Community Development: Weak Management Controls Compromise Integrity of
Four HUD Grant Programs (Chapter Report, 04/27/99, GAO/RCED-99-98).
Pursuant to a congressional request, GAO provided information on whether
controls are in place to ensure that block grant programs' objectives
are being achieved and that funds are being managed appropriately,
focusing on whether: (1) the Department of Housing and Urban
Development's (HUD) on-site monitoring of grantees under the Grants
Management System is adequate; and (2) the Integrated Disbursement and
Information System provides the data HUD needs to accurately assess
grantees' performance.
GAO noted that: (1) while the Grants Management System provides a
logical, structured approach to managing the four block grant programs,
HUD's monitoring under the system--including on-site monitoring of
grantees and the Integrated Disbursement and Information System--does
not ensure that the programs' objectives are being met and that grantees
are managing their funds appropriately; (2) HUD considers its on-site
monitoring of grantees essential, but GAO found this monitoring is
inadequate; (3) the five field offices GAO visited (accounting for about
20 percent of all block grant funds in fiscal year (FY) 1998, or $1.18
billion) conduct on-site monitoring infrequently because of a shift to a
more collaborative relationship with the grantees and because of a lack
of resources, according to the directors of the field offices; (4)
furthermore, on-site monitoring seldom targets the grantees that receive
the poorest evaluations from the field officers compared with other
grantees, and this monitoring is not uniform or comprehensive because
the field officers lack specific guidance; (5) the reviews of some
grantees conducted by GAO and others, especially HUD's Inspector
General, have identified significant problems in grantees' finances and
performance; (6) while such reviews are not generalizable to all block
grant programs, these reviews, along with the breakdowns in monitoring,
call into question the integrity of programs funded at nearly $6 billion
in FY 1998, including their safeguards against fraud, waste, and abuse;
(7) for its part, HUD's Integrated Disbursement and Information System
does not provide the information HUD needs to accurately assess
grantees' performance and thus does not compensate for these breakdowns
in monitoring; (8) fraught with major design flaws, the information
system makes the process for establishing and maintaining accounts
difficult and provides ample opportunity for major problems with
entering data, does not allow such problems to be corrected easily,
cannot track the program income from the revolving funds that grantees
establish, does not provide timely and accurate information, and has
difficulty producing reports; and (9) GAO also determined that the
security controls for the information system are weak and therefore do
not provide assurance that the system is safe from fraud and abuse.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-99-98
TITLE: Community Development: Weak Management Controls Compromise
Integrity of Four HUD Grant Programs
DATE: 04/27/99
SUBJECT: Internal controls
Financial management
Housing programs
Block grants
Grant monitoring
Community development programs
Program abuses
Management information systems
Computer security
IDENTIFIER: HUD Grants Management System
HUD Integrated Disbursement and Information System
Community Development Block Grant Program
HUD Home Investment in Affordable Housing Program
HUD Emergency Shelter Grant Program
HUD Housing Opportunities for Persons with AIDS Program
HUD Empowerment Zones and Enterprise Communities Programs
HUD 2020 Management Reform Plan
HUD Community 2020 System
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COMMUNITY DEVELOPMENT: Weak Management Controls Compromise
Integrity of Four HUD Grant Programs GAO/RCED-99-98 United States
General Accounting Office
GAO Report to Congressional Requesters
April 1999 COMMUNITY DEVELOPMENT Weak Management Controls
Compromise Integrity of Four HUD Grant Programs
GAO/RCED-99-98
GAO/RCED-99-98
GAO United States General Accounting Office
Washington, D. C. 20548 Resources, Community, and Economic
Development Division
B-281322 April 27, 1999 The Honorable Wayne Allard Chairman,
Subcommittee on Housing
and Transportation Committee on Banking, Housing,
and Urban Affairs United States Senate
The Honorable Rick A. Lazio Chairman, Subcommittee on Housing
and Community Opportunity Committee on Banking
and Financial Services House of Representatives
In response to a request by you as Chairman of the Subcommittee on
Housing and Community Opportunity, House Committee on Banking and
Financial Services, and the former Chairman of the Subcommittee on
Housing Opportunity and Community Development, Senate Committee on
Banking, Housing, and Urban Affairs, this report discusses whether
controls are in place to ensure that block grant programs'
objectives are being achieved and that funds are being managed
appropriately. In particular, the report discusses whether (1) the
Department of Housing and Urban Development's (HUD) on- site
monitoring of grantees under the Grants Management System is
adequate and (2) the Integrated Disbursement and Information
System provides the data HUD needs to accurately assess grantees'
performance.
As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
for 30 days after the date of this letter.
We are providing copies of this report to Senator Connie Mack, the
Chairman of the Subcommittee on Economic Policy, Senate Committee
on Banking, Housing, and Urban Affairs; the Honorable Andrew
Cuomo, the Secretary of Housing and Urban Development; and other
interested parties. We will also make copies available to others
upon request. Major contributors to this report are listed in
appendix II.
Judy A. England- Joseph Director, Housing and Community
Development Issues
Executive Summary Purpose About one- quarter of the Department of
Housing and Urban
Development's (HUD) budget almost $6 billion in fiscal year 1998
is devoted to four formula block grant programs that support
community development: the Community Development Block Grant
Program, the Home Investment in Affordable Housing Program, the
Emergency Shelter Grant Program, and the Housing Opportunities for
Persons With AIDS Program. While each of these programs has a
different purpose, they all provide federal funds to help grantees
primarily state and local governments finance projects and
services for local residents. In 1995, HUD revamped its approach
to managing these formula block grants by requiring grantees to
develop a consolidated plan that lays out how they will use all
four programs. As part of its revamped approach, HUD changed its
monitoring of grantees to reflect the collaborative relationship
it was trying to establish with them. Under this approach, known
as the Grants Management System, HUD developed the Integrated
Disbursement and Information System so that grantees could enter
information into a database that describes their planning and
projects, draw federal funds, and inform the Department about how
they are using those funds and what they are achieving with them.
Concerned about changes in HUD's approach to program monitoring,
the former Chairman of the Subcommittee on Housing Opportunity and
Community Development now the Subcommittee on Housing and
Transportation Senate Committee on Banking, Housing, and Urban
Affairs, and the Chairman of the Subcommittee on Housing and
Community Opportunity, House Committee on Banking and Financial
Services, asked GAO to assess whether controls are in place to
ensure that the block grant programs' objectives are being
achieved and that funds are being managed appropriately. In
particular, GAO examined whether (1) HUD's on- site monitoring of
grantees under the Grants Management System is adequate and (2)
the Integrated Disbursement and Information System provides the
data HUD needs to accurately assess grantees' performance.
Background The Grants Management System and the Integrated
Disbursement and Information System are administered by HUD's
Office of Community
Planning and Development through 42 field offices throughout the
United States. The Grants Management System which HUD developed to
deemphasize compliance monitoring of grantees and to promote a
more collaborative approach that includes up- front assistance and
a reliance on grantees' monitoring systems uses the Integrated
Disbursement and
GAO/RCED-99-98 Community Development Page 2
Executive Summary
Information System as its chief monitoring tool. Allowed
considerable independence in carrying out the Grants Management
System, the field offices develop their own work plans, conduct
their own evaluations of grantees to determine which need more
oversight and assistance, set their own monitoring schedules, and
determine the type and amount of technical assistance they provide
to their grantees.
Results in Brief While the Grants Management System provides a
logical, structured approach to managing the four block grant
programs, HUD's monitoring
under the system including on- site monitoring of grantees and the
Integrated Disbursement and Information System does not ensure
that the programs' objectives are being met and that grantees are
managing their funds appropriately. HUD considers its on- site
monitoring of grantees essential, but GAO found this monitoring is
inadequate. The five field offices GAO visited (accounting for
about 20 percent of all block grant funds in fiscal year 1998, or
$1.18 billion) conduct on- site monitoring infrequently because of
a shift to a more collaborative relationship with the grantees and
because of a lack of resources, according to the directors of the
field offices. Furthermore, on- site monitoring seldom targets the
grantees that receive the poorest evaluations from the field
offices compared with other grantees, and this monitoring is not
uniform or comprehensive because the field offices lack specific
guidance. The reviews of some grantees conducted by GAO and
others, especially HUD's Inspector General, have identified
significant problems in grantees' finances and performance. And
while such reviews are not generalizable to all block grant
programs, these reviews, along with the breakdowns in monitoring,
call into question the integrity of programs funded at nearly $6
billion in fiscal year 1998, including their safeguards against
fraud, waste, and abuse. This report makes recommendations
designed to improve the integrity of the block grant programs.
For its part, HUD's Integrated Disbursement and Information System
does not provide the information the Department needs to
accurately assess grantees' performance and thus does not
compensate for these breakdowns in monitoring. Fraught with major
design flaws, the information system makes the process for
establishing and maintaining accounts difficult and provides ample
opportunity for major problems with entering data, does not allow
such problems to be corrected easily, cannot track the program
income from the revolving funds that grantees establish, does not
provide timely and accurate information, and has difficulty
producing reports. GAO also determined that the security controls
GAO/RCED-99-98 Community Development Page 3
Executive Summary
for the information system are weak and therefore do not provide
assurance that the system is safe from fraud and abuse. This
report recommends modifying or replacing the Integrated
Disbursement and Information System, whichever is more cost-
effective, and taking other steps to improve system security.
Principal Findings Monitoring Under the Grants Management System
Does Not Ensure That the Programs' Objectives Are Being Met and
That Grantees Are Managing Their Funds Appropriately
Although HUD's Grants Management System Policy Notebook states
that on- site monitoring is an essential tool for determining
whether program requirements are being met, it does not specify
when on- site monitoring should be done. During fiscal year 1998,
the five field offices GAO reviewed conducted visits to 33
grantees, or just 14 percent of their 228 grantees. Moreover,
while HUD's annual comparative review of grantees' performance is
intended to target the grantees most in need of attention, only 38
of the 85 grantees HUD had originally designated for on- site
monitoring were determined to be among the lowest performing
grantees, or those needing the most oversight or assistance. Of
the 33 grantees that actually received on- site monitoring, only
15 were among the lowest performing. According to the directors of
four of the five field offices, the level of on- site monitoring
fell by 88 percent from 1990 through 1998 because of the shift to
a more collaborative relationship with the grantees and a lack of
staff resources to conduct on- site monitoring, combined with
increased responsibilities for field office staff. Despite
recognition of this problem, the Office of Community Planning and
Development has not conducted a workforce analysis since 1996.
Furthermore, the on- site monitoring that does occur is not
uniform or comprehensive because the Policy Notebook does not
specify the issues that should be covered during a visit. Another
problem is the latitude granted field offices in evaluating
grantees' performance. The Policy Notebook provides the individual
field offices with considerable discretion in targeting grantees
for review.
In visits to 11 grantees, GAO found significant problems that
could have been detected with on- site monitoring. Some project
files had no evidence that the grantees monitored the recipients
of funds, such as nonprofit organizations, and in one instance,
the grantee acknowledged that it had not monitored any of its
recipients in the 1998 program year. Other files lacked
documentation to support payments and to justify cost overruns,
including one overrun of about $100,000. At one grantee, the nine
project
GAO/RCED-99-98 Community Development Page 4
Executive Summary
files GAO reviewed lacked such key information as certifications
that the recipients have low or moderate incomes, statements of
work, and contracts, making determinations about the grantee's
performance impossible. Similarly, in 11 reports since the
implementation of the Grants Management System, HUD's Inspector
General has found that grantees are not complying with financial
and performance requirements and has questioned the expenditure of
about $26 million. The Inspector General has also faulted HUD's
monitoring of grantees. In some cases, the Inspector General could
not determine the extent of this monitoring because of missing
information, and in other cases, HUD had not annually assessed
grantees, as required.
The Integrated Disbursement and Information System Is Not
Providing Needed Information
Although the Integrated Disbursement and Information System (IDIS)
was designed to provide complete, accurate, and timely information
on grantees' expenditures and accomplishments, these goals are not
being achieved because of four significant problems. First,
because of flaws in the design of the information system, grantees
have had to enter the same information multiple times into another
of HUD's information systems; into IDIS, several times; and into
the grantees' own systems for reporting to their city which could
result in errors simply because of the multiple data entries.
According to HUD, as of mid- February 1999, grantees had access to
a batch file transfer process, referred to as Electronic Data
Interchange, which allows grantees to automatically extract data
from their own information systems and enter it into IDIS. Another
difficulty is the time involved for grantees to access and use the
system; in visits to grantees, GAO observed that accessing the
system took as long as 40 minutes.
Second, when grantees enter incorrect information into IDIS,
making corrections is difficult. Five of the 11 grantees GAO
visited reported having multiple, significant errors in the system
that they could not readily rectify. To make the corrections, IDIS
technical staff sometimes instructed the grantees to create fake
activities within IDIS ( dummy accounts) to reverse the incorrect
data although some of the grantees GAO spoke with were reluctant
to do this because the information could appear to be inaccurate
or fraudulent to outside observers.
Third, IDIS cannot track program income as it is received from the
revolving loan funds that many grantees establish for such things
as economic development loans. IDIS operates on the assumption
that program income, from whatever source, should be used
immediately to
GAO/RCED-99-98 Community Development Page 5
Executive Summary
fund the next activity. That is, the system cannot segregate
income from revolving funds from other program income, although
regulations permit grantees to preserve program income for reuse
exclusively in their revolving funds. To work around this
limitation, HUD instructs grantees to delay entering information
on such income until they are ready to spend the money, but this
approach requires grantees to keep two sets of books and prevents
HUD from using IDIS to determine how much income grantees' are
earning from their revolving funds and if grantees are meeting a
regulatory requirement to spend grant money in a timely manner.
Fourth, while IDIS was intended to allow HUD to track grantees'
performance on a real- time basis, it does not do so. IDIS does
not require grantees to enter performance information before it
releases grant funds to them. Grantees can obtain all funds for an
activity without entering any performance information about it,
and most of the grantees GAO visited waited until the end of the
program year to enter information, when they were required to
complete annual reports. And after grantees have entered the
performance information, they have found that printing reports is
difficult, requiring staff to work through a number of computer
screens as many as 70 at one field office GAO visited. GAO also
determined that the security controls for IDIS are weak and
therefore do not provide assurance that the information system is
safe from fraud and abuse. Although GAO's Standards for Internal
Controls states that users should have limited, or segregated,
access to a computer system according to their responsibilities, 1
GAO found instances in which particular users at grantee locations
had access that allowed them to both establish activity accounts
and draw down funds, thereby increasing the opportunity for
undetected errors or fraud. GAO also found instances in which
terminated employees retained access to IDIS. According to the HUD
official responsible for IDIS security, the staff resources
devoted to arranging access for grantees are strained. Just he and
two others handle the thousands of requests for access, he
explained, and they cannot review the requests for
appropriateness. In addition, GAO found that the security officer
was not knowledgeable about computer security; the officer
acknowledged that while he is familiar with computer networks, he
has not done any work in security and has had no pertinent
training. HUD is now developing a new Department- wide information
system based on IDIS to manage all of its grant programs. IDIS'
major functions are to be converted to a Windows environment,
which will be more user- friendly. But given the extent and nature
of the problems with IDIS, GAO questions its
1 GAO Internal Control: Standards for Internal Control in the
Federal Government Exposure Draft (GAO/AIMD-98-21. 3.1.).
GAO/RCED-99-98 Community Development Page 6
Executive Summary
use as a model for the Department- wide system. To address the
problems GAO identified, IDIS will need to be modified extensively
or replaced, whichever is more cost- effective.
Recommendations To improve the integrity of the four block grant
programs, GAO recommends that the Secretary of Housing and Urban
Development direct
the Assistant Secretary for Community Planning and Development to
(1) emphasize the importance of on- site monitoring by specifying
the level of grantee performance that requires it and the steps
that should be taken in conducting it; (2) conduct a workforce
analysis to determine the resources that may be required to better
support the monitoring of grantees; and (3) improve the Grants
Management Process information system by providing guidance to the
field offices to ensure that they are entering information
consistently. GAO also recommends that HUD consider whether it is
more cost- effective to modify IDIS or replace it. Furthermore,
before IDIS is used as the base for developing the new grants
management information system for all of HUD's grant programs, GAO
recommends that the problems it has identified with IDIS be
corrected.
Lastly, HUD should immediately take steps to ensure that access to
the Integrated Disbursement and Information System (IDIS) is
appropriately limited and to ensure that the security officer for
IDIS is fully aware of his responsibilities and has the
appropriate training and staff. Chapters 2 and 3 contain
additional details on these recommendations.
Agency Comments GAO provided HUD with a draft of this report for
its review and comment. HUD disagreed with a number of points in
the report. HUD did not comment
directly on the recommendations aimed at strengthening the
integrity of the formula grant programs or improving the
Integrated Disbursement and Information System. (See app. I.)
HUD commented that the report is unduly critical of its controls
over the four formula block grant programs. HUD offered two
overall reasons for this view. First, it commented that the report
did not document the large- scale changes that HUD had undertaken
and that have led to significant managerial improvements and
strengthened accountability in the programs. Second, HUD disagreed
about the extent of on- site monitoring of grantees that was
necessary to provide effective management oversight, noting it has
taken a more comprehensive,
GAO/RCED-99-98 Community Development Page 7
Executive Summary
modernistic approach that is, an ongoing, continuous process of
which on- site monitoring visits are one of several elements.
GAO's report recognizes that HUD has undertaken important changes
to improve program management and accountability. It notes, among
other things, that HUD has revamped its approach to managing the
programs by requiring grantees to develop a consolidated plan that
lays out how they will use the funds for all four programs,
changed its monitoring of grantees to reflect a collaborative
relationship, and developed the Integrated Disbursement and
Information System so that grantees could, among other things,
enter information describing their planning and projects and draw
federal funds. GAO's report also concludes that HUD's revamped
system provides a logical, structured approach to managing the
block grant programs and that HUD has recognized the need for
effective systems for overseeing the handling of program funds and
the achievement of program objectives. Furthermore, GAO added to
this report information on management improvements made to the
Grants Management System that HUD reported after GAO had completed
its field work. This information included, for example, HUD's
distribution of additional instructions for incorporating more
traditional risk elements, such as unresolved audit and monitoring
findings, into the field offices' annual comparative review
process.
GAO also agrees that HUD has taken a more ongoing, continuous
approach to monitoring grantees and that this approach can provide
useful insights into grantees' problems and achievements. However,
GAO questions whether, at this time, approaches other than
significant levels of on- site monitoring of grantees can
adequately ensure that program objectives are being met and that
funds are being managed appropriately, given the shortcomings of
the Integrated Disbursement and Information System and other
monitoring tools, such as consultations and technical assistance
visits. GAO believes on- site monitoring is currently all the more
important to compensate for these shortcomings. This is not to say
that on- site visits should be made to every grantee each year;
but rather, GAO believes periodic visits to grantees HUD
identifies as needing improvements are essential.
HUD also did not comment on GAO's findings about the accuracy,
completeness, and timeliness of the Integrated Disbursement and
Information System information on grantees' expenditures and
program performance. Instead, it commented that GAO's assessment
fails to consider recent efforts to improve it. HUD provided
compensating factors
GAO/RCED-99-98 Community Development Page 8
Executive Summary
for some of the Integrated Disbursement and Information System's
weaknesses and pointed to recent and planned changes to the system
it believed will correct these problems. GAO believes that HUD's
recent and planned changes could, if properly implemented, improve
the Integrated Disbursement and Information System. However, the
numerous additional problems in usability, accuracy, and security
still compromise HUD's ability to ensure the integrity of the four
formula block grant programs. Therefore, we did not make any
changes to our recommendations.
GAO continues to believe that HUD's revamped approach to managing
the programs, as implemented, does not provide adequate assurance
that the four block grant programs are meeting their objectives
and that the funds are being managed appropriately. In the draft
of this report, GAO proposed that HUD provide clearer and more
detailed guidance on the factors that should be considered in
evaluating grantee performance, with a heavier emphasis on factors
that ensure compliance with program requirements. In view of the
fact that HUD has distributed guidance adding more traditional
risk factors to its annual comparative review, GAO has deleted
that proposed recommendation from the report. Furthermore, GAO
proposed that HUD improve the Grants Management Process
information system so that field offices have a single data entry
point for information on their monitoring activities. In view of
the fact that on March 29, 1999 HUD added Grants Management
Process screens to allow field offices to describe their
monitoring activities, GAO has deleted that proposed
recommendation from the report. In addition, GAO added information
to the report to reflect HUD's guidance on conducting its annual
comparative review and its plans to update the Grants Management
Policy Notebook. Where appropriate, GAO has included other
technical changes to the report. GAO's detailed responses and
HUD's comments appear in appendix I and are discussed in chapters
2 and 3.
GAO/RCED-99-98 Community Development Page 9
Contents Executive Summary 2 Chapter I Introduction
12 Four Block Grant Programs Provide Funds for Community
Revitalization and Aid to the Homeless 12
CPD's Oversight of Grants Through the Grants Management System
14 IDIS 19 Objectives, Scope, and Methodology 20
Chapter 2 Monitoring Under the Grants Management System Does Not
Ensure That Grantees Are Managing Their Funds Appropriately to
Achieve Program Objectives
23 CPD's Implementation of the Grants Management System Does
Not Ensure That On- Site Monitoring Occurs and That the Poorest
Performing Grantees Are Reviewed
24 Reviews Have Identified Significant Financial and Performance
Problems at Grantees 32
Little Oversight by CPD Headquarters of Field Offices' Operations
34 Conclusions 36 Recommendations to the Secretary of Housing and
Urban
Development 37
Agency Comments and Our Evaluation 37 Chapter 3 Financial and
Management Information System Is Not Providing the Information
Needed to Manage and Monitor Grant Programs
39 IDIS' Design Flaws Make the System Difficult to Use, and
Information Is Not Always Complete, Accurate, and Timely 39
Security Controls Do Not Provide Assurance That IDIS Is Safe From
Fraud and Abuse
44 HUD Plans Major Changes 47 Conclusions 47 Recommendations to
the Secretary of Housing and Urban
Development 48
Agency Comments and Our Evaluation 49 Appendixes Appendix I:
Comments From the Department of Housing and
Urban Development 50
Appendix II: Major Contributors to This Report 81
GAO/RCED-99-98 Community Development Page 10
Contents
Figures Figure 1.1: The Grants Management System's Seven- Step
Process 17 Figure 1.2: CPD's Management of Formula Grant Programs
20
Figure 2.1: Five Field Offices' On- Site Monitoring of Grantees,
Fiscal Year 1998
25 Figure 2.2: Field Offices' On- Site Monitoring of Poor
Performing
Grantees 26
Abbreviations
AIDS Acquired immunodeficiency syndrome HIV/ AIDS Human
immunodeficiency virus/ acquired
immunodeficiency syndrome HOME Home Investment in Affordable
Housing Program HUD Department of Housing and Urban Development
IDIS Integrated Disbursement and Information System CPD Office of
Community Planning and Development
GAO/RCED-99-98 Community Development Page 11
Chapter I Introduction
About one- quarter of the Department of Housing and Urban
Development's (HUD) budget almost $6 billion in fiscal year 1998
is devoted to four formula block grant programs that support
community development. While those programs have different
purposes, they all provide federal funds to grantees to help
finance projects and services for local residents. The grantees
include (1) 964 communities known as entitlement communities
generally cities designated as central cities of metropolitan
statistical areas, other cities with populations of at least
50,000, and qualified urban counties with populations of at least
200,000 and (2) 48 states and some communities besides entitlement
communities whose programs are administered directly by HUD.
In 1995, HUD revamped its management of these formula block grant
programs. Instead of having a grantee develop separate plans for
each program, a grantee is now required to develop a consolidated
plan that lays out how it will use funds from the four programs
for community development. To implement the use of consolidated
plans and focus on performance monitoring, HUD instituted the
Grants Management System a seven- step process for managing
program funds and activities which placed greater reliance on the
communities' actions to police themselves; it also phased in the
Integrated Disbursement and Information System (IDIS), which is a
computerized reporting system for recording the information
grantees provide on their withdrawal of grant funds and their
accomplishments.
Four Block Grant Programs Provide Funds for Community
Revitalization and Aid to the Homeless
HUD's Assistant Secretary for Community Planning and Development
administers four formula block grant programs that help
communities plan and finance their growth and development and
provide shelter and services for homeless people. The four
programs are the Community Development Block Grant Program, the
Home Investment in Affordable Housing Program (HOME), the
Emergency Shelter Grant Program, and the Housing Opportunities for
Persons With AIDS Program. The grantees in these programs
distribute their grant funds to some 10,000 subrecipients, such as
nonprofit providers, while the states distribute their grants to
local governments. These subrecipients and local governments
provide services directly to the beneficiaries of the programs.
In order to participate in the four programs, grantees must meet
general and specific requirements. For instance, in order to apply
for one of the four formula grants, a grantee must develop a long-
term plan, generally for 3 to 5 years, that lays out activities
under all four programs. This plan must
GAO/RCED-99-98 Community Development Page 12
Chapter I Introduction
include an assessment of needs for housing and the homeless; a
housing market analysis; a 1- year action plan; certifications of
compliance with various regulatory requirements, standards, and
procedures that the jurisdiction will use to monitor activities
carried out in furtherance of the plan; and a citizen
participation and government consultation plan. Projects and
activities undertaken with program funds must meet the specific
objectives and requirements of each program.
Community Development Block Grant Program
The Community Development Block Grant Program has long been the
principal federal community development program, providing funding
for metropolitan cities and urban counties and for small cities.
The program provides annual grants on a formula basis that takes
into account population, poverty, housing overcrowding, the age of
the housing, and any change in an area's growth in comparison with
that of other areas. The activities undertaken must address at
least one of three national objectives: They must (1) benefit low-
and moderate- income families, (2) aid in the prevention or
elimination of slums or blight, or (3) meet urgent community
development needs. In fiscal year 1998, the Congress appropriated
about $4.9 billion for the Community Development Block Grant
Program. This funding was subject to over $700 million in set-
asides, including ones for Indian tribes and historically black
colleges.
Home Investment in Affordable Housing
The HOME Program provides federal assistance to participating
jurisdictions or Indian tribes for housing rehabilitation, rental
assistance, assistance to first- time homebuyers, and new housing
construction. The HOME formula for allocating funds measures a
jurisdiction's share of the total need for an increased supply of
affordable housing.
In fiscal year 1998, the Congress appropriated about $1.5 billion
for the HOME Program$ 863 million was allocated by formula to
cities, urban counties, and consortiums (contiguous units of local
government), and $575 million went to the states. The program's
funding is also subject to several set- asides.
Emergency Shelter Grants Program
The Emergency Shelter Grants Program is designed to supplement
state, local, and private efforts to provide emergency shelter
assistance for the homeless. Program funds can be used to
rehabilitate or convert buildings for use as emergency shelters
for the homeless, to pay for certain operating expenses and
essential services in connection with emergency
GAO/RCED-99-98 Community Development Page 13
Chapter I Introduction
shelters for the homeless, and to conduct activities to prevent
homelessness.
Under this program, HUD makes grants to the states, units of
general local government, and territories on the basis of the
Community Development Block Grant formula. In fiscal year 1998,
the Congress appropriated $823 million for Homeless Assistance
Grants, of which $165 million was allocated for the Emergency
Shelter Grants program.
Housing Opportunities for Persons With AIDS
The Housing Opportunities for Persons With AIDS Program gives
states and localities the resources and incentives to devise long-
term strategies for meeting the housing needs of low- income
persons with human immunodeficiency virus/ acquired
immunodeficiency syndrome (HIV/ AIDS) or related diseases.
HUD awards 90 percent of the annual appropriation by formula to
eligible metropolitan statistical areas and states. Metropolitan
areas with populations greater than 500,000 and more than 1,500
cumulative cases of AIDS are eligible for grants; the most
populous city in an eligible metropolitan area serves as that
area's grantee. In addition, states with more than 1,500
cumulative cases of AIDS in areas outside of eligible metropolitan
areas qualify for funds. The remaining 10 percent of the program's
annual appropriation is set aside for grants awarded on a
competitive basis. In fiscal year 1998, the Congress appropriated
$204 million for the Housing Opportunities for Persons With AIDS
Program.
CPD's Oversight of Grants Through the Grants Management System
HUD's Office of Community Planning and Development (CPD)
administers the four formula grant programs through 42 field
offices located throughout the United States. These offices report
directly to CPD's Office of Executive Services, Field Management
Division. Both headquarters and field offices are now relying on
the Grants Management System to oversee grantees.
Field Office Organization Each field office is managed by a
director, who is responsible for ensuring that the field office's
annual work plan is carried out. An annual work plan is based on
the field office's annual assessment of each grantee and a
comparison of the grantees' performances (known as an annual
comparative review). The work plan describes the actions the field
office plans to take for each grantee during the year. For
example, grantees
GAO/RCED-99-98 Community Development Page 14
Chapter I Introduction
designated as needing improvement may be scheduled for technical
assistance or on- site monitoring.
Reporting to the director are teams of CPD representatives who are
responsible for monitoring a caseload of grantees. Each team is
managed by a program manager. Several types of support staff
supplement the efforts of the CPD representatives. For example,
financial analysts review, monitor, evaluate, and provide
technical advice and assistance on financial matters concerning
grant awards and grantees' financial systems. Other support staff
include environmental, relocation and real estate, and clerical
staff.
CPD Headquarters' Organization
The 42 field offices report directly to the Office of Executive
Services, Field Management Division. The division is responsible
for setting priorities, promulgating departmental goals, providing
resources, solving problems, representing the field offices in
headquarters, training, and evaluating field offices' performance.
It operates through eight desk officers, each of whom is
responsible for a number of field offices including monitoring the
offices' operations, providing assistance, and providing input to
the field offices' end- of- the- year evaluation signed by the
Director of the Office of Executive Services.
The desk officers oversee the field offices through telephone
conversations and E- mail correspondence, occasional on- site
visits, and periodic queries to the Grants Management Process
information system. This information system is a computerized
management information system that the field offices use to record
their interactions with their grantees. For example, once a CPD
representative completes a review and assessment of the grantee's
annual plan for using its formula grant funds, the results are
entered into the Grants Management Process information system.
Grants Management System
In 1995, HUD introduced the Grants Management System to ensure
that formula block grantees are achieving high performance and are
in compliance with program requirements. This system deemphasized
compliance monitoring and placed greater emphasis on (1) promoting
a more collaborative approach that includes up- front assistance
to help grantees achieve their goals and identify and solve their
problems and (2) ensuring that grantees develop systems to monitor
their own performance. Before the Grants Management System, HUD's
primary
GAO/RCED-99-98 Community Development Page 15
Chapter I Introduction
activities in administering the block grant programs were to
assist communities in understanding program requirements and to
monitor local programs to ensure compliance with statutory and
regulatory requirements.
The Grants Management System and the information systems
supporting it the Integrated Disbursement and Information System
(IDIS) and the Grants Management Process information system are
intended to help HUD comply with the requirements of the
Government Performance and Results Act of 1993 (P. L. 103- 62).
The act requires agencies to establish long- term general goals as
well as associated annual goals. In addition, agencies must
measure their performance against the goals they have set and
report publicly on how well they are doing. The Grants Management
System is intended to target limited resources so that they can
best be used to achieve locally defined goals while also providing
best practices to serve as models to enhance and improve
performance among all grantees.
As figure 1 shows, the Grants Management System is a seven- step
process of interaction between CPD and the grantees that involves
(1) consulting, (2) conducting a plan review and assessment, (3)
monitoring a grantee's performance (performance- based program
management), (4) reviewing the grantee's consolidated annual
performance and evaluation report, (5) conducting an annual
community assessment, (6) conducting an annual comparative review,
and (7) systematically identifying and encouraging the use of best
practices. Broadly, the Grants Management System establishes
internal controls plans, methods, and procedures used to meet
objectives that involve monitoring and, according to GAO's
Standards for Internal Controls in the Federal Government, must
themselves be monitored. Field offices enter the results of each
of these steps into the Grants Management Process information
system.
GAO/RCED-99-98 Community Development Page 16
Chapter I Introduction
Figure 1.1: The Grants Management System's Seven- Step Process
Source: CPD.
Consultation CPD uses consultation as a tool to enhance the
quality and effectiveness of a grantee's plans and programs. These
consultations are held as early as possible in the grantee's
process for developing its next year's planned activities. The
participants in these meetings should include the chief elected
official of the community and other stakeholders, as appropriate.
The discussions should be centered on relevant planning,
performance, and compliance issues. When possible, these
discussions should be conducted at the grantee's offices.
Plan Review and Assessment CPD uses the grantee's consolidated
plan and annual action plan as the basis for its program
management and evaluation responsibilities. CPD's review and
assessment focuses on the plans' completeness; their effectiveness
as communication tools for citizens; the soundness of their
strategies and the likelihood that they will address identified
needs; and their ability to serve as the basis of future
assessment and performance evaluation. CPD has 45 days from
receipt of the plans to review and approve or disapprove them or
the plans are automatically approved.
GAO/RCED-99-98 Community Development Page 17
Chapter I Introduction
Performance- Based Program Management
CPD is to oversee the grantee's activities throughout the program
year through performance- based management. This process includes
an assessment of the performance and overall effectiveness of the
programs implemented by the grantees as well as traditional
compliance monitoring. CPD must use a wide range of tools in
evaluating a grantee's performance. These tools include the
consolidated and action plan review and assessment, performance
data that the grantee enters into IDIS, the annual community
assessment, on- site monitoring, and consultations with community
officials and other stakeholders to define or improve a local
program.
Consolidated Annual Performance and Evaluation Report
At the end of the program year, a grantee submits a consolidated
annual performance and evaluation report whose goal is to show
what the grantee has accomplished with the grant funds. The report
allows CPD, local officials, and the public to draw conclusions on
grantees' performance. A grantee should submit this report to its
CPD field office 90 days after the end of the grantee's program
year, which varies by grantee. The report is to cover all
activities undertaken by the grantee during the program year
regardless of the fiscal year of the grant. If a grantee fails to
submit the report in a timely manner, CPD can suspend or terminate
the grantee's funding. According to the Grants Management System
Policy Notebook, CPD's review of the report should be completed
within 60 days of receipt; however, this time frame is not
required by regulation.
Annual Community Assessment Using the consolidated annual
performance evaluation report and other available information,
such as the results of monitoring activities, CPD annually
assesses each grantee's performance to determine whether the
grantee has carried out its planning, activities, and reporting in
accordance with statutory requirements and provides the grantee
with a written report on its performance. This assessment is to
begin no later than 3 months after the end of the program year.
CPD is to complete the assessment within 60 days and provide the
grantee with a letter that cites the grantee's accomplishments and
any areas that need improvement. The grantee is given 30 days to
comment on the assessment's findings.
Annual Comparative Review In conducting an annual comparative
review, each field office evaluates its portfolio of grantees by
quality and risk and identifies grantees that it considers to be
performing exceptionally well, those that are performing
adequately, and those that need more oversight or assistance. At
the completion of this review, CPD develops a work plan for each
grantee that describes the management strategy for the grantee for
the coming program year. If the grantee has areas needing
improvement, the field office will
GAO/RCED-99-98 Community Development Page 18
Chapter I Introduction
identify actions and strategies for addressing that problem.
Actions may include on- site monitoring, technical assistance
provided by staff and contractors, peer- to- peer assistance, and
training.
Best Practices During the annual comparative review or at any
time, field offices identify best practices systems and programs
that work particularly well and that can be used to improve the
performance of other grantees. Best practices are programs or
projects, management tools, and/ or techniques that fulfill at
least two of the following characteristics:
They generate a significant positive impact on those they are
intended to serve or manage and are replicable in other areas of
the country, region, or local jurisdiction. They demonstrate the
effective use of partnerships among government
agencies, nonprofit organizations, and/ or private businesses.
They display creativity in addressing a problem.
IDIS IDIS is a computer- based management information system that
consolidates planning and reporting processes across the four
formula
grant programs. The grantees use this system to enter information
on consolidated planning, establish projects and activities to
draw down funds, and report accomplishments. The system is
supposed to reduce the grantees' reporting burden by providing a
single computer system for obtaining funding and reporting on the
use of grant funds, regardless of the formula grant program.
Moreover, the system is supposed to provide CPD staff with real-
time performance data from the grantees, such as the number of
people served, jobs created, houses rehabilitated; income
characteristics of beneficiaries; benefits provided; information
to judge if national objectives are being met; and information on
funds drawn down by the grantees. This information is needed for
CPD to evaluate grantee performance and to determine the
assistance is needed.
Figure 1.2 shows CPD's structure and information systems in
managing the four formula grant programs.
GAO/RCED-99-98 Community Development Page 19
Chapter I Introduction
Figure 1.2: CPD's Management of Formula Grant Programs
Source: GAO's analysis of CPD data.
Objectives, Scope, and Methodology
The former Chairman of the Subcommittee on Housing Opportunity and
Community Development now the Subcommittee on Housing and
Transportation, Senate Committee on Banking, Housing, and Urban
Affairs, and the Chairman of the Subcommittee on Housing and
Community Opportunity, House Committee on Banking and Financial
Services, asked GAO to assess whether controls are in place to
ensure that the block grant programs' objectives are being
achieved and that funds are managed appropriately. In particular,
we examined whether (1) HUD's on- site monitoring of grantees
under the Grants Management System is adequate and (2) the
Integrated Disbursement and Information System provides the data
HUD needs to accurately assess grantees' performance.
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Chapter I Introduction
Our work focused on CPD's four formula grant programs the
Community Development Block Grant Program, HOME Investment in
Affordable Housing Program, Housing Opportunities for Persons With
AIDS Program, and Emergency Shelter Grants Program. We evaluated
IDIS operations and the Grants Management System, CPD
headquarters' oversight of its 42 field offices, and 5 field
offices' oversight of 11 grantees. In selecting field offices, we
considered geographic dispersion, size, grant fund allocations,
and past performance.
In addressing both questions, we examined information from a
number of sources, including relevant GAO reports, the HUD Office
of the Inspector General's audits of CPD's formula grant programs,
and independent contractor's audits and studies of IDIS and CPD's
internal controls. In addition, we interviewed key agency
officials, the independent contractors supporting IDIS and
reviewing the Grants Management System, and representatives of
various grantee organizations.
In evaluating the Grants Management System, we interviewed CPD
officials at field offices located in Fort Worth, Texas; Boston,
Massachusetts; Los Angeles, California; Coral Gables, Florida; and
Omaha, Nebraska. In our analysis, we applied the relevant criteria
GAO has issued on internal controls and guidelines for evaluations
and the laws, regulations, and procedures pertaining to the four
formula block grant programs. We evaluated the Grants Management
System's design and reviewed its implementation in each of the
five field offices. Specifically, we assessed the caseloads of
each field office representative; analyzed the offices' process
for reviewing and monitoring grantees' action plans, transactions,
and performance information; and documented the field offices'
responses to this information.
We also visited a total of 11 grantees managed by the five field
offices we visited. These grantees were selected on the basis of
their size, performance evaluations, and proximity to the field
offices. While at these grantees, we interviewed relevant city
officials and conducted limited file reviews to determine if HUD
was effectively managing these grants, obtained the grantees'
opinions on the level of monitoring and technical assistance
provided by the CPD field office; and validated selected
information provided through IDIS. The grantees we visited include
Fort Worth, Arlington, and Dallas, Texas; Lincoln, Nebraska;
Council Bluffs, Iowa; Medford, and Lowell, Massachusetts;
Inglewood, and Ontario, California; and Miami, and Pompano Beach,
Florida.
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Chapter I Introduction
We evaluated IDIS internal controls and conducted selective
testing of IDIS transactions. We interviewed key HUD officials
both in headquarters and the field as well as staff at the
grantees we visited regarding IDIS' functionality, training, and
security. We also tested IDIS' accuracy by tracing financial and
accomplishment data to source documents for randomly selected
activities.
Our review was conducted from May 1998 through April 1999 in
accordance with generally accepted government auditing standards.
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Chapter 2 Monitoring Under the Grants Management System Does Not
Ensure That Grantees Are Managing Their Funds Appropriately to
Achieve Program Objectives
While the Grants Management System provides a logical, structured
approach to managing the four block grant programs, CPD's
monitoring under the system, of which IDIS is a critical part,
does not ensure that program objectives are being met and that
funds are being managed appropriately. While the on- site
monitoring of grantees is an essential tool for making such
determinations, it is all the more important because of the
shortcomings of IDIS (discussed in ch. 3) and other monitoring
tools, such as consultations, technical assistance visits and
audits performed by independent public accounting firms. For the
five CPD field offices we visited, accounting for approximately 20
percent of all formula grant funds in fiscal year 1998 ($ 1.18
billion), most of the poorest performing grantees, identified by
CPD through the annual comparative review, were not identified for
on- site visits. And even when on- site visits were scheduled for
the poorest performing grantees, the visits often did not occur
because of a shift in emphasis away from intensive on- site
monitoring and resource constraints in the field offices.
Furthermore, CPD headquarters has reduced its oversight of the
field offices because of a desire for a more collaborative
relationship and because of resource constraints.
Such breakdowns in monitoring make the Department vulnerable to
fraud, waste, and abuse in its formula grants programs. In our
review of 11 grantees, we identified various problems related to
the financial operations of and results achieved by grantees,
including vouchers assigned to the wrong project and year and
incomplete or missing information on key data such as recipients,
statements of work, and contracts. In addition, since the Grants
Management System was introduced in 1995, HUD's Inspector General
has questioned grantees' expenditure of about $26 million.
Finally, the Inspector General and an independent study performed
in 1998 of six field offices and 11 grantees reported that CPD's
monitoring is inadequate.
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Chapter 2 Monitoring Under the Grants Management System Does Not
Ensure That Grantees Are Managing Their Funds Appropriately to
Achieve Program Objectives
CPD's Implementation of the Grants Management System Does Not
Ensure That On- Site Monitoring Occurs and That the Poorest
Performing Grantees Are Reviewed
While HUD's Grants Management Policy Notebook emphasizes the
importance of on- site monitoring in implementing the Grants
Management System, stating that on- site monitoring is an
essential tool for determining whether important program
requirements are being met, the five field offices we visited have
generally conducted limited on- site monitoring of grantees and of
those grantees CPD identifies as most in need of oversight or
assistance. Furthermore, when on- site reviews occur, field
offices may not obtain the comprehensive, in- depth information
they need to oversee grantees' performance. A problem exists with
the definition of poor performance because CPD has not established
standard criteria for determining the level of performance
grantees achieve, which means that CPD has no assurance that the
grantees most at risk of failing to meet program requirements are
consistently being identified for more intensive review.
Field Offices Have Conducted Limited On- Site Monitoring of
Grantees and Have Not Focused on the Poorest Performing Grantees
The field offices we visited targeted about 37 percent of their
grantees for on- site monitoring but visited far fewer. As figure
2.1 shows, during fiscal year 1998, the five field offices
identified 85 of their 228 grantees for on- site monitoring but
only conducted 33 visits 14 percent of all grantees.
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Chapter 2 Monitoring Under the Grants Management System Does Not
Ensure That Grantees Are Managing Their Funds Appropriately to
Achieve Program Objectives
Figure 2.1: Five Field Offices' On- Site Monitoring of Grantees,
Fiscal Year 1998
Source: GAO's analysis of CPD's data.
Furthermore, while the grantee evaluation performed during the
annual comparative review is intended to maximize the use of
limited resources by targeting the grantees most in need of
attention, the 33 grantees visited by the five field offices were
not necessarily those CPD had determined were the poorest
performers. As figure 2.2 shows, only 38 of the 85 grantees
designated for on- site monitoring were rated among the lowest
performing grantees in the annual comparative review, that is,
those needing the greatest oversight or assistance. Moreover, only
15 were actually monitored, and the remaining 23 visits were
cancelled because of resource limitations, according to the field
office directors.
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Chapter 2 Monitoring Under the Grants Management System Does Not
Ensure That Grantees Are Managing Their Funds Appropriately to
Achieve Program Objectives
Figure 2.2: Field Offices' On- Site Monitoring of Poor Performing
Grantees
Source: GAO's analysis of CPD's data.
According to the CPD directors of four of the five field offices,
they have significantly reduced their on- site monitoring of
grantees in recent years. 2 According to monitoring information
provided by the four directors, on- site monitoring in these
offices fell by about 88 percent between 1990 and 1998.
Nevertheless, officials of two associations that represent
grantees the National Community Development Association and the
National Association for County Community and Economic Development
and several grantees we visited supported more on- site monitoring
because monitoring ensures that they are generally on the right
track. They said they want to know whether they are operating
their programs properly and to have problems corrected before they
are penalized for inadequate management. One association official
said that some grantees are becoming concerned because they have
not been monitored in years.
2 The Miami field office could not provide historical monitoring
information because it was not established until 1996.
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Chapter 2 Monitoring Under the Grants Management System Does Not
Ensure That Grantees Are Managing Their Funds Appropriately to
Achieve Program Objectives
Infrequent on- site monitoring by CPD has occurred for two
principal reasons discussed below: (1) a shift in emphasis under
the Grants Management System and (2) significant resource
reductions.
Shift in Monitoring Emphasis The Grants Management System shifted
the focus of the government/ grantee relationship from one of
monitoring grantee compliance with program requirements to a more
collaborative relationship that includes up- front assistance to
help grantees achieve their objectives and identify and solve
problems. In line with this philosophy, CPD encouraged the field
offices to increase the level of remote monitoring through IDIS
and other tools such as IDIS reports, consultations, technical
assistance visits, and audits performed by independent accounting
firms and reduce the level of intensive on- site monitoring. In
February 1997, we reported that of the 32 CPD directors surveyed,
41 percent said that headquarters' emphasis on completing
essential monitoring was low, and 66 percent believed that the
amount of on- site inspections should increase. 3
Significantly Reduced Resources As the directors of the five field
offices said, and as we reported in
February 1997, the level of on- site monitoring is lower than it
should be principally because of a lack of staff and travel funds.
Resources have been reduced while responsibilities have increased.
CPD lost almost one- fourth of its staff 264 people between 1992
and 1997. At the same time, staff have had to take on new
responsibilities for programs worth billions of dollars:
homelessness programs, technical assistance grants, and
Empowerment Zone and Enterprise Community grants. 4 This caused
the annual grants per employee to double from about two to about
four over approximately the same period. In addition, the staff in
some field offices have to carry out administrative tasks because
of administrative staff shortages. CPD directors told us that
staff reductions, combined with workload increases, have forced
them to have to make sacrifices, and they consistently mentioned
the elimination of on- site monitoring as one of those sacrifices.
Furthermore, CPD directors told us that the Grants Management
System was not generating resource efficiencies as they had hoped.
While IDIS, along with the Grants Management Process information
system, were to
3 HUD: Field Directors' Views on Recent Management Initiatives
(GAO/RCED-97-34, Feb. 12, 1997). 4 CPD oversees a number of
programs designed to reduce homelessness, technical assistance
grants to help grantees correctly administer CPD programs, and the
Empowerment Zone and Enterprise Community Program, which is
designed to help selected distressed communities develop
comprehensive approaches for dealing with their social and
economic problems.
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Chapter 2 Monitoring Under the Grants Management System Does Not
Ensure That Grantees Are Managing Their Funds Appropriately to
Achieve Program Objectives
foster the efficiencies of remote monitoring, IDIS requires
substantial time to learn and maintain, and the annual
consultations also use time and travel dollars, the directors
reported. According to the directors, these extra requirements
make on- site monitoring more difficult.
Officials in one field office told us that the cost of travel is a
major factor in determining which grantees will receive on- site
monitoring because the field office has to cover a large
geographic area. They said that the grantees that are relatively
close to the field office receive the greatest oversight. For
instance, while this field office had nominated a grantee for a
best practices award, field office staff still made weekly
technical assistance visits to that grantee because it was nearby.
Yet, of the field office's 16 poorest performing grantees, only 3
received on- site monitoring. In May 1997, CPD acknowledged these
problems in its Management Reform Plan, which noted the following:
Among . . . [CPD's] key problems are: a. Staff and travel funds
are too limited to do adequate on- site monitoring and validation
of high risk activities of grantees. b. CPD approves over 1,300
competitive grants a year and has to monitor cumulatively many
thousands of competitive grants, a workload increasingly difficult
to handle with the loss of 23% of staff since 1992 and continued
drop in staff under the downsizing. c. With the approval of
hundreds of economic development projects in the past several
years, CPD has insufficient staff resources in both number and
expertise to monitor these programs adequately. 5
Despite recognition of this problem, CPD has not conducted a
workforce analysis to determine its staffing needs and accurately
target its staff resources since 1996. Furthermore, while HUD's
travel budget increased from $15.6 million in fiscal year 1998 to
$19 million for fiscal year 1999, HUD decreased CPD's field office
travel allocation from $416,051 in 1998 to $412,000 in 1999.
Moreover, the field office travel allocation for fiscal year 1999
is over $100,000 less than it was in fiscal year 1994.
On- Site Monitoring That Is Conducted Is Not Uniform or
Comprehensive
Before the Grants Management System was established, field offices
used the CPD Monitoring Handbook more universally. This handbook
specified the level of monitoring warranted for high- risk
grantees and the scope and intensity of the on- site review. It
indicated that on- site monitoring should include validating
reported information by reviewing case files; reviewing financial
information; spot- checking capital improvement projects; and
5 The HUD 2020 Management Reform Plan presents a fundamental
management overhaul that focuses on improving HUD's management of
its programs and staff.
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Chapter 2 Monitoring Under the Grants Management System Does Not
Ensure That Grantees Are Managing Their Funds Appropriately to
Achieve Program Objectives
visiting sites that provide direct services to beneficiaries, such
as a homeless shelter. It also included checklists that focused on
compliance with program requirements, such as the grantee's
progress in achieving project objectives, compliance with national
objectives for the Community Development Block Grant Program,
grant administration, citizens' participation, and property
rehabilitation activities, among others. Some of these activities
were reviewed by CPD representatives, while others were reviewed
by specialists such as financial analysts. Staff had to report on
the results of the review in the form of a letter to the grantee
and other relevant officials. According to one field office
director we spoke with, a comprehensive on- site review would
usually take about a week or two to complete.
Under the Grants Management System, however, CPD has no assurance
that such comprehensive on- site monitoring will occur. The Grants
Management System Policy Notebook does not ensure that field
offices will conduct comprehensive monitoring of the grantees that
they do visit because it does not provide specific procedures that
have to be carried out during such a visit. Two field office
directors and the Director of CPD's Field Management Division said
that the principles in the monitoring handbook still applied but
that field offices are not required to follow them. Field offices
have significantly curtailed the actions they take during on- site
monitoring.
Instead, monitoring under the Grants Management System targets the
specific aspects of grants administration in which the grantee
needs improvement. For example, one field office focused its
monitoring visits only on the grantees' monitoring of
subrecipients. Of the five offices that we visited, only one
office had conducted a comprehensive on- site monitoring of a
grantee in 1998. According to the field office director, the field
office no longer routinely conducts comprehensive on- site
monitoring, but did so in this instance in response to a citizen's
allegation of fraud in the use of federal funds.
The lack of specific monitoring guidance thus allows for
significant variation in the way HUD field offices oversee almost
$6 billion in formula grant funds. While one field office we
visited focused its half- day monitoring visits only on the
grantees' monitoring files for subrecipients, another office
conducts complete multiday reviews of one of a grantee's programs.
In a third field office, the complete fiscal year 1998 on- site
monitoring for one grantee that receives $28 million annually in
CPD
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Chapter 2 Monitoring Under the Grants Management System Does Not
Ensure That Grantees Are Managing Their Funds Appropriately to
Achieve Program Objectives
formula allocations consisted of a one- day visit to one HOME
project by a single HUD employee, who had never before conducted a
monitoring visit.
According to HUD, the Grants Management Policy Notebook will be
revised to provide detailed guidance to field offices on ensuring
compliance with program laws and regulations. This guidance is
scheduled to be made final and distributed at the end of July
1999.
Tools Other Than On- Site Monitoring Are Not Providing Accurate
and Complete Information
The directors of the five CPD field offices we visited generally
agreed that comprehensive on- site reviews provide a higher level
of assurance of program compliance and proper use of funds than
other available tools IDIS reports, consultations, technical
assistance visits, and audits performed by independent public
accounting firms. These other tools do not provide the detailed
information that field offices need to effectively monitor program
performance, according to the directors. As we discuss in chapter
3, we found during our visits to field offices that grantees were
not always entering complete and accurate information into IDIS
and that the system cannot provide timely and accurate information
on grantees' performance. In addition, some CPD representatives
were not using IDIS to retrieve information on grantees'
performance. Furthermore, field offices' consultations with
grantees are primarily geared to providing local officials with an
evaluation of the grantees' performance and to identifying
technical assistance needs and resources, rather than reviewing
projects and activities and documentation supporting those
activities. Similarly, technical assistance visits are made to
provide the grantees with information to help them operate their
programs more effectively. One director acknowledged that field
office staff can make observations on grantees' financial and
performance matters during these visits, but the visits' primary
purpose is not monitoring. Moreover, technical assistance is often
performed by contractors who do not have a monitoring role.
Finally, according to the Director of the Field Management
Division and all five field office directors, independent public
accounting audits do not provide enough detailed program
performance information. 6
6 The Single Audit Act, 31 U. S. C. 7501- 750, provides uniform
audit requirements for all federal assistance programs, that award
funds to states, local governments, or nonprofit organizations.
Rather than being a detailed review of individual grants or
programs, a single audit is an organizationwide financial and
compliance audit that focuses on accounting and administrative
controls. A single audit is designed to advise federal and grantee
officials and program managers on whether an organization's
financial statements are fairly presented and to provide
reasonable assurance that federal financial assistance programs
are managed in accordance with applicable laws and regulations. It
is not intended to provide detailed performance information.
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Chapter 2 Monitoring Under the Grants Management System Does Not
Ensure That Grantees Are Managing Their Funds Appropriately to
Achieve Program Objectives
The Grants Management System Does Not Provide Uniform Criteria for
Evaluating Grantees' Performance
The latitude allowed in evaluating the level of grantees'
performance is another problem for monitoring under the Grants
Management System. The field offices have considerable discretion
in setting their annual work plans including deciding on which
grantees are poor performers and what type of oversight they may
need. The Grants Management Policy Notebook, which describes how
to manage a grantee's performance, provides only general criteria
for evaluating this performance. These criteria include the
adequacy of the grantee's consolidated plan and the grantee's
efforts to (1) address the continuing needs of the homeless
population, (2) provide affordable housing to all populations and
income groups, (3) increase economic opportunity, (4) provide a
suitable living environment for its recipients, and (5) meet
program requirements. The policy notebook leaves it to the
individual field office to determine which of these factors to
weigh more heavily in targeting grantees for review. On the basis
of these criteria, the field office is to determine which grantees
are performing exceptionally well, performing adequately, or
needing more oversight or assistance.
While these criteria include an important focus on results in the
community, they do not provide assurance that field offices will
consistently emphasize the factors that will target grantees on
the basis of compliance with internal controls designed to protect
against fraud or abuse. According to two field office directors,
in determining which grantees need to be monitored more closely in
the coming year, the Grants Management System shifted the focus
from the factors that could result in the inappropriate use of
federal funds to the more performance- based factors presented in
the Grants Management Policy Handbook. Furthermore, in reviewing
the Community Development Block Grant Program, an independent
accounting firm noted the need to identify at- risk grantees by
using more traditional risk factors, such as unresolved audit or
monitoring findings, the number of subgrantees and subrecipients
receiving funds, the amount of program income, the size of the
grant, the last date of monitoring, and staff turnover. 7 In
response to this report, on September 29, 1998, HUD promulgated
risk analysis guidance that included most of these risk factors.
7 Soza & Company Ltd. U. S. Department of Housing and Urban
Development Office of Audit Resolution, Verification Review of
Material Weakness 91- 02, Community Development Block Grant CDBG,
March 19, 1998.
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Reviews Have Identified Significant Financial and Performance
Problems at Grantees
Our visits to 11 grantees and 11 reports by HUD's Inspector
General, while not generalizable to all block grant programs,
identified significant problems that could have been identified if
field offices were conducting comprehensive on- site monitoring.
Specifically, at several grantees, we found problems in the
monitoring of subrecipients that ranged from a lack of records
showing that such monitoring had been done, although the grantees
said monitoring had occurred, to an acknowledgement by one grantee
that no monitoring had occurred during the 1998 program year.
Without subrecipient monitoring, HUD has no assurance that
subrecipients are complying with program requirements and are
achieving their intended objectives.
For other grantees, in examining the project files, we found
inadequate documentation to support payments to contractors,
payment vouchers that were unrelated to the project, and a lack of
documentation to justify project overruns. For example, at one
grantee, the project files were missing so much information that
we could not determine if we had identified all of the problems.
This grantee had incomplete or missing information on such key
data as the qualifications of recipients served, such as
certifications that recipients are of low or moderate- income,
statements of work, and contracts in the nine project files we
reviewed. Although this grantee received a monitoring visit in the
1998 program year, the monitoring was targeted to specific program
areas, and the monitoring report did not disclose the problems we
identified. For example, for one project budgeted for $30,000, the
file included two contracts indicating that it had received
$40,000 and then another $60,000. We were told that the latter
$60,000 contract was cancelled, but the file included no
documentation of this. For another project budgeted for $135,000,
the file included weekly progress reports, but payment vouchers
(justifying the payments made to contractors) and other important
documents, such as a statement of work, were missing. And for
still another project, the file indicated that the project was
budgeted at $145,000 and internal accounting records indicated
that over $300,000 was spent, but neither of these figures could
be reconciled with the withdrawal of approximately $240,000 that
was recorded in IDIS. The file did not include any justification
or support for the discrepancies and the overrun. This grantee was
not alone in poorly accounting for its use of funds. For example,
at another grantee, we could not reconcile payment vouchers with
project totals for a street- paving project that cost $259,200.
Our reviews also showed problems with reporting accomplishments
and determining whether grantees were following regulations. For
example, at
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another grantee, we observed the double- counting of
accomplishments from one project. In particular, the project file
supported only half as many demolitions as were reported in IDIS.
In 11 reports based on reviews of some grantees, HUD's Inspector
General found that grantees are not complying with financial and
performance requirements and consequently has questioned the
expenditure of about $26 million in grant funds since HUD began
using the Grants Management System. For example, the Inspector
General reported that a grantee had improperly charged over $2
million in administrative costs to prior program years. Since the
costs were transferred before the end of the program year, the
grantee did not disclose these costs in its annual performance
report. Without on- site validation of the information in the
report, the CPD field office could not determine that improper
transfers had been made. According to the CPD representative who
was responsible for this grantee, the limited monitoring that was
done during this period could not have identified the conditions
the Inspector General had uncovered.
In another audit, the Inspector General found significant
weaknesses in a grantee's internal controls for its housing
rehabilitation program under its Community Development Block Grant
Program. For example, the Inspector General identified 11 houses
that had recently been rehabilitated, inspected, and approved by
the grantees' inspectors. However, the Inspector General's
inspectors said these houses should not have passed inspection.
According to the Inspector General's report, the deficiencies
identified by the Inspector General's inspectors had been allowed
to go uncorrected because the grantee's inspectors were not
specifically trained to perform inspections and were pressured to
perform cursory inspections in order to meet production goals. In
addition, the Inspector General reported that because the grantee
did not have any procedures for collecting payments on
rehabilitation loans, the grantee had a delinquent loan balance of
over $100,000. Some of these loans had been delinquent for over 8
years. The Inspector General reported that this audit was
initiated by the grantee, not CPD, following up on an audit
conducted by an independent accounting firm.
HUD's Inspector General has also specifically faulted CPD's
monitoring of grantees. For example, in its audit of HUD's fiscal
year 1997 financial statement, 8 the Inspector General focused on
whether the Grants Management System had been implemented and
whether the system was
8 HUD's Office of Inspector General, Financial Audits Division,
Office of Audit. U. S. Department of Housing and Urban Development
Audit of Fiscal Year 1997 Financial Statements (98- FO- 177- 0004,
Mar. 20, 1998)
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providing adequate oversight of grantees. For some of the
grantees, the Inspector General could not determine the extent of
CPD's monitoring of grantees' performance because it could not
find documentation of monitoring in CPD's files. It also found
that CPD had not done annual community assessments for some
grantees. Though these required assessments are needed in order to
reach an opinion on the grantees' performance for the year, CPD
officials explained that staff shortages resulting from HUD's
downsizing during fiscal year 1997 had prevented them from
conducting the assessments. The Inspector General concluded that
CPD could not ensure that all grantees were expending funds only
on eligible activities and individuals.
In addition, the independent accounting firm assigned to the
verification review of CPD's actions to correct material
weaknesses in the Community Development Block Grant Program
faulted CPD's practices for monitoring grantees. Its report
indicated that four of the six field offices visited had not
conducted significant on- site monitoring visits for fiscal years
1996 and 1997.
Little Oversight by CPD Headquarters of Field Offices' Operations
In addition to the problems in CPD's monitoring of grantees, CPD
headquarters is not adequately monitoring the field offices'
operations. According to representatives of an independent
accounting firm that reviewed CPD's actions to correct material
weaknesses in the Community Development Block Grant Program (which
represents almost three- quarters of the funding for the four
block grant programs examined), CPD headquarters' oversight of the
field offices is almost nonexistent. The March 1998 report states
the following:
CPD had conducted Field Office Reviews in the past, however these
reviews have been discontinued. We were unable to identify any
procedures being performed by Headquarters that would be adequate
for evaluating the quality and sufficiency of procedures being
applied by the Field Offices.
In addition, the representatives of the accounting firm said that
the lack of headquarters oversight represents a material weakness
in internal controls. The report recommended that CPD headquarters
design a methodology for determining the adequacy of field
offices' compliance- monitoring procedures. HUD is still reviewing
the report to determine how it will respond to the
recommendations.
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Headquarters staff infrequently visit the 42 field offices making
fewer than five visits in the last 2 years according to the
Director of the Field Management Division. When they do visit,
headquarters staff do not have to formally report their findings.
These limited visits to field offices reflect a change in
headquarters' oversight in recent years. One desk officer told us
that headquarters had moved away from field office monitoring in
an attempt to improve relationships with the field offices
headquarters believed that these visits antagonized the field
offices. However, he believed that monitoring visits helped bring
headquarters closer to the problems and realities that the field
offices faced. In the past, he explained, these visits always
generated findings, and the field offices welcomed the feedback
and suggestions for improvement that resulted. But now, he stated,
he does not have enough information to assess the field offices'
performance.
In addition, the desk officers' primary monitoring tool the Grants
Management Process information system yields incomplete and
inconsistent data. Consequently, headquarters staff do not know if
field offices are fulfilling their program responsibilities. Our
review of a Grant Management Process report on the field offices'
compliance with the time requirement for approving or disapproving
grantees' annual action plans showed that the field offices are
interpreting the requirement differently and consequently entering
different, sometimes misleading, approval dates into the system. 9
For example, one field office we visited believed that the
approval date was the day the CPD representative approved the
plan; another, that it was the date the field office director
approved the plan; and a third, that it was the date the local
Congressman notified the grantee that the grant had been approved.
Moreover, the desk officer responsible for one of these offices
could not explain an apparently significant number of late
approvals. However, in our visit to this field office, we learned
that, for many of the plans reviewed, field office staff had
either incorrectly entered the data or had found deficiencies in
the plans but failed to reject them while they waited a resolution
of the deficiencies. On- site monitoring, or even more questioning
of the field offices, would have identified this problem and
allowed the headquarters staff to resolve it.
Finally, while the Grant Management Process's information system
is supposed to be the headquarters staff's principal monitoring
tool, it has not been useful for recording information about field
offices' monitoring of grantees. At the time of our review, it did
not contain a clear data entry
9 Field offices are required to review and approve or disapprove
grantees' annual action plans within 45 days after receiving the
plan. If the field office does not act on the plan within 45 days,
the plan is automatically approved.
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point for field offices to record the results of their monitoring
activities in the database. Therefore, field offices entered these
results in different locations in the system. In order to
determine where field offices were recording this information, HUD
hired a contractor to peruse the system and identify all recorded
information that appeared to be related to monitoring. The
contractor's report covering the third and fourth quarters of
fiscal year 1997 showed that the field offices were entering
monitoring data in three of the system's eight data entry points,
and no monitoring information was entered for more than 75 percent
of the grantees that were scheduled for on- site monitoring.
Without a specific area in which field offices can record
monitoring activities, headquarters staff cannot be assured that
they have access to all pertinent monitoring information to
oversee field offices' operations.
We were told by HUD that a process for tracking on- site
monitoring activities was implemented. This includes the addition
of Grants Management Process screens to allow field offices to
describe their on- site monitoring activities in terms of the
program monitored, program issues covered, the number of days
spent with the grantee, issues identified and sanctions imposed.
According to HUD, this addition to the system was implemented on
March 29, 1999.
Conclusions As it is currently implemented, CPD's Grants
Management System provides little assurance that four block grant
programs, funded at nearly $6 billion
annually, are meeting their objectives and that the funds are
being managed appropriately. While the Grants Management System's
approach to monitoring seems logical, it has not been effective.
The field offices we visited are conducting limited on- site
monitoring of grantees, although such monitoring is all the more
important because of the shortcomings of IDIS. And when on- site
monitoring does occur, it does not focus on the grantees who are
the poorest performers, and it is not uniform or comprehensive.
These problems are caused in part by a lack of uniform criteria on
how to assess the level of performance for each grantee and the
lack of specificity in the broad criteria that do exist to
determine grantees' compliance with program requirements, although
such requirements are intended to encourage the safeguarding of
funds. According to the directors of the field offices, the level
of on- site monitoring is also lower because of a combination of a
lack of staff resources and travel funds and increased
responsibilities.
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While we found these problems with field offices' monitoring of
grantees, we also found that the headquarters staff's oversight of
the field offices was problematic. Headquarters staff rarely visit
the field offices, and while the Grants Management Process
information system is intended to be headquarters' staff primary
tool to oversee the field offices' monitoring of grantees, at the
time of our review, the information system did not contain a
specific data entry point for field offices to enter data on their
monitoring activities.
In all, HUD has no assurance that program requirements are being
fulfilled. These requirements are critical to its goal of
restoring the public trust in its management of billions of
dollars in formula grant funds. Until HUD strengthens its
monitoring of the financial operations of and results achieved by
program grantees and its field office operations, the integrity of
its formula grant programs is at risk.
Recommendations to the Secretary of Housing and Urban Development
In order to ensure that the Grants Management System identifies
problems in achieving program objectives and safeguarding grant
funds and protects the integrity of the block grant programs, we
recommend that Secretary of Housing and Urban Development direct
the Assistant Secretary for Community Planning and Development to
take the following actions to improve oversight by field offices
and headquarters:
Emphasize the importance of on- site monitoring by specifying the
level of grantee performance that requires on- site monitoring and
the steps that should be taken in conducting such monitoring.
Conduct analyses to determine the staffing and travel funds that
may be
required to better support the monitoring of grantees and direct
available resources to the field offices as needed. Direct desk
officers within the Office of Community Planning and
Development at headquarters to visit their field offices to better
assess how well the field offices are monitoring their grantees,
to determine what problems the field offices are experiencing, and
to provide technical assistance. Improve the Grants Management
Process information system by providing
guidance to the field offices to ensure that they are entering
information consistently.
Agency Comments and Our Evaluation
While HUD did not comment on our recommendations, it commented
that our report did not recognize its recent improvements to
internal controls
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and that our report focused too much on on- site monitoring.
Specifically, it commented that its revamped approach to grants
management ensures basic program compliance through a continuing,
on- going process that includes on- site monitoring along with
other elements. HUD commented that the majority of its monitoring
activities can be done remotely, including review of key
documents, the high risk assessment process, the grantee
consultation, and the effective use of the Grants Management
Process information system and IDIS. HUD also stated that it
conducts on- site monitoring when conditions require it.
Furthermore, HUD commented that it has distributed guidance adding
more traditional risk factors to its annual comparative review and
is in the process of updating its Grants Management Policy
Notebook and Grants Management Process information system to
better account for on- site monitoring.
We disagree that the majority of monitoring activities can be done
remotely. Our report shows that the tools other than on- site
monitoring are not, at this time, providing the accurate and
complete information HUD needs to effectively monitor program
performance. We believe the questionable quality of the data from
remote monitoring sources such as IDIS increases the need for on-
site monitoring at this time. Additionally, for the field offices
we visited, we found that HUD did not conduct on- site visits to
many of the grantees it regarded as the poorest performers in
1998. Consequently, we continue to believe that HUD's approach to
managing the programs, as implemented, provides little assurance
that the four grant programs are meeting their objectives and that
the funds are being managed appropriately.
In a draft of this report, we proposed that HUD provide clearer
and more detailed guidance on the factors that should be
considered in evaluating grantee performance, with a heavier
emphasis on the factors that ensure compliance with program
requirements. In view of the fact that HUD has distributed
guidance adding more traditional risk factors to its annual
comparative review, we deleted our proposed recommendation from
the report. Furthermore, GAO proposed that HUD improve the Grants
Management Process information system so that field offices have a
single data entry point for information on their monitoring
activities. In view of the fact that on March 29, 1999 HUD added
Grants Management Process screens to allow field offices to
describe their monitoring activities, GAO has deleted that
proposed recommendation from the report. In addition, we added
information to our report to reflect HUD's new guidance on
conducting its annual comparative review and its plans to update
the Grants Management Policy Notebook.
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Chapter 3 Financial and Management Information System Is Not
Providing the Information Needed to Manage and Monitor Grant
Programs
CPD's chief monitoring tool for the Grants Management System the
Integrated Disbursement and Information System (IDIS) does not
produce the complete, accurate, and timely information that the
Department should obtain from a computerized database to
effectively manage and monitor almost $6 billion in block grants.
The first of nine new standard integrated systems deployed by HUD
to manage and monitor the programs, IDIS has major design flaws
that make it difficult for grantees to enter information
accurately and for field office officials and grantees to use the
information to monitor performance. 10 Furthermore, CPD cannot
ensure that IDIS is safe from fraud and abuse because it has not
put into place the security controls needed to safeguard the
formula block grant funds. CPD has not developed a security plan
to control and monitor access to the system to minimize
opportunities for unauthorized or inappropriate transactions. In
addition, CPD has not ensured that the security officer in charge
of the system has clearly defined duties and the technical
expertise and staff needed to oversee the system. HUD is now
developing an agencywide information system that manages all 51
grant programs for the agency, and it plans to use IDIS, along
with a grants management system being developed by the Department
of Health and Human Services, as the basis for the new system.
IDIS' Design Flaws Make the System Difficult to Use, and
Information Is Not Always Complete, Accurate, and Timely
Although IDIS was designed to provide CPD with accurate, complete,
and timely information on grantees' expenditures and program
performance, these goals are not being achieved because of four
significant problems. Specifically, (1) the process for
establishing and maintaining grant activity information is time-
consuming and cumbersome and provides ample opportunity for major
data entry problems, (2) correcting major data entry problems in
IDIS is difficult, (3) IDIS does not readily enable grantees to
accurately report income generated by grant- funded revolving
funds (program income), and (4) grantees find it difficult to
produce comprehensive and timely reports using IDIS.
10 In 1991, HUD initiated the Financial Systems Integration effort
to develop and deploy an integrated financial and management
information system that would provide timely and accurate
information to managers and enable HUD to properly manage its
financial resources. IDIS is 1 of 9 standard integrated systems
approved under the system integration effort that would replace
about 100 financial and mixed systems. See, HUD Information
Systems: Improved Management Practices Needed to Control
Integration Cost and Schedule (GAO/AIMD-99-25, Dec. 18, 1998).
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IDIS' Design Makes Establishing and Maintaining Project and
Activity Accounts Unnecessarily Difficult
IDIS information is critically important in managing and
monitoring grantees' performance given CPD's emphasis on remote
monitoring (as discussed in ch. 2). Nevertheless, the system is so
cumbersome that grantees, even though trained on IDIS, find it
difficult to use to set up project and activity accounts and to
maintain those accounts. For most of the grantees we visited,
grantees had to enter data two or more times, found accessing and
using IDIS to be time consuming, and had to work through a
complicated series of steps to enter or retrieve information.
To set up project and activity accounts, grantees have to enter
much of the same information into two separate HUD information
systems IDIS and HUD's Community 2020 system 11 (or its precursor,
Consolidated Planning Software). These systems are not
automatically linked so that entering data into one system would
automatically update both systems. In addition to the errors that
grantees could make simply because they have to enter the data
twice, other types of errors could occur that reduce the quality
of the information produced by these systems. For example, one
grantee we visited numbered projects differently between the two
systems; consequently, it was difficult to compare the grantees'
project plan with the actual use of grant funds. While this
initial set of double data entries is time- consuming and
cumbersome, IDIS' design provides yet another opportunity for
redundancy. For example, for some projects grantees must enter
nearly exactly the same information a third time to describe the
projects' activity. In one field office, the IDIS focal point told
us that for 98 percent of the office's projects, data had to be
entered three times.
Redundant data entry problems also occurred for most of the
grantees we visited because they must enter activity information
into their own automated accounting systems, as well as HUD's
systems, to comply with their city's requirements. At the time of
our review, CPD had not developed a reliable method to
electronically transfer data between grantees' systems and IDIS.
This problem is especially troublesome for states that must enter
data for all small cities under their program. For example, Texas
which at the time of our review had not yet started using IDIS has
the largest state community development program 287 subrecipient
cities for which it must enter data. According to HUD, as of mid-
February 1999, grantees had access to a batch file transfer
process, referred to as Electronic Data
11 HUD's Community 2020 software contains information on HUD
projects, such as housing and community development projects;
funding sources; performance indicators; and neighborhood
locations. It combines this information with U. S. Bureau of the
Census' geographic and demographic information to provide a means
for community constituents to understand where and how HUD
resources are being spent.
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Interchange, which allows grantees to automatically extract data
from their own information systems and pass it to IDIS.
Another difficulty for grantees is simply the amount of time it
can take to access and use IDIS. Each time grantees enter
information into IDIS, they use their desktop computers to link to
a communications system, dial into IDIS, and enter a user
identification number and password to obtain access to IDIS at
authorized levels. We observed that it took up to 40 minutes to
obtain access to IDIS. Remaining connected to IDIS is also
difficult. One grantee estimates that it loses its connection to
IDIS prematurely 50 percent of the time.
Once they have obtained access, IDIS' design forces grantees to
work through a complicated series of steps to enter or retrieve
information. The grantees must use designated function keys on the
computer keyboard to take required actions at various points in
this process, but the meaning of the function keys sometimes
changes from screen to screen, causing some confusion and missteps
for the grantees and prolonging the time it takes to enter data.
In addition, a grantee must work through and exit two separate
series of screens in order to enter both financial and performance
data for the same activity.
Opportunities for Significant Data Entry Errors Exist, and
Corrections Are Not Always Possible
When grantees enter incorrect data, IDIS does not easily allow
them to rectify the errors. Five of the 11 grantees we visited
reported having multiple, significant errors in IDIS data entries
that they could not readily correct. To address these problems,
the IDIS technical assistance staff instructed grantees to open
accounts for nonexistent activities ( dummy accounts) in some
instances, which in effect reverse the incorrect data. In one
case, a grantee had incorrectly entered program income funds and
had to open multiple dummy activity accounts and charge false
amounts against them to rectify its error. Some grantees we spoke
to were reluctant to create dummy accounts because these accounts
would appear inaccurate or fraudulent to outside observers.
Some of these problems were so severe that they made CPD's
monitoring activities through IDIS impossible. For example, one
grantee had incorrectly entered all of its 1997 program year
activities as occurring in the 1996 program year, thereby mixing
activities for both years. To further complicate matters, this
grantee had not expended all grant funds for 1996. As a result,
CPD field and headquarters officials could not determine the
amount of funds drawn down or the performance of program
activities for
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Programs
either year without actually auditing the grantee's documents. We
brought this matter to CPD's and the grantee's attention in
October 1998, and as of January 1999, it had still not been
resolved.
At 8 of the 11 grantees we visited, we compared data shown in IDIS
with the information in the grantee's files on the same
activities. Although we only looked at a small number of randomly
selected activities, we found a wide variety of significant data
problems, ranging from a complete lack of performance data at one
grantee to double- counting of accomplishments at another. For
example, one grantee set up an activity to cover five types of
services for senior citizens, ranging from home maintenance to
transportation to a recreational center. The grantee then lumped
all accomplishment data for these widely varying services together
as one total number of elderly people served, even though
individuals might participate in more than one of the services or
be multiple users of the same service. These types of problems
would not only make reports on individual grantees inaccurate but
also make reports that combined data at a regional or national
level meaningless or misleading.
IDIS' Flaws Preclude the Tracking of Program Income From Revolving
Funds
In addition to its overall design problems, IDIS also does not
enable grantees to link program income income produced by projects
they have funded or repayments into revolving loan accounts to the
activity that generated it, such as economic development loans.
HUD has instructed formula grantees not to enter program income
from revolving fund programs into IDIS when they are received, as
is done with other types of program income. This is because the
design of IDIS does not allow grantees to segregate revolving fund
income from other types of program income. IDIS operates on the
assumption that all program income is depleted before grant funds
are used, regardless of the type of grant activity being funded.
Handling program revenues in this manner does not create a problem
unless the income is associated with a revolving fund. However,
CPD regulations provide grantees with specific permission to
reserve program income from revolving fund programs for re- use
exclusively in the revolving fund. According to a HUD official,
3,230 revolving funds were created in the Community Development
Block Grant Program in 1994. 12
12 The last year for which HUD could provide a complete number of
revolving funds for the Community Development Block Grant Program
was 1994. Twenty- one percent of the data for 1995 was missing.
Subsequent years' data are stored in IDIS, and HUD officials have
not yet determined how to aggregate the data on revolving funds.
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Programs
To ensure that the program income from revolving funds is recycled
into the revolving fund, HUD instructs grantees to only enter the
income in IDIS at the moment they redistribute the money. However,
HUD's recommended remedy is flawed. It requires grantees to keep
two sets of books: the actual amount of the revolving fund and the
amount entered into IDIS. Entering program income only when it is
needed for another loan shields the true amount from CPD
representatives that monitor the project remotely through IDIS. It
also makes it very difficult to ensure that the grantee is meeting
its regulatory requirements. For example, because CPD cannot use
IDIS to determine how much program income is being generated from
revolving funds and therefore what a grantee's total program
income is, CPD cannot use IDIS to determine if a grantee is
meeting a requirement to spend grant money in a timely manner. In
addition, interest produced by revolving funds should not be
recycled into the revolving fund for future use but should instead
be returned to CPD, which is responsible for overseeing interest
repayments and forwarding the interest to the U. S. Treasury.
Given the lack of information about revolving fund balances in
IDIS, CPD will have trouble determining if a grantee is repaying
interest as required. One regional CPD office, for example,
received large interest repayment checks that resulted from
revolving fund balances, but the office had not expected these
repayments because it had been unaware of the balances. One
grantee sent a check for $10,728.03 for interest earned by a
revolving fund balance during a 13- month period.
IDIS Does Not Provide Timely and Accurate Information and Makes It
Difficult to Produce Reports on Grantees' Use of Funds and
Performance
While IDIS was intended to allow CPD to track grantees'
performance on a real- time basis, it does not do so for several
reasons. First, a grantee can withdraw all funds for an activity
without entering any performance information for that activity, as
was often the case with the grantees we visited. Most did not
enter any performance data until the end of the program year, when
such data were required to complete annual reports. Second, three
grantees that did try to enter performance data were hindered from
doing so because IDIS requires grantees to enter financial and
performance data separately. Third, even when grantees enter
information more frequently, the information may not be useful for
tracking performance because IDIS does not identify when the
performance data were entered. IDIS has only one entry field for
entering performance data for the year, so that additional data
entries erase previous entries.
In addition to these overall problems, IDIS does not enable
grantees to always record exact information on the outcomes of
activities. Specifically, IDIS provides 12 choices for describing
benefits, such as the
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Chapter 3 Financial and Management Information System Is Not
Providing the Information Needed to Manage and Monitor Grant
Programs
number of youth, households, or businesses benefiting from
projects. However, this list is not comprehensive enough to cover
the wide range of benefits that occur in program activities. For
example, one grantee had demolished four blighted buildings and to
record this information in IDIS had to describe the work as four
public facilities because there was no better option. At the field
office level, then, real- time inquiries to IDIS for information
on grantees' performance are unreliable.
Equally important, creating reports at the end of the program year
or at any time is difficult. To create and print a report, the
user either the grantee or field office staff must work through a
series of IDIS screens as many as 70 at one field office we
visited to begin to create a report. Problems can occur during
this process. For example, at one field office, the staff could
not produce any of the reports we had requested for 3 days because
the IDIS software for producing reports was not functioning. In
another field office, the staff could create reports for only one
grantee the first on the list of choices and it took 24 hours to
correct the problem. Furthermore, IDIS' error messages can be
difficult to decipher, making the task of fixing the problem even
more time- consuming. Once the report is produced in IDIS'
mainframe computer, the user still has to transfer it to a desktop
computer and edit it before it can be printed. Because of these
difficulties, many of the grantees we visited did not produce any
more reports from IDIS than were necessary for the end of program
year reporting to HUD. In addition, at the time of our review, CPD
had removed the function for the consolidated annual performance
and evaluation report a report all grantees must submit to HUD at
the end of the program year because IDIS was generating reports
with errors. For example, we found that one grantee had entered
correct information into IDIS, but the system produced a report
with incorrect information. Besides reporting to HUD, grantees use
the end of the year report to communicate information about the
use of block grant funds to their citizens. This problem also
frustrated the ability of CPD field office staff to provide
headquarters with some progress reports. In January 1999, HUD was
still attempting to correct the reporting capability within IDIS.
Security Controls Do Not Provide Assurance That IDIS Is Safe From
Fraud and Abuse
Although grantees use IDIS to initiate the transfer of
approximately $6 billion a year in grant funds, CPD has not
established a secure method for setting up and maintaining access
rights for using IDIS. While HUD cannot select which grantee staff
should have access rights that is the grantee's responsibility it
can take actions to ensure that designated grantee staff have
appropriate levels of access and that staff who leave the
grantee's employment do not retain access. To provide security
against the
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Programs
inappropriate use of funds, for example, grantee staff should have
limited, or segregated, access to the computer system. 13 In such
a case, the individual who could establish activity accounts would
not also be able to approve the withdrawal of funds for those
activities. However, HUD has not taken these actions to safeguard
federal grants, either at headquarters or in the field offices.
Furthermore, according to the HUD official responsible for IDIS
security, at a basic level the staff resources devoted to this
task are strained. He explained that the thousands of requests for
new user accounts, reinstatement of expired user accounts, and
revocation of accounts are handled only by himself, an assistant,
and one contract employee. As a result, assigning access rights to
a new user takes a month or more and there are no staff to
catalogue the forms requesting access, making it difficult to
review original access rights or retrieve forms when necessary.
Additionally, neither the security official nor his staff review
these requests for appropriateness, to determine whether the
requested access rights are necessary to perform the duties
assigned to the user or whether access rights ensure segregation
of tasks such as setting up activities and approval of drawdowns.
Instead, their main function has been to assign access rights to
IDIS or to reinstate rights when passwords have expired. Even when
notified by grantees that IDIS access rights should be revoked
because the person with those rights is no longer employed by the
grantee, the security official told us that removing the person's
rights is not a high priority. Once IDIS accounts have been
established, grantees have the authority to change access levels
for their staff without any level of oversight by CPD. At the time
of our review, CPD did not periodically produce any reports for
the grantees' IDIS focal points or field office staff that showed
the current access rights of the grantees' staff.
Not surprisingly, given this absence of oversight, we found
multiple problems with access rights at five of the eight grantees
with whom we discussed access rights. Specifically:
Duties among authorized users were not adequately segregated at
three of the grantees, so these users could both set up activity
accounts and draw
13 According to GAO Internal Control: Standards for Internal
Control in the Federal Government Exposure Draft (GAO/AIMD-98-21.
3.1), page 21, Key duties and responsibilities should be divided
or segregated among different people to reduce the risk of error
or fraud. This should include separating the responsibilities for
authorizing transactions, processing and recording them, reviewing
the transactions, and handling the related assets. To reduce the
risk of error, waste, or fraud or to reduce the risk of their
going undetected, no one individual should control all key aspects
of a transaction or event.
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