used, it is difficult to summarize all
of the activity reported by the 19 awardees to date.  To illustrate
the cumulative reported activity, we totaled the data for the two
most common measures--the total number of loans for both general and
specific purposes and the total dollar value of these loans. 
According to our analysis, since the quarters in which the agreements
were closed, the CDFIs cumulatively reported making over 1,300 loans
totaling about $52 million.\12 Of these, we identified 112 as
business or commercial loans totaling about $7.4 million.  Another
264 loans, totaling more than $15 million, were made either to
individuals or to communities and included mortgage loans for
purchasing or rehabilitating homes, personal loans, or loans for
financing facilities.  In addition, the CDFIs reported providing
consumer counseling and technical training to 480 individuals or
businesses. 

We derived another summary observation of the effect of the CDFI
program's funding to date from our survey of the 24 1996 awardees
with signed assistance agreements.  When we asked them to identify
the extent to which the funds they had received from the program had
enabled them to increase their services or their client/customer
base, 12 indicated either a very great or a great increase, 7
indicated either a moderate or some increase, 4 reported that it was
too early to tell, and 1 did not respond to the question. 


--------------------
\12 Data reflect performance measures for 17 of the 19 awardees
submitting quarterly reports to the Fund during the time of our
review.  Data on two performance goals from two awardees are not
available because the Fund did not choose to specify in the
assistance agreements with these awardees that they were to submit
detailed quarterly data on these goals. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 2:5

Revisions to the Fund's assistance agreement should be easy to
implement.  For example, ensuring that measures address all key
aspects of goals and adding baseline dates and values and information
on target markets to facilitate program evaluation should not be
difficult.  However, encouraging the greater reporting of
accomplishments will require overcoming awardees' concerns about the
possible imposition of sanctions for not meeting benchmarks for
measures that are, to some extent, beyond the awardees' control. 
These concerns may be alleviated by requiring the awardees to report
accomplishments only in their annual impact reports.  Awardees would
be sanctioned only if they failed to submit the required reports. 

In large part because of staffing limitations, the Fund has not yet
completed postaward monitoring and evaluation systems.  It recognizes
the importance of such systems and is in the process of hiring staff
and determining the systems' requirements.  The sooner the Fund
completes this important task, the better it will be able either to
identify and correct any instances of noncompliance or to identify
and implement any opportunities for improvement. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 2:6

To strengthen performance measurement in the CDFI program, GAO
recommends that the Secretary of the Treasury instruct the Director
of the Fund to take the following steps: 

  -- Encourage the greater reporting of accomplishments by awardees. 
     To allay the concerns described by the 1996 awardees, the
     Director could require that accomplishments be reported in each
     awardee's annual impact report.  Accomplishment measures should
     include (1) those that are, without limitation, negotiated with
     each awardee on the basis of the awardee's business plan and (2)
     those that are, to the maximum extent practicable, related to
     the awardee's performance goals and measures. 

  -- Establish procedures for systematically reviewing each awardee's
     goals to ensure that the measures address all key aspects of the
     related goals. 

  -- Reformat the assistance agreement to include baseline dates and
     values and information on target markets. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 2:7

The Fund's Director and Deputy Director for Policy and Programs
generally agreed with the information presented in this chapter.  In
addition, they suggested several revisions to improve the accuracy of
the information.  We have incorporated these revisions. 

While these officials agreed with our conclusion that the Fund needs
to encourage awardees to increase their reporting of accomplishments,
they disagreed with our draft report's proposed recommendation to (1)
include accomplishment measures in the performance schedule of the
assistance agreement and (2) waive the use of sanctions for measures
outside the awardee's control.  As an alternative, the officials
suggested that accomplishment measures be included in the annual
impact report that the Fund will be requiring from each awardee. 
Such measures would not be subject to sanctions, and sanctions could
be applied only when an awardee failed to submit the required report. 
Consequently, this approach would not require the Fund to apply
sanctions for some measures and waive them for others.\13 Because the
Fund's proposed alternative should achieve GAO's and the Fund's
mutual objective of increasing awardees' reporting of
accomplishments, we revised our conclusions and recommendation
accordingly. 

Finally, the Fund concurred with our two recommendations for revising
the assistance agreement to ensure that awardees' performance
measures address all key aspects of their related goals and include
baseline dates and values and information on target markets. 


--------------------
\13 Additionally, Fund officials said that they were likely to refer
to impact reports in the future as accomplishment reports to avoid
any confusion with the more technical requirements associated with
impact analyses. 


IMPACT OF THE BEA PROGRAM IS
DIFFICULT TO ASSESS
============================================================ Chapter 3

Banks have completed most of the activities for which they received
1996 bank enterprise awards.  However, isolating the impact of the
BEA program is difficult because other regulatory or economic
incentives can encourage the same types of investment as the prospect
of an award, and limitations in some banks' data preclude the Fund,
in a few cases, from knowing for certain that awardees have increased
their net investments in targeted distressed communities as intended. 
Because the Fund did not require the banks that received 1996 awards
to report material changes in the status of rewarded activities, it
did not know whether rewarded investments remained long-term
increases in the capital available to CDFIs and distressed
communities.  In addition, because the BEA program rewards banks for
increasing activities that they undertake with their own funds, it
does not (by statute) address what banks do with their awards. 
Nevertheless, most banks have reported that they have voluntarily
reinvested their awards in lending and investments related to
community development. 


   BANKS COMPLETED MOST ACTIVITIES
   FOR WHICH THEY RECEIVED 1996
   AWARDS
---------------------------------------------------------- Chapter 3:1

In 1996, the Fund announced a total of $13.1 million in awards to 38
banks.  These awards were based on reported increases of $65.8
million in investments in CDFIs and $60 million in loans and
financial services in distressed communities.  Located in 18 states
and the District of Columbia, the 38 banks held assets ranging from
$21 million to $320 billion.  As figure 3.1 shows, about half of the
increased activities that led to the awards supported CDFIs and about
half promoted development in distressed communities.\1

   Figure 3.1:  Banks' Allocation
   of Increases in Investment

   (See figure in printed
   edition.)

Note:  Percentages refer to the total increase in investments in
CDFIs and distressed areas ($125.8 million) that the BEA program
rewarded in fiscal year 1996. 

Source:  CDFI Fund's annual report for fiscal year 1996. 

As figure 3.2 shows, nearly three-quarters of the banks that
supported CDFIs did so through equity investments while the remaining
quarter did so through loans. 

   Figure 3.2:  Activities
   Supported by Banks' Increases
   in Investment

   (See figure in printed
   edition.)

Note:  Percentages refer to the total increase in investments in
CDFIs ($65.8 million) that the BEA program rewarded in fiscal year
1996. 

Source:  CDFI Fund's annual report for fiscal year 1996. 

The Fund has attempted to measure the impact of the BEA program by
estimating its leverage, that is, the amount of the private
investments associated with the awards.  The Fund estimates that the
$13.1 million in 1996 awards leveraged over $125 million in private
investments, a leveraging ratio of almost 10 to 1.  This estimate
includes amounts in the rewarded banks' baselines for similar loans
and investments made before the 6-month assessment period and
included in the base amounts from which the Fund measured the
increases in investment.  If the leveraging effect of the BEA program
were calculated only on the basis of the increases in investment that
led to the awards, we estimate that the leveraging ratio for the 1996
awards would be about 7 to 1--a ratio generally consistent with the
15-percent award for increases in equity investments, which represent
about three-quarters of the program's rewarded activities. 

As of January 1998, 58 percent of the 1996 awardees (22 of 38 banks)
had completed all of the activities for which the Fund had announced
an award.  In addition, the Fund had disbursed nearly 80 percent of
the 1996 award funds.  The remaining 20 percent of the award funds
were reserved for 16 banks that had not yet completed their planned
activities or sought disbursement of their award funds.  These 16
banks have just under 4 years to complete these activities and
request disbursement of the associated award funds. 

Four of our five case study banks did not complete as much lending
and other financial service activity as they had expected.  According
to officials from three of these banks, they generally included
activities in their applications that they believed would reach
closing within the next 6-month assessment period, but some of these
activities took longer to reach closing or never closed at all. 
Officials from one bank said that they did not find it unexpected or
uncommon that, on occasion, a variety of factors could slow the
normal process of negotiating loan terms, causing minor delays in
moving a project to closing.  For some of our case study banks,
delays meant that a small number of the activities projected to close
within the 6-month assessment period took longer than expected and
closed after that period had ended.  As a result, these banks
increased their activities less than projected during the assessment
period and will not receive the portions of their 1996 awards
associated with the unaccomplished activities.  Award funds that are
not disbursed to banks remain with the Fund and are available for
reallocation to future awardees or for use in the CDFI program as
long as the budget authority for the funds has not expired.\2


--------------------
\1 Development activities that the BEA program rewards include
deposits and financial services (such as check-cashing services or
automated teller machines); consumer, commercial real estate,
single-family, multifamily, business, and agricultural loans; and
technical assistance to residents, newly formed small businesses, and
homeowners in distressed communities. 

\2 Funds appropriated for the BEA program (via the CDFI Fund) have
2-year budget authority, meaning that the Fund must obligate them
within 2 years of their appropriation or the authority lapses. 


   SEVERAL FACTORS OBSCURE THE
   IMPACT OF BEA AWARDS ON BANKS'
   ACTIVITIES
---------------------------------------------------------- Chapter 3:2

According to officials at our case study banks and Fund officials,
banks invest in CDFIs and provide loans and other financial services
in distressed communities for a variety of reasons.  In some cases,
the prospect of receiving a BEA award may encourage such investment,
but in other cases, regulatory or economic incentives exert a strong
influence.  As a result, it is difficult to isolate the impact of the
BEA award from the effects of other incentives.  Furthermore, more
complete data on some banks' investments are needed to ensure that
the increases in investments in distressed areas rewarded by the BEA
program are not being offset by decreases in other investments by the
banks in the same areas.  Finally, because the Fund did not require
banks receiving 1996 awards to report any material changes in
rewarded investments, it did not know whether rewarded investments
remained long-term increases in the capital available to CDFIs or
distressed communities. 


      REGULATORY AND ECONOMIC
      INCENTIVES ALSO MOTIVATE
      INCREASED INVESTMENT IN
      CDFIS AND DISTRESSED AREAS
-------------------------------------------------------- Chapter 3:2.1

Officials at our case study banks and Fund officials told us that the
BEA program creates an incentive for or reduces the risk associated
with a bank's initiating and/or increasing investments in CDFIs
and/or distressed communities.  For example, according to an official
at one of our case study banks, the bank would not have invested
$250,000 in a local nonprofit CDFI's predevelopment loan program\3 if
this activity had not been eligible for a 15-percent reward from the
Fund.  Typically, this official said, the bank does not support
predevelopment loan programs, but the prospect of receiving an award
mitigated some of the risk associated with this loan, enabling the
bank to favorably consider and subsequently make this investment.  As
further evidence that the program is encouraging investment in CDFIs,
a Fund official said that CDFIs have begun to market themselves to
banks by noting that new or increased investments in them can result
in awards from the Fund of up to 15 percent of the new or additional
investment. 

Our case study banks indicated, and Fund officials agreed, that the
prospect of receiving a BEA award was not always the primary
incentive for banks to undertake award-eligible activities.  Rather,
regulatory or economic incentives were important or had already
prompted the banks to undertake such activities before they
considered applying for a BEA award.  One of the reasons our case
study banks cited most frequently for undertaking award-eligible
activities was to comply with the Community Reinvestment Act (CRA). 
CRA requires that federal bank regulatory agencies encourage the
banks they regulate to help meet credit needs in all areas of the
communities served (insofar as is consistent with safe and sound
operations), assess the banks' performance in meeting those needs,
and take this performance into account when considering a bank's
request for regulatory approval of a regulated action, such as
opening a new branch or acquiring or merging with another bank. 
Under CRA, banks do not receive direct financial or other rewards
from the regulatory agencies for compliance.  Also, the BEA program
requires that banks not only invest in distressed areas but also
increase their investments over and above what they have been doing. 

The bank regulatory agencies assess each bank's performance in
meeting CRA's requirements every 2 to 3 years.  During these reviews,
the examiners check to see whether CRA compliance activities are an
ongoing part of the bank's business.  Because BEA-eligible
activities, as a rule, count in terms of compliance with CRA, most
banks are likely to be engaged in some activities that the BEA
program rewards, and when the banks can show an increase in such
activities over an assessment period, they can simultaneously
demonstrate their compliance with CRA and their eligibility for a BEA
award. 

This overlap between activities that meet CRA's requirements and are
eligible for a BEA award held true at our case study banks.  All of
the activities that counted toward compliance also counted toward an
award.  Furthermore, two of the banks received BEA awards totaling
over $324,000 for increases in investments they had made or agreed to
make as part of ongoing working relationships with CDFIs that
predated their applications for the awards.  Another bank based its
application for a $1.6 million award on those previously planned
activities that bank officials judged most likely to reach closing
during the bank's 6-month assessment period.  The Fund itself
acknowledges that compliance with CRA may be a major incentive for
some banks to undertake award-eligible activities.  In fact, the Fund
advertises the link to compliance with CRA in the promotional
materials it distributes to banks when it publicizes the BEA program. 

Economic incentives also motivated banks' investments in
award-eligible activities.  According to officials at our case study
banks, they do the kinds of business that the BEA program rewards in
the markets targeted by the BEA program because they benefit from
such business and/or have made a corporate commitment to community
lending.  The banks benefit, the officials said, because their
award-eligible investments help them to maintain market share in
areas targeted by the BEA program, to compete with other banks in
these areas, or to build up markets that they expect will be
profitable in the future.  In addition, one bank indicated that its
award-eligible activities lay the groundwork for building new markets
with community groups, and two other banks cited improved community
relations as a further incentive for their activities. 

Although banks may derive future as well as current economic benefits
from their award-eligible activities, these activities have to stand
on their own without a subsidy from any of the banks' other lines of
business, according to officials at all five case study banks.  These
officials cited the solid track records of the CDFIs with which their
banks were already working and/or the successful performance of their
banks in distressed or low- and moderate-income communities as
important reasons for continuing to do business there.  The case
study banks had measured their performance and demonstrated their
success in distressed communities through measures such as loan
repayment rates; reports on occupancy rates and the financial
performance of housing projects financed by the banks; and, in one
case, the frequent presence of a bank official on CDFI investees'
boards of directors. 

Because awards in the BEA program can be relatively small (especially
for larger banks) and are made retrospectively (that is, after banks
have begun or completed activities), the awards may be too small or
may come too late to have much influence on banks' investment
activities.  To an extent that neither we nor the Fund can quantify,
banks are receiving awards for activities that stem from ongoing
relationships with CDFIs, nonprofit groups, or others in the
community and/or for investments they would have made without the
prospect of an award from the BEA program. 


--------------------
\3 This CDFI's predevelopment loan program would have provided
financial and administrative services, such as loan servicing and
monthly reporting, to a coalition of local nonprofit housing
development groups. 


      SOME BANKS DO NOT MAINTAIN
      DATA NEEDED TO DEMONSTRATE
      NET INCREASES IN
      AWARD-ELIGIBLE ACTIVITIES IN
      DISTRESSED COMMUNITIES
-------------------------------------------------------- Chapter 3:2.2

The Fund acknowledges that, in a few cases, some of the direct
lending and other financial service activities it is
rewarding--particularly agricultural, consumer, and small business
loans--may come at the expense of similar eligible activities in the
same distressed communities the awardees are serving.  For this
reason, the Fund was concerned that awardees could increase the loans
and other services included in their applications while decreasing
other eligible activities that are not included in their applications
but are targeted to the same communities. 

To be certain that the overall volume of activity in a distressed
community has increased, a bank must know the location of the entity
that received the loan, that the location is distressed, and that the
overall volume of activity in that location has increased.  To
readily link a loan's location with economic indicators of distress
can require detailed information, such as data identifying the census
tract in which the entity that received the loan is located.  If a
bank is not tracking the volume of its loan activity by census tract,
the Fund cannot be sure that increases in some types of qualified
activities have not been offset by decreases in other types of
qualified activities in the same distressed community. 

In reviewing the 1996 applications, the Fund discovered that some
banks that were applying for awards on the basis of increases in
these activities had not collected detailed information, such as loan
activity by census tract, on the location of these activities. 
Consequently, they could not demonstrate that they had not decreased
other award-eligible activities in distressed communities to support
the increased activities included in their applications.  For the
1996 awards, the Fund allowed banks without the requisite information
to sign an addendum to their award agreement in which they stated
that, to the best of their knowledge, they had not decreased other
eligible activities that were not included in their application. 
While most such banks signed the addendum and submitted an
application, an official at one of our case study banks said that the
bank sought an award on the basis of its investments in CDFIs but not
on the basis of any of its lending in distressed communities because
its data on loans did not include census tract information and it was
not willing to risk the chance that its overall level of activity in
distressed communities might have decreased. 

For the 1997 awards, the Fund hired a contractor to help banks
determine if the areas they were seeking to target would be eligible
under the BEA program's guidelines.  The Fund requires the banks to
use this contractor's services in the initial stages of applying to
the program.  The contractor determines which census tracts in a
bank's service area meet the Fund's definition of a distressed
community but does not identify which activities took place in those
tracts.  Many banks were not identifying the census tracts of their
consumer, small business, or agricultural loans and could not have
determined which ones took place in a distressed community identified
by the Fund's contractor unless they hand-coded or geocoded their
lending data.\4 According to a Fund official, using the Fund's
contractor means that each applicant has a better--but not
perfect--idea of which loans in its service area took (or will take)
place in distressed communities.  Nonetheless, a bank that has not
geocoded its loans would likely still find it very time consuming to
assign a census tract to all of its consumer, small business, and
agricultural loans because it would have to do so for all of these
loans, not just those included in its application to the BEA program. 

According to Fund officials, more and more banks are collecting
census data on their loans and fewer banks had to sign the addendum
for the 1997 awards than for the 1996 awards.  However, because the
Fund does not require banks to collect census data on their loans,
Fund officials acknowledged that, to some extent, the Fund may still
be rewarding banks that increased some activities at the expense of
others that were not included in their applications but also took
place in the same distressed communities.  As a result, for banks
that receive awards for direct lending and financial services but do
not collect census data on these activities, the Fund cannot say with
certainty that, in all cases, the BEA program is meeting its
objective of rewarding increases in distressed communities because it
cannot say with certainty that, in all cases, the rewarded increases
did not come at the expense of other award-eligible activities. 


--------------------
\4 Geocoding means coding, or collecting data on, loans according to
their location, using information such as the census tract or zip
code. 


      FUND WAS NOT SYSTEMATICALLY
      INFORMED OF MATERIAL CHANGES
      IN BANKS' REWARDED
      INVESTMENTS
-------------------------------------------------------- Chapter 3:2.3

The 1996 BEA awardees were not obligated to report information,
including any material changes in their rewarded investments, once
they completed the tasks they had agreed to perform with their own
funds to receive their awards.  One of our case study banks received
an award for increasing its investment in a CDFI that was later
dissolved.  Specifically, the bank received $37,500, or 15 percent of
the $250,000 by which it increased its investment in a certified CDFI
during its assessment period.  However, several months after the bank
received the award funds, the CDFI's board of directors voted to
dissolve the institution because of a declining market for its loans
and dissatisfaction with its performance.  Upon dissolving the CDFI,
the board returned its remaining capital pro rata to the banks that
had invested in it, including the bank that had received the award
for its increased investment.  Thus, even though the bank received an
award from the BEA program, the rewarded increase in activity did not
last.  After our visit and the CDFI's dissolution, the bank made a
commitment to use all of the funds returned to it to capitalize a
microloan fund at a different certified CDFI. 

The Fund was not aware of this material change in our case study
bank's rewarded investment until we brought it to the Fund's
attention.  Furthermore, because neither this nor any other 1996
awardee was required to report any material change, the Fund had no
systematic means of learning of any significant change in a bank's
rewarded activity.  The Fund has since established a requirement for
awardees to report any material change in their rewarded investments
so that it will be systematically informed of any important reduction
in these investments. 


   BANKS ARE USING AWARD FUNDS FOR
   ADDITIONAL COMMUNITY
   DEVELOPMENT LENDING AND
   INVESTMENT
---------------------------------------------------------- Chapter 3:3

The CDFI Act does not require banks to report how they use their BEA
awards because the objectives of the BEA program and the rules
governing it apply only to how the banks use their own funds. 
However, according to the Fund, most of the 1996 awardees reported
using their awards to further the objectives of the BEA program. 
Each of our five case study banks also reported using its award money
to expand its existing investments in community development.  For
example, one of the banks said that it used its award money to
establish a community development leadership curriculum and training
program, addressing topics such as innovative economic development
and affordable housing strategies.\5 This bank expects that its
support will enable the group developing the curriculum to provide
training to 100 senior managers from community development
organizations.  Another of the banks reported using its award funds
to make a grant to the National Community Capital Association
(formerly the National Association of Community Development Loan
Funds) to enable the association to train CDFI staff and board
members.\6 However, neither we nor the Fund determined whether the
banks used all or a portion of their award funds to benefit
communities meeting the same eligibility criteria as those that
benefited from the initial increases in the banks' investments. 


--------------------
\5 The Development Training Institute, in conjunction with the Local
Initiatives Support Corporation, developed the leadership curriculum
with support from this bank.  The institute is a national nonprofit
group that trains community-based organizations in neighborhood and
community-based economic development.  The corporation is a national
development organization assisting community-based development
corporations through loans, grants, and technical assistance. 

\6 The National Community Capital Association is a national
organization for nonprofit CDFIs that works to build the capacity and
financial strength of its members through loans, grants, and training
and consulting services.  The association also represents its
members' interests in community development finance. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 3:4

In commenting on a draft of this report, the Fund's Director and
Deputy Director for Policy and Programs told us that, in response to
the information we presented on a material change in one bank's
rewarded investment, the Fund has adopted a requirement for banks to
report any material change in their rewarded investments.  As a
result, we are no longer making the recommendation to this effect
that appeared in our draft report.  We also made minor technical and
clarifying changes to this chapter suggested by the Fund. 


THE FUND'S STRATEGIC PLAN DOES NOT
YET FULFILL THE REQUIREMENTS OF
THE RESULTS ACT
============================================================ Chapter 4

The Fund's current strategic plan contains the six basic elements
required by the Results Act, but these elements generally lack the
clarity, specificity, and linkage with one another that the act
envisioned.  Although the plan identifies key external factors that
could affect the Fund's mission, it does not relate these factors to
the Fund's strategic goals and objectives and does not indicate how
the Fund will take the factors into account when assessing awardees'
progress.  In addition, the plan does not explicitly describe the
relationship of its activities to similar activities in other
government agencies, and it does not indicate whether or how the Fund
coordinated with other agencies in developing its strategic plan. 
Additionally, the capacity of the Fund to provide reliable
information on the achievement of its strategic objectives at this
point is somewhat unclear. 

The Fund's difficulties in developing a strategic plan are not
unique.  We have found that strategic planning efforts at all federal
agencies are still works in progress.  Many agencies are struggling,
like the Fund, to set a strategic direction, coordinate crosscutting
programs, and ensure the capacity to gather and use performance and
cost data.  As the Results Act directs, the Fund is taking steps to
refine its strategic plan.  These steps appear to address the
difficulties we observed in the current plan. 


   REQUIREMENTS OF THE RESULTS ACT
---------------------------------------------------------- Chapter 4:1

The Results Act requires that an agency's strategic plan contain six
key elements:  (1) a comprehensive mission statement; (2) agencywide
long-term (strategic) goals and objectives for all major functions
and operations; (3) approaches (or strategies), skills, technologies,
and the various resources needed to achieve the goals and objectives;
(4) a description of the relationship between the long-term goals and
objectives and the annual performance goals; (5) an identification of
key factors, external to the agency and beyond its control, that
could significantly affect the achievement of the strategic goals and
objectives; and (6) a description of how program evaluations were
used to establish or revise strategic goals and objectives and a
schedule for future program evaluations. 

OMB Circular A-11 provides agencies with additional guidance on
developing their strategic plans and discusses additional information
that they may include in those plans.  The circular emphasizes the
importance of agencies' strategic plans, noting that they "provide
the framework for implementing all other parts of [the Results] Act,
and are a key part of the effort to improve performance of government
programs and operations." Because the plan matches programs and
activities to the agency's mission and objectives, it can be used,
according to the circular, to align the organization and budget
structure of the agency with its mission, guide the agency in
formulating its budget, and help the agency set priorities and
allocate resources in accordance with these priorities.  The Results
Act anticipates that an agency may take several planning cycles to
refine and perfect its strategic plan. 


   OPPORTUNITIES FOR IMPROVING THE
   FUND'S STRATEGIC PLAN
---------------------------------------------------------- Chapter 4:2

The Fund developed its strategic plan in accordance with the
requirements of the Results Act and submitted it to the Department of
the Treasury on September 23, 1997.  However, like other plans we
have reviewed, it can be improved.  Our observations on areas needing
improvement are as follows: 


      MISSION STATEMENT
-------------------------------------------------------- Chapter 4:2.1

According to the Fund's strategic plan,

     "the mission of the CDFI Fund, as drawn from the Riegle
     Community Development and Regulatory Improvement Act of 1994, is
     to promote economic revitalization and community development
     through investment in and assistance to community development
     financial institutions (CDFIs) and through encouraging insured
     depository institutions to increase lending, financial services
     and technical assistance within distressed communities and to
     invest in CDFIs."

This statement generally satisfies the requirements of the Results
Act and OMB Circular A-11 for a comprehensive mission statement
summarizing an agency's major functions.  The statement explicitly
refers to the Fund's statutory objectives and indicates how these
statutory objectives are to be achieved through the two core
programs. 


      STRATEGIC GOALS AND
      OBJECTIVES
-------------------------------------------------------- Chapter 4:2.2

The Results Act and OMB Circular A-11 require that each agency's
strategic plan set out goals and objectives for the major functions
and operations of the agency and that the goals and objectives
elaborate on how the agency is carrying out its mission.  The Fund's
strategic plan articulates five goals, each with at least two
objectives, as shown in table 4.1. 



                                    Table 4.1
                     
                     Goals and Objectives in the CDFI Fund's
                                  Strategic Plan

Goal                 Objective
-------------------  -----------------------------------------------------------
1. Strengthen and    1. Increase the number of CDFIs to which the CDFI Fund
expand the national  provides financial assistance while maintaining high-
network of CDFIs.    quality standards and promoting diversity.

                     2. Enhance the capacity of CDFIs.

                     3. Increase liquidity for CDFIs.

2. Encourage         1. Increase the number of insured depository institutions
investments in       that participate in the BEA program.
CDFIs, as well as
direct investments   2. Modify BEA legislation to improve the program's
in distressed        implementation.
communities, by
insured depository
institutions.

3. Encourage         1. Promote microenterprise lending.
microenterprise
development.         2. Coordinate federal agencies' microenterprise programs.

4. Improve program   1. Improve service to customers in the CDFI Fund's
performance.         programs.

                     2. Foster partnerships with customers and stakeholders to
                     achieve objectives.

                     3. Continue to develop operations to achieve efficiencies.

5. Improve           1. Improve the Fund's capacity to recruit, develop, and
management           retain high-caliber employees.
operations.
                     2. Ensure strong financial management.

                     3. Enhance the CDFI Fund's use of information technology.
--------------------------------------------------------------------------------
Although the plan does not characterize the goals as such, we
observed that the first three goals are mission related and the last
two are organizational.  We also noted that the first three goals are
results oriented and cover the major functions and operations of the
Fund, as the Results Act and OMB Circular A-11 direct.  However, the
last two goals are process oriented--characterizing how the Fund
intends to improve the performance and operations of its own programs
instead of projecting an outcome resulting from the Fund's actions. 
Because processes are not goals, these two would be more
appropriately incorporated in the strategies needed to achieve
strategic goals and objectives. 

OMB Circular A-11 suggests that strategic goals and objectives be
stated so as to allow a future assessment of their accomplishment. 
Because none of the 5 goals and 13 objectives in the strategic plan
include baseline dates and values, deadlines, and target markets, the
Fund's goals and objectives do not meet this criterion.  In contrast,
one of the Federal Emergency Management Agency's strategic goals is
to "protect lives and prevent the loss of property from all hazards."
An objective for achieving this goal is "by the end of fiscal year
2002, [to] reduce by 10 percent the risk of loss of life and injury
from hazards." By including specific deadlines and targets, this
objective meets the criterion. 


      STRATEGIES TO ACHIEVE GOALS
      AND OBJECTIVES
-------------------------------------------------------- Chapter 4:2.3

The Results Act requires that each agency's strategic plan describe
how the agency's goals and objectives are to be achieved.  OMB's
guidance suggests that the plan briefly describe the operational
processes; the skills and technologies; and the human, capital,
information, and other resources needed to achieve the goals and
objectives.  Additionally, Circular A-11 recommends that strategies
outline how agencies will communicate strategic goals throughout the
organization and hold managers and staff accountable for achieving
these goals.  The Fund's plan shows mixed results in meeting these
requirements. 

On the positive side, the plan clearly lists strategies for
accomplishing each goal and objective.  This approach is preferable
to other approaches we have seen in which strategies were not
integrally linked to objectives.  Because the Fund's plan more
clearly links the key strategies, objectives, and goals, it is more
valuable to users. 

While the links in the Fund's strategic plan are clear, the
strategies outlined in the plan consist entirely of one-line
statements.  Because they generally lack detail, it is unclear
whether their accomplishment would help achieve the plan's goals and
objectives.  For example, it is unclear how "emphasizing high-quality
standards in implementing the CDFI program" will strengthen and
expand the national network of CDFIs. 

Additionally, in discussing strategies to achieve its goals and
objectives, the Fund's strategic plan does not, as the Results Act
requires, describe the resources--such as the staff, capital, and
technologies--that are needed to achieve the objectives.  Rather, the
Fund's plan contains a separate section that describes, in general
terms, the resources needed to implement the entire plan. 
Specifically, this section states that "the Fund will use many
resources to accomplish its goals, including anticipated
appropriations, the knowledge and skills of its staff, information
technology, financial systems, and operational processes." However,
it is not clear how these resources will be used to implement
specific objectives.  For example, one strategy--developing and
implementing a secondary market initiative--is proposed for achieving
one objective--increasing liquidity for CDFIs--but the resources
needed to carry out this strategy are not specified. 

The Fund's strategic plan also does not include several elements
specified in Circular A-11.  For example, the plan does not include
(1) schedules for initiating or completing significant actions,
including underlying assumptions, or (2) an outline of the processes
for communicating the goals and objectives to the Fund's staff and
for assigning accountability to managers and staff for achieving the
strategic plan's objectives. 


      RELATIONSHIP BETWEEN
      STRATEGIC AND ANNUAL
      PERFORMANCE GOALS
-------------------------------------------------------- Chapter 4:2.4

Under the Results Act, each strategic goal must be linked to annual
performance goals.  A performance goal is the target level of
performance expressed as a tangible, measurable objective against
which actual achievement is to be compared.  An annual performance
goal is to consist of two parts:  (1) the measure that represents the
specific characteristic of the program used to gauge performance and
(2) the target level of performance to be achieved during a given
fiscal year for the measure.  While strategic plans are not required
to identify specific performance measures, OMB Circular A-11
recommends that the plans briefly relate strategic goals and
objectives to annual performance goals.  The guidance suggests that
the plans also include descriptions of the type, nature, and scope of
the performance goals included in the performance plans, as well as
the relevance and use of those performance goals to help determine
the achievement of the strategic goals and objectives. 

The Fund's strategic plan lists 22 performance goals, which are
clearly linked to specific strategic goals.  However, the plan does
not include a key performance goal--leveraging other resources--to
meet two of its strategic goals, one of which is "to strengthen and
expand the national network of CDFIs" and the other of which is to
"encourage investments in CDFIs by insured depository institutions."
While this leveraging goal is embedded in the strategies that the
Fund has outlined for achieving these two strategic goals, it is not
included as a way to gauge progress under the annual performance
goals. 

Furthermore, the performance goals generally lack the specificity, as
well as the baseline and end values, that would make them more
tangible and measurable.  For example, one performance goal is to
"increase the number of applicants in the BEA program." This goal
would be more useful and measurable if it specified the baseline
number of applicants as well as the number of additional applicants
projected within a specific time frame. 

Finally, some performance goals are stated more as strategies (e.g.,
"propose legislative improvements to the BEA program" or "survey
program participants on policies and standards") than as desired
results, and the ways in which individual performance goals support
strategic goals is not always clear.  For instance, it is not readily
apparent how the performance goal of proposing legislative
improvements to the BEA program will support the strategic goal of
encouraging banks' investments in CDFIs. 


      KEY EXTERNAL FACTORS
-------------------------------------------------------- Chapter 4:2.5

The Fund's strategic plan only partially meets the requirement of the
Results Act to describe key factors that are external to an agency
and beyond its control that could significantly affect the
achievement of its objectives.  OMB Circular A-11 states that a
strategic plan should describe each key external factor, indicate its
link with a particular strategic objective, and describe how the
achievement of the objective could be affected by the factor.  The
Fund's plan briefly discusses external factors that could materially
affect its performance, such as national and regional economic trends
and changes in the demographics of the labor force that may require
the development of a multifaceted and flexible human resource
program.  However, the plan does not link these external factors to
specific strategic objectives.  In addition, the plan does not cover
all key external factors that could materially affect the Fund's
performance.  For instance, the plan does not mention the
continuation of outside funding, yet, as indicated in chapter 1,
CDFIs must obtain outside funding to be eligible for participation in
the CDFI program.  Without the continuation of outside funding, the
Fund's ability to expand the network of CDFIs could be substantially
diminished. 


      USE OF PROGRAM EVALUATIONS
-------------------------------------------------------- Chapter 4:2.6

The Results Act, supplemented by OMB's guidance, requires that
strategic plans describe (1) the program evaluations used to prepare
the plans and (2) the schedule for future evaluations.  The Fund's
strategic plan generally does not discuss the evaluations used in its
development.  Although the plan refers to past evaluations by the
Department of the Treasury's Office of Inspector General--which the
Fund says were used to assist in the "development of the Fund's
programs and design of the Fund's internal systems," it is not clear
how, or if, these evaluations were used to develop the goals,
objectives, and strategies outlined in the Fund's strategic plan. 

The Results Act also requires a discussion of completed and future
program evaluations, which can be a critical source of information to
ensure the validity and reasonableness of goals and objectives and to
explain results in the agency's annual performance plan.  The Results
Act defines program evaluations as assessments, through objective
measurement and objective analysis, of the manner and extent to which
federal programs achieve their intended objectives.  The Fund's plan
does discuss options that the Fund is considering for evaluating its
own effectiveness and its impact on financial intermediaries
dedicated to supporting community development.  However, the plan
does not include a schedule for future program evaluations. 
Furthermore, the list of options does not refer to the CDFI and BEA
evaluations or surveys described in earlier sections of the plan. 


   STRATEGIC PLAN COULD BETTER
   ADDRESS CROSSCUTTING ACTIVITIES
---------------------------------------------------------- Chapter 4:3

In its strategic plan, the Fund states that it will "coordinate its
strategies with other Treasury bureaus and agencies with similar
missions." The Fund's strategic plan does not specifically address
the relationship of the Fund's activities to similar activities in
other agencies and does not indicate whether or how the Fund
coordinated with other agencies in developing the strategic plan. 
Yet numerous government and private-sector agencies are involved in
providing access to capital to achieve community and economic
development.  Interagency coordination is important for ensuring that
crosscutting programs are mutually reinforcing and efficiently
implemented.  Therefore, the plan would be strengthened if it
identified and incorporated some descriptions of other agencies'
programs with similar missions and discussed their influence on the
Fund's strategic objectives.  For example, a recent study published
by the President's Community Empowerment Board identified several
programs in other federal agencies with missions similar to that of
the CDFI program, including the following:\1

  -- The departments of Agriculture and of Housing and Urban
     Development administer the Empowerment Zone and Enterprise
     Community program, which was authorized to revitalize
     deteriorating urban and rural communities.  This program targets
     federal grants to distressed communities for community
     redevelopment and social services and provides tax and
     regulatory relief to attract or retain businesses in the
     communities.  In its objectives and in the types of communities
     it targets, this program is similar to the CDFI program. 
     Furthermore, the program's structure mirrors that of the CDFI
     program in that applicants must submit a strategic plan that,
     like the CDFI program's assistance agreements, must outline
     baselines, methods, and benchmarks for measuring their success
     in the targeted communities.  Finally, performance is tracked in
     both programs to measure the impact of awardees' activities in
     the distressed communities. 

  -- The Small Business Administration (SBA) operates various
     programs to aid, counsel, assist and protect the interests of
     small businesses.  For example, the Small Business Investment
     Company (SBIC) and the Specialized Small Business Investment
     Company (SSBIC) programs are designed to fill the gap between
     the availability of venture capital and the needs of small
     businesses that are starting up or growing.  SBICs, which are
     licensed and regulated by SBA, are privately owned and managed
     investment firms that use their own capital, plus funds borrowed
     at favorable rates with an SBA guarantee, to make equity
     investments and/or loans to small businesses.  SSBICs invest in
     small businesses owned by entrepreneurs who are socially or
     economically disadvantaged.  Not only are the objectives of
     these programs consistent with those of the Fund, in that they
     provide access to capital for economic development, but they are
     also similar to those of venture capital CDFIs that provide
     financial and technical assistance to start-up businesses. 
     Moreover, they are structured similarly to the Funds' CDFI and
     BEA programs in that they provide access to capital by
     leveraging federal resources.  SBA also administers a microloan
     program that increases the availability of very small loans to
     prospective small business borrowers.  Under this program, SBA
     makes funds available to nonprofit intermediaries, which in turn
     make loans to eligible borrowers, much as the CDFI program makes
     funds available to CDFIs, which then make loans to
     microenterprises. 

Among private organizations, the Ford Foundation is the largest
supporter of community development.  Specifically, it supports
efforts to create economic opportunities and financial institutions
that respond to the needs of the poor, as well as efforts to give the
poor greater ownership and control of key community institutions. 
Several of the CDFIs that received 1996 awards from the Fund also
received funding from the Ford Foundation. 


--------------------
\1 Building Communities Together:  Federal Programs Guide, The
President's Community Empowerment Board (May 7, 1998). 


   THE FUND LACKS DATA TO MEASURE
   ITS PROGRESS
---------------------------------------------------------- Chapter 4:4

To measure progress in achieving its strategic objectives, the Fund
needs reliable data.  The Fund has not yet developed its strategic
plan sufficiently to identify the types and sources of data needed to
evaluate its progress towards the objectives outlined in the plan. 

Moreover, according to the KPMG Peat Marwick study identified in
chapter 2, as of February 1998, the Fund has yet to set up a formal
system, including procedures to continuously monitor, evaluate, and
improve the effectiveness of the management controls associated with
the CDFI program.  These procedures would ensure that the periodic
performance reports submitted by awardees are received, reviewed and
acted upon by the Fund in the event of potential noncompliance. 
Until the Fund identifies the types of data needed to monitor and
evaluate awardees and incorporates these data needs in a formal
system, it will be hampered in its ability to report on its progress
toward achieving its stated goals and objectives.  The Fund intends
to continue designing and developing a portfolio-monitoring database
system during fiscal year 1998 as part of its efforts to design and
implement its monitoring procedures. 


   WEAKNESSES IN THE FUND'S
   STRATEGIC PLAN ARE COMMON AMONG
   FEDERAL AGENCIES
---------------------------------------------------------- Chapter 4:5

The Fund's strategic plan has shortcomings common to the plans of
most other federal agencies.  We reported on these shortcomings in
our September 1997 review of 27 agencies' draft strategic plans.\2 We
found that a significant amount of work remained to be done by
executive branch agencies before their strategic plans can fulfill
the requirements of the Results Act, serve as a basis for guiding
agencies, and help congressional and other policymakers make
decisions about activities and programs.  Although all 27 of the
draft plans included a mission statement, 21 plans lacked 1 or more
of the other required elements.  In summary, for the 27 draft
strategic plans, we found that (1) most did not adequately link
required elements in the plans; (2) several contained goals that were
not as results oriented as they could have been; (3) many agencies
did not fully develop strategies explaining how their long-term
strategic goals would be achieved; (4) most agencies did not identify
or provide for coordinating activities and programs that cut across
multiple agencies; (5) the limited capacity of many agencies to
gather performance information has hampered their efforts to identify
appropriate goals and confidently assess their performance; and (6)
no agency's draft strategic plan provided adequately for program
evaluations. 


--------------------
\2 Managing for Results:  Critical Issues for Improving Federal
Agencies' Strategic Plans (GAO/GGD-97-180, Sept.  16, 1997). 


   RECENT STRATEGIC PLANNING
   INITIATIVES ADDRESS
   SHORTCOMINGS IN THE FUND'S
   CURRENT PLAN
---------------------------------------------------------- Chapter 4:6

As is consistent with the Results Act's requirement that agencies
continually refine their plans, the Fund is updating its strategic
plan and expects to have a revised plan by August 1998.  According to
a key Fund official, the updated plan will address not only the
shortcomings we identified in a May 1998 authorization hearing on the
Fund,\3 but also those cited in the Department of the Treasury's
February 1998 review of the Fund's plan.\4 The following are among
the key changes the Fund plans to make: 

  -- In revising its strategic goals, it plans to eliminate the two
     organizational goals (i.e., to improve program performance and
     management operations) included in table 4.1 because they are
     not directly related to the Fund's mission. 

  -- It plans to change the format for presenting the goals and
     objectives by linking benchmarks and planned evaluations to each
     goal, as well as to the key external factors that could affect
     the Fund's ability to meet these goals.  The Fund believes that
     this change will improve its ability to assess how well its
     strategies and approaches for meeting its strategic goals are
     working.  For example, one of the goals proposed in the Fund's
     revised plan is to increase participation in the CDFI program. 
     The Fund plans to hold workshops to increase participation in
     the program and to evaluate this strategy by collecting data to
     track the number of (1) participants in the workshops, (2)
     participants who apply for CDFI funding, and (3) applicants who
     receive CDFI awards.  The Fund plans to use this information to
     evaluate the effectiveness of the workshops in increasing
     participation. 

  -- It plans to revise its budget structure to better link program
     activities with funding sources.  By presenting the budget this
     way, the Fund expects to improve its tracking of the resources
     used to implement the goals and objectives outlined in its
     strategic plan, as well as to develop annual plans that tie
     these goals and objectives to its budget. 

  -- It plans to revise its performance goals to include a measure of
     its ability to leverage other resources. 

  -- It plans to identify crosscutting organizations and programs and
     assess the extent to which its programs duplicate or complement
     these efforts. 


--------------------
\3 Community Development:  Early Results of the Community Development
Financial Institutions Fund's Programs (GAO/T-RCED-98-198, May 13,
1998). 

\4 Department of the Treasury Memorandum on Results From Reviews of
Strategic Plans (Feb.  25, 1998). 


   CONCLUSIONS
---------------------------------------------------------- Chapter 4:7

The Fund is revising its strategic plan to address the major
shortcomings we observed in the current plan.  Through these
revisions, the Fund will have better defined its goals and better
identified its strategies for achieving them, including its strategy
for allocating its resources, thereby laying the foundation for
determining its success in reaching results-oriented as well as
non-results-oriented goals and objectives.  Because strategic
planning is not static, the Fund will need to continuously revise and
refine its strategic plan to reflect the dynamic nature of the CDFI
industry.  If this process is done well, the Fund's strategic
planning efforts should facilitate informed communication between the
Fund and its stakeholders--that is, those organizations potentially
affected by or interested in the Fund's activities. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 4:8

The Fund officials agreed with the information in this chapter and,
as we noted earlier, are taking steps to refine the Fund's strategic
plan.  These steps appear to address the difficulties we observed. 


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

The legislation creating the Fund required that GAO report on the
Fund's structure, governance, and performance 30 months after the
appointment of an Administrator of the Fund.  However, as noted in
chapter 1 and as agreed with your offices, this report does not
review the structure and governance of the Fund because the
Department of the Treasury's Inspector General is conducting an audit
addressing these issues.  This report discusses (1) the progress of
the Community Development Financial Institutions (CDFI) Fund in
developing performance measures for awardees in the CDFI program and
systems to monitor and evaluate their progress in meeting their
performance goals, as well as the accomplishments they have reported
to date; (2) the performance of banks under the Bank Enterprise Award
(BEA) program, the impact of the program on banks' activities and on
distressed communities, and the uses to which banks have put their
award funds; and (3) the Fund's progress in meeting the Results Act's
requirements for strategic planning and the steps the Fund could take
to improve its management.  Our report focuses on the first round of
awards, which the Fund made in 1996, and draws on our interviews with
Fund officials; our case studies of awardees, including six CDFIs in
the CDFI program and five banks in the BEA program, which we
conducted to explore our objectives in more depth; the results of our
survey of the CDFI field on its use of performance measures; and our
analysis and review of the CDFI program's assistance agreements. 

To meet our objectives in reviewing the CDFI program, we reviewed the
Fund's process for setting goals and developing performance measures
with the 31 1996 awardees\1 and discussed the Fund's performance
measurement system--including its development, operation, and
underlying assumptions--with various Fund officials responsible for
working with the awardees.  In addition, to supplement the
information about the CDFI program that we gathered at the Fund's
headquarters in Washington, D.C., we randomly selected six awardees
as case studies to gain these awardees' perspectives on the process
of developing performance measures, as well as to gather data that
the Fund does not collect, such as information on the reporting
requirements that other funding sources impose on awardees and the
performance measures that these sources require. 

We randomly selected these case studies from the universe of 24
awardees that the Fund told us had signed their assistance agreements
by November 1, 1997.  Because the CDFI program serves a wide variety
of community development organizations, we stratified our random
selection by the types of CDFI awardees described in chapter 1 to
ensure that our case studies included at least one of each of the
most common types of CDFIs.  This stratification generally mirrored
the categorization used by the CDFI Fund in its first annual report. 
If a CDFI category was represented by only one or two awardees, then
that category was combined with the closest similar category.  The
six case study awardees were a community development bank holding
company, a community development venture capital fund, a community
development credit union, a microenterprise fund, a community
development loan fund, and a multifaceted community development
financial institution.\2

We obtained information from the awardees on the negotiations that
took place between each of them and the Fund to develop the
performance goals, measures, and benchmarks outlined in their
assistance agreements.  We discussed this information with
knowledgeable Fund staff and reviewed documentation pertinent to the
activities for which awards were made, including the awardees'
business plans, assistance agreements, and correspondence about the
negotiation process. 

To describe the performance measurement and monitoring systems used
in the CDFI field, we conducted a national survey of CDFI
organizations.  To identify these organizations, we began by
obtaining from the CDFI Fund in October 1997 its most recent list of
certified CDFIs, dated June 1997, as well as lists of applicants for
awards in the first (1996) and second (1997) funding rounds.  In
addition, we obtained membership lists from the following national
community development professional organizations:  the CDFI
Coalition, the National Association of Community Development Credit
Unions, the National Community Capital Association, and the Community
Development Venture Capital Alliance.  We also obtained lists from
the Neighborhood Reinvestment Corporation\3 and the Aspen Institute\4
that identified neighborhood housing services and microenterprise
development organizations with loan funds.  Our objective was to
survey not only certified CDFIs but also other CDFIs that might be
eligible for certification.  Using these lists, we identified a total
of 925 organizations that described themselves as CDFIs.  We do not
believe that our list includes all such organizations nationwide.  We
recognize that there are probably other community development
organizations that could be certified by the Fund as a CDFI, but are
currently unknown to either the Fund or one of the national CDFI
associations. 

To encourage responses, we sent follow-up letters and a second survey
to those organizations that did not return a survey after the first
mailing.  In total, 623 institutions responded to our questionnaire,
for a 67-percent response rate.  Respondents included 87 percent of
the 1996 awardees and 77 percent of the 187 CDFIs certified by the
Fund as of June 1997. 

To categorize the goals and measures used by the 26 awardees that had
signed their assistance agreements with the Fund by February 1998, we
conducted a content analysis of the performance goals and measures
included in their agreements.  The questionnaire used for the survey
of all CDFIs provided the framework for this analysis.  The
questionnaire contains an extensive list of responses that are
grouped by the categories of accomplishments and activities for goals
and measures.  For example, one question asks about measures of
community development accomplishments and lists 12 measures that an
institution might use.  The assistance agreements contained 87 goals
and 165 measures.  Each goal and each measure was classified as a
specific activity or accomplishment by two evaluators who worked
independently.  Differences were resolved with a third evaluator, so
that the evaluators reached complete agreement on their
classification of goals and measures. 

We also evaluated aspects of the quality of the goals and measures in
the assistance agreements, using criteria for evaluation developed on
the basis of the Results Act, supplemented by Circular A-11, the
Office of Management and Budget's (OMB) implementing guidance, and a
GAO document entitled The Results Act:  An Evaluator's Guide to
Assessing Agency Annual Performance Plans (GAO/GGD-10.1.20, Apr. 
1998).  These three documents provide more explicit guidance for
developing performance goals and measures than the CDFI legislation. 
We refer to these three documents as "the Results Act and its
guidance" throughout this appendix.  These evaluation criteria
included the specificity, objectivity, completeness, and
appropriateness of the measures.  An additional criterion was whether
or not the goals and measures addressed the purpose of the CDFI
program, that is, to promote economic revitalization or economic
development. 

Using these criteria, we constructed the following set of questions: 

  -- Does the goal promote economic revitalization and community
     development? 

  -- Does each measure have a clearly apparent or commonly accepted
     relationship to the intended result? 

  -- Are only certain observations in the measure? 

  -- Is what is to be observed or measured specified? 

  -- Is any description of what is being measured given? 

  -- Do all the measures use terms that are generally known, or if
     not known, are they described? 

  -- Is an evaluation date (target date) given? 

  -- Is an evaluation value (target value) given? 

  -- Is a baseline date given? 

  -- Is a baseline value given? 

  -- Is a target population or geographic area given? 

Each question could be answered with a yes or a no.  For nine
questions, the unit of analysis was an individual goal and its
associated measure(s), referred to as a "goal statement." For the two
remaining questions, the unit of analysis was an individual measure. 
Two teams of two GAO evaluators performed the assessments; each team
assessed approximately half of the goal statements.  The two members
of each team independently assessed each goal statement and then
compared their answers.  Disagreements were discussed and resolved. 
After the members of each team reached agreement, we compared the
assessments performed by the two teams, reviewing the ratings each
had given to a subset of 8 goal units (11 measures) that both teams
had assessed.  Reliability (percentage of concurrence on ratings)
between the teams was 96 percent. 

We finished categorizing the goals and measures in the 26 assistance
agreements by reviewing all of the goals and measures to determine
whether the measures in each goal statement addressed all key aspects
of each goal.  We drew on our knowledge of the CDFI program,
community development and housing finance, and OMB's guidance on the
Results Act to make this judgmental determination and to identify
instances in which measures did or did not address all key aspects of
the associated goals. 

Finally, we reviewed the Fund's statutory, regulatory, and other
reporting and monitoring requirements, as well as an existing study
of the Fund's monitoring system, and we held discussions with Fund
officials and officials at selected CDFI case studies to assess the
Fund's progress in developing systems to monitor and evaluate the
progress of the CDFI awardees in meeting their performance goals.  We
also reviewed quarterly progress reports submitted by 19 of the 1996
awardees and held discussions with case studies officials to assess
the awardees' progress. 

For the BEA program and its awardees, we performed work at Fund
headquarters similar to that we performed for the CDFI program,
reviewing the Fund's guidance, policies, procedures, and other
materials on the awards process and discussing these issues and
others related to the program with the Fund officials administering
the program.  For data on the banks' performance under the program,
we relied on the Fund's status report on the activities completed by
awardees as of January 1998.  This report includes the status of
disbursements made by the Fund for specific activities completed in
accordance with the awardees' agreements with the Fund. 

We conducted case studies of selected BEA awardees to explore our
objectives in more depth, obtaining awardees' perspectives on the
process of applying for an award and gathering information from
awardees that the Fund does not collect systematically, such as
information on the incentives banks identify for participating in the
program and the ways they monitor and measure the progress of their
investments.  We also verified with these awardees (1) the
information we obtained from the Fund's January 1998 status report
and (2) the information the banks voluntarily reported to the Fund on
their uses of award funds.  We judgmentally selected a sample of five
awardees for our case studies, ensuring that collectively they
represented the full range of activities for which banks can receive
awards.\5 The five awardees and the activities on which their awards
were based were as follows: 

  -- Fullerton Savings and Loan, Fullerton, California (increased
     lending for single-family and multifamily housing);

  -- Bank of America Community Development Bank, Walnut Creek,
     California (increased lending for commercial real estate,
     multifamily housing, and small businesses);

  -- First Union Bank, Washington, D.C.  (increased lending for
     multifamily housing);

  -- Citibank, N.A., New York, New York (increased investments in
     CDFIs); and,

  -- Wells Fargo Bank of Texas, N.A., Houston, Texas (increased
     investments in CDFIs). 

To identify opportunities for improving the Fund's management, we
asked officials we had interviewed, both at Fund headquarters and at
our CDFI and BEA case studies, to identify ways of improving the 1996
awards, monitoring, and performance measurement processes.  We also
reviewed studies of the Fund that outlined areas for improvement and
determined the extent to which these areas had or had not been
addressed in the 1997 process. 

Our overall assessment of the Fund's strategic plan was generally
based on our knowledge of the Fund's operations and programs, as well
as on other information available at the time of our assessment. 
Specifically, the criteria we used to determine whether the Fund's
strategic plan complied with the requirements of the Results Act were
the Results Act and OMB's guidance on developing strategic plans (OMB
Circular A-11, Part 2).  To make judgments about the overall quality
of the plan, we used our May 1997 guidance for congressional review
of strategic plans (GAO/GGD-10.1.16) as a tool.  To determine whether
the plan contained information on interagency coordination, we relied
on the President's Community Empowerment Board's Federal Programs
Guide.  Finally, we reviewed the Fund's fiscal year 1997 annual
report and consulted with knowledgeable staff in our Accounting and
Financial Management Division as part of our efforts to assess
whether the Fund had adequate systems in place to provide reliable
information on performance. 

We conducted our work at Treasury headquarters and at the offices of
selected CDFI and BEA awardees throughout the country.  We performed
our review between July 1997 and June 1998 in accordance with
generally accepted government auditing standards.  We relied on data
provided to us by the Fund, by awardees in both the CDFI and the BEA
programs, and by CDFIs responding to our survey.  We did not verify
the data on award amounts, disbursements, or quarterly and annual
reports for the CDFI awardees as a whole or for our case studies
because our work focused on the process of developing performance
goals and measures, which were themselves documented in the
assistance agreements.  Because our conclusions and recommendations
are based on that process and the resulting goals and measures, and
not on the financial or performance data, we consider them to be
valid.  We verified with the BEA awardees the data on award amounts,
disbursements, and postaward uses of funds that we obtained from the
Fund. 


--------------------
\1 The application for one of the 1996 CDFI awardees encompassed two
subsidiaries.  Both subsidiaries were selected to receive funding. 
Our analyses combined data for both of the subsidiaries. 

\2 We agreed not to name the CDFIs we selected for our case studies
because many of the awardees' documents we reviewed were proprietary
in nature or contained proprietary information. 

\3 The Neighborhood Reinvestment Corporation, a congressionally
chartered, public nonprofit corporation established in 1978 (P.L. 
95-557), develops and supports NeighborWorks organizations, which are
autonomous, locally funded nonprofit corporations that seek to
revitalize lower-income communities and provide affordable housing. 

\4 The Association for Enterprise Opportunity, a national trade
association for microenterprise development organizations, referred
us to the Aspen Institute for assistance in identifying
microenterprise development organizations with lending activity.  The
Aspen Institute, which maintains a directory of over 300
microenterprise development programs, identified those indicating
that they provided lending services. 

\5 Even though we originally selected a random sample of six awardees
as case studies, we refer to our sample as judgmental because we had
to cancel one of the case studies when the bank's officials could not
meet with us within our deadlines for completing the studies.  After
removing the one awardee from our sample, we could no longer refer to
the sample as random.  The five remaining awardees provide the full
range of activities for which banks receive awards under the BEA
program. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

Leslie Black-Plumeau
Carolyn Boyce
Diane Brooks
Stan Czerwinski
Patricia Farrell Donahue
Elizabeth R.  Eisentadt
Dennis Fricke
Kimberly Hutchens
Bill MacBlane
John McGrail
Lynn Musser
Hattie Poole
Marilyn Rubin
James Vitarello
John Vocino

*** End of document. ***