Community Development: Early Results of the Community Development
Financial Institutions Fund's Programs (Testimony, 05/13/98,
GAO/T-RCED-98-198).

GAO discussed the results of its ongoing review of the administration of
the Community Development Financial Institutions (CDFI) Fund, focusing
on the first year's performance of the CDFI and the Bank Enterprise
Award (BEA) programs and opportunities for improving their
effectiveness.

GAO noted that: (1) as of January 1998, the Fund had entered into
assistance agreements with 26 of the 31 CDFIs that received awards in
1996; (2) these agreements include performance goals and measures that
were based on the business plans submitted by awardees in their
application packages and negotiated between the Fund and the awardees,
as the CDFI Act requires; (3) GAO found that the performance measures in
the assistance agreements generally assess activities rather than the
accomplishments reflecting the activities' results; (4) according to
Fund officials and CDFIs in GAO's case studies, this emphasis on
activity measures is due, in part, to difficulties in isolating and
assessing the results of community development initiatives, which may
not be observable for many years and may be subject to factors outside
the awardees' control; (5) GAO further found that although the
performance measures in the assistance agreements are generally related
to specific goals, they do not always address the key aspects of the
goals, and most assistance agreements lack baseline data that would
facilitate tracking progress over time; (6) although the Fund has
disbursed about 80 percent of the fiscal year 1996 BEA award funds, it
is difficult to determine the extent to which the program has encouraged
the 38 awardees to increase their investments in distressed communities;
(7) GAO's case studies have five awardees and interviews with Fund
officials indicate that although the prospect of receiving a BEA award
prompted some banks to increase their investments, it had little or no
effect on other banks; (8) GAO found that, in general, other regulatory
or economic incentives exerted a stronger influence on banks'
investments than the BEA award; (9) in addition, some banks do not
collect all of the data on their activities needed to guarantee that
increases in investments under the BEA program are not being offset by
decreases in other investments in these distressed areas; (10) the CDFI
Fund's strategic plan contains all of the elements required by the
Government Performance and Results Act and the Office of Management and
Budget's (OMB) associated guidance, but these elements generally lack
the clarity, specificity, and linkage with one another that the act
envisioned; and (11) although the plan identifies key external factors
that could affect the Fund's mission, it does not relate these factors
to the Fund's strategic goals and objectives and does not indicate how
the Fund will take the factors into account when assessing awardee's
progress toward goals.

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

 REPORTNUM:  T-RCED-98-198
     TITLE:  Community Development: Early Results of the Community 
             Development Financial Institutions Fund's Programs
      DATE:  05/13/98
   SUBJECT:  Community development
             Strategic planning
             Financial institutions
             Program evaluation
             Economically depressed areas
             Economic development
             Funds management
IDENTIFIER:  Community Development Financial Institutions Fund
             
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Cover
================================================================ COVER


Before the Subcommittee on Financial Institutions, Committee on
Banking, Housing and Urban Affairs, U.S.  Senate

For Release
on Delivery
Expected at
10:00 a.m.  EDT
Wednesday
May 13, 1998

COMMUNITY DEVELOPMENT - EARLY
RESULTS OF THE COMMUNITY
DEVELOPMENT FINANCIAL INSTITUTIONS
FUND'S PROGRAMS

Statement by Judy A.  England-Joseph,
Director, Housing and Community Development Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-98-198

GAO/RCED-98-198T


(385740)


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

  BEA -
  CDFI -
  CDFT -
  CRA -
  FTE -
  OMB -

============================================================ Chapter 0

Mr.  Chairman and Members of the Committee: 

We are pleased to be here today to discuss the preliminary results of
our ongoing review of the administration of the Community Development
Financial Institutions (CDFI) Fund.  As you know, access to credit
and investment capital is essential for creating and retaining jobs,
developing affordable housing, revitalizing neighborhoods, and
promoting the development and growth of small businesses. 
Community-based financial institutions have improved the economic
well-being of economically distressed communities and their residents
through lending and investments tailored to these communities.  In
1994, recognizing that such community-based institutions were
relatively few in number and small in size and often had difficulty
meeting the demand for their services, the Congress created the CDFI
Fund.\1 To date, the Fund has sought to expand access to credit and
other financial services in distressed communities primarily through
two programs--the CDFI and the Bank Enterprise Award (BEA) programs. 
The CDFI program provides financial and technical assistance to a
wide range of for-profit and nonprofit financial institutions to
support their activities in distressed communities and monitors their
performance over a period of at least 5 years.\2 The BEA program
rewards banks for increased lending and investments in CDFIs or in
distressed communities.  To receive their awards, banks must prove
that they have made eligible loans or investments, but the Fund has
no long-term monitoring role in this program. 

Our testimony today focuses on the first year's performance of the
CDFI and BEA programs and identifies opportunities for improving
their effectiveness.  Because participants in the CDFI program are
just beginning to report preliminary results, our discussion of this
program will focus on the Fund's progress in developing performance
measures for awardees and systems to monitor and evaluate their
progress.  In contrast, participants in the BEA program have largely
completed the activities for which they are rewarded; therefore, we
will discuss the impact of the program on banks' investments in CDFIs
and distressed communities.  Finally, our testimony will review the
Fund's progress in meeting the strategic planning requirements of the
Government Performance and Results Act of 1993 (Results Act). 

Our testimony is based on the experience of the institutions that
received fiscal year 1996 awards.  In the CDFI program, the Fund
selected 31 of 268 applicants, largely on the basis of the business
plans in which they laid out their proposals for economic
revitalization and community development.  In the BEA program, over
50 banks applied for awards and the Fund chose 38, basing its
selection on the increased investments in CDFIs and distressed
communities that the banks projected.  The Fund reserved about $37
million for awardees in the CDFI program and $13.1 million for banks
selected to participate in the BEA program.  To obtain in-depth
information about the two programs, we visited six CDFIs and five
participating banks. 

In summary, our preliminary analysis shows the following: 

As of January 1998, the Fund had entered into assistance agreements
with 26 of the 31 CDFIs that received awards in 1996.  These
agreements include performance goals and measures that were based on
the business plans submitted by awardees in their application
packages and negotiated between the Fund and the awardees, as the
CDFI Act requires.  These agreements are consistent with the
program's objectives.  Because the CDFI Act provides no specific
guidance for evaluating performance measures, we used the Results
Act's standards.  We found that the performance measures in the
assistance agreements generally assess activities (such as the number
of loans made) rather than accomplishments reflecting the results of
activities (such as the number of new low-income homeowners). 
According to Fund officials and CDFIs in our case studies, this
emphasis on activity measures is due, in part, to difficulties in
isolating and assessing the results of community development
initiatives, which may not be observable for many years and may be
subject to factors outside the awardees' control.  We further found
that although the performance measures in the assistance agreements
are generally related to specific goals, they do not always address
all key aspects of the goals, and most assistance agreements lack
baseline data that would facilitate tracking progress over time.  The
Fund has developed reporting requirements for awardees to collect
information for monitoring their performance and is developing
postaward monitoring procedures for assessing their compliance with
their assistance agreements.  The Fund currently does not have a
system for evaluating the impact of awardees' activities. 

Although the Fund has disbursed about 80 percent of the fiscal year
1996 BEA award funds, it is difficult to determine the extent to
which the program has encouraged the 38 awardees to increase their
investments in distressed communities.  Our case studies of five
awardees and interviews with Fund officials indicate that although
the prospect of receiving a BEA award prompted some banks to increase
their investments, it had little or no effect on other banks.  We
found that, in general, other regulatory or economic incentives
exerted a stronger influence on banks' investments than the BEA
award.  In addition, some banks do not collect all of the data on
their activities needed to guarantee that increases in investments
under the BEA program are not being offset by decreases in other
investments in these distressed areas.  Although banks have statutory
discretion to use their BEA awards as they choose, their reports to
the Fund indicate that they are furthering the BEA program's
objectives by investing a portion or all of their awards in loans or
investments supporting community development. 

The CDFI Fund's strategic plan contains all of the elements required
by the Results Act and OMB's associated guidance, but these elements
generally lack the clarity, specificity, and linkage with one another
that the act envisioned.  Although the plan identifies key external
factors that could affect the Fund's mission, it does not relate
these factors to the Fund's strategic goals and objectives and does
not indicate how the Fund will take the factors into account when
assessing awardees' progress toward goals.  In addition, the plan
does not describe the relationship of its activities to similar
activities in other government agencies, and it does not indicate
whether or how the Fund coordinated with other agencies in developing
its strategic plan.  These shortcomings are similar to those in other
federal agencies' initial efforts to comply with the Results Act and
OMB's associated guidance. 


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

\2 The principal types of institutions supported by the CDFI program
are community development banks and bank holding companies, community
development credit unions, business loan funds, housing loan funds,
and community development venture capital funds. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Currently located within the Department of the Treasury, the CDFI
Fund was authorized in 1994 and has received appropriations totaling
$225 million through fiscal year 1998.  The 1995 Rescissions Act
limited the Fund to 10 full-time equivalent (FTE) staff for fiscal
years 1995 and 1996, but for fiscal year 1998, the Fund has a FTE
ceiling of 35 staff.  As of May 8, 1998, the Fund had 27 full-time
and 2 part-time staff. 

The Fund's overall performance is subject to the Results Act.  This
act seeks to improve the management of federal programs and their
effectiveness and efficiency by establishing a system for agencies to
set goals for performance and measure the results.  Under the act,
federal agencies must develop a strategic plan that covers a period
of at least 5 years and includes a mission statement, long-term
general goals, and strategies for reaching those goals.  Agencies
must report annually on the extent to which they are meeting their
annual performance goals and identify the actions needed to reach or
modify the goals they have not met.  The Fund completed its final
plan in September 1997 and is currently considering revisions to that
plan. 


   STRONGER PERFORMANCE MEASURES
   WOULD PROVIDE A BETTER BASIS
   FOR MONITORING AND EVALUATING
   THE CDFI PROGRAM'S
   ACCOMPLISHMENTS
---------------------------------------------------------- Chapter 0:2

While the CDFI Fund has established a system for measuring awardees'
performance in the CDFI program, this system emphasizes activities
over accomplishments and does not always include measures for key
aspects of goals.  In addition, baseline information that was
available to the Fund seldom appears in the Fund's performance
measurement schedule.  A more comprehensive performance measurement
system would provide better indicators for monitoring and evaluating
the program's results. 


      PROGRESS IN DEVELOPING
      PERFORMANCE MEASURES IS
      MIXED
-------------------------------------------------------- Chapter 0:2.1

The CDFI Fund's progress in developing performance goals and measures
for awardees in the CDFI program is mixed.  On the one hand, the Fund
has entered into assistance agreements with most of the 1996
awardees.  As the CDFI Act requires, these assistance agreements
include performance measures that (1) the Fund negotiated with the
awardees and (2) are generally based on the awardees' business plans. 
On the other hand, the Fund's performance goals and measures fall
somewhat short of the standards for performance measures established
in the Results Act.  Although awardees' assistance agreements are not
subject to the Results Act, the act establishes performance
measurement standards for the federal government, including the CDFI
Fund.  In the absence of specific guidance on performance measures in
the CDFI Act, we drew on the Results Act's standards for discussion
purposes. 

The assistance agreements called for under the CDFI Act require
awardees to comply with multiple provisions, including the
accomplishment of agreed-upon levels of performance by the final
evaluation date, typically 5 years in the future.  As of January
1998, the Fund had entered into assistance agreements with 26 of the
31 awardees for 1996.  We found, on the basis of our six case
studies, that the Fund had negotiated performance goals that met the
statutory requirements and established goals for awardees that match
the Fund's intended purpose, extensively involved the awardees in
crafting their planned performance, and produced a flexible schedule
for designing goals and measures. 

According to the Results Act, both activity measures, such as the
number of loans made, and accomplishment measures, such as the number
of new low-income homeowners, are useful measures.  However, the act
regards accomplishment measures as more effective indicators of a
program's results because such measures identify the impact of the
activities performed.  Our survey of CDFIs nationwide, including the
1996 awardees, and our review of six case study awardees' business
plans showed that CDFIs use both types of measures to assess their
progress toward meeting their goals.  Yet our review of the 1996
awardees' assistance agreements revealed a far greater use of
activity measures.  As a result, the assistance agreements focus
primarily on what the awardees will do, rather than on how their
activities will affect the distressed communities.  According to most
of the case study awardees, difficulties in isolating and measuring
the results of community development efforts and concerns about the
effects of factors outside the awardees' control inhibited the
awardees' use of accomplishment measures. 

According to the Results Act, goals and measures should be related
and clear.  We found that most of the goals and measures were
related; however, in some agreements, the measures did not address
all key aspects of the goals.  Finally, under the Results Act,
clarity in performance measurement is best achieved through the use
of specific units, well-defined terms, and baseline and target values
and dates.  While the measures in the agreements included most of
these elements, they generally lacked baseline values and dates. 
Fund officials told us that they used baseline values and dates in
negotiating the performance measures, but this information did not
appear in the assistance agreements themselves.  Therefore, without
information contained in awardees' files, it is difficult to
determine the level of increase or contribution the investment is
intended to achieve. 

Refining the awardees' goals and measures to meet the Results Act
will facilitate the Fund's assessment of the awardees' progress over
time.  The Fund is taking steps to avoid some of the initial
shortcomings in future agreements and is seeking to enhance its
expertise and staffing. 


      MANDATORY MONITORING AND
      EVALUATION SYSTEMS ARE NOT
      YET IN PLACE
-------------------------------------------------------- Chapter 0:2.2

Although the Fund has developed reporting requirements for awardees
to collect information for monitoring their performance, it lacks
documented postaward monitoring procedures for assessing their
compliance with their assistance agreements, determining the need for
corrective actions, and verifying the accuracy of the information
collected.  In addition, the Fund has not yet established procedures
for evaluating the impact of awardees' activities.  The effectiveness
of the Fund's monitoring and evaluation systems will depend, in large
part, on the quality of the information being collected through the
required reports and the Fund's assessment of awardees' compliance
and the impact of awardees' activities.  Primarily because of
statutorily imposed staffing restrictions in fiscal years 1995 and
1996 and subsequent departmental hiring restrictions, the Fund has
had a limited number of staff to develop and implement its monitoring
and evaluation systems.  In fiscal year 1998, it began to hire
management and professional staff to develop monitoring and
evaluation policies and procedures. 

The Fund has established quarterly and annual reporting requirements
for awardees in their assistance agreements.  Each awardee is to
describe its progress toward its performance goals, demonstrate its
financial soundness, and maintain appropriate financial information. 
However, according to an independent audit recently completed by KPMG
Peat Marwick, the Fund lacks formal, documented postaward monitoring
procedures to guide Fund staff in their oversight of awardees'
activities.  In addition, Fund officials indicated that they had not
yet established a system to verify information submitted by awardees
through the reporting processes. 

Fund staff told us that they had not developed postaward monitoring
procedures because of the CDFI program's initial staffing limits. 
Now that additional staff are in place, they have begun to focus
their attention on monitoring issues, including those identified by
KPMG Peat Marwick. 

The CDFI statute also specifies that the Fund is to annually evaluate
and report on the activities carried out by the Fund and the
awardees.  According to the Conference Report for the statute, the
annual reports are to analyze the leveraging of private assistance
with federal funds and determine the impact of spending resources on
the program's investment areas, targeted populations, and qualified
distressed communities.  To date, the Fund has published two annual
reports, the second of which contains an estimate of the private
funding leveraged by the CDFI funding.  This estimate is based on
discussions with CDFIs and CDFI trade association representatives,
not on financial data collected from the awardees.  Anecdotal
information from three of our six case study awardees indicates that
the CDFI funding has assisted them in leveraging private funding. 
One awardee estimated that the Fund's award generated more than three
times its value in private investment. 

In part because it has been only 15 months since the Fund made its
first investment in a CDFI, information on performance in the CDFI
program is not yet available for a comprehensive evaluation of the
program's impact, such as the Conference Report envisions.  The two
annual reports include anecdotes about individuals served by awardees
and general descriptions of awardees' financial services and
initiatives, but they do not evaluate the impact of the program on
its investment areas, targeted populations, and qualified distressed
communities.  Satisfying this requirement will entail substantial
research and analysis, as well as expertise in evaluation and time
for the program's results to unfold. 

Fund officials have acknowledged that their evaluation efforts must
be enhanced, and they have planned or taken actions toward
improvement.  For instance, the Fund has developed preliminary
program evaluation options, begun hiring staff to conduct or
supervise the research and evaluations, and revised the assistance
agreements for the 1997 awardees to require that they annually submit
a report to assist the Fund in evaluating the program's impact. 
However, because the Fund has not yet finished hiring its research
and evaluation staff, it has not yet reached a final decision on what
information it will require from the awardees to evaluate the
program's impact.  The Fund also has to determine how it will
integrate the results of awardees' reported performance measurement
or recent findings from related research into its evaluation plans. 


      PRELIMINARY REPORTS DESCRIBE
      EARLY POSTAWARD ACTIVITY
-------------------------------------------------------- Chapter 0:2.3

As to be expected, reports of accomplishments in the CDFI program are
limited and preliminary.  Because most CDFIs signed their assistance
agreements between March 1997 and October 1997, the Fund has just
begun to receive the required quarterly reports, and neither the Fund
nor we have verified the information in them.  Through February 1998,
the Fund had received 41 quarterly reports from 19 CDFIs, including
community development banks, community development credit unions,
nonprofit loan funds, microenterprise loan funds, and community
development venture capital funds.  The different types of CDFIs
support a variety of activities, whose results will be measured
against different types of performance measures. 

Given the variety of performance measures for the different types of
CDFIs, it is difficult to summarize the performance reported by the
19 CDFIs.  To illustrate cumulative activity in the program to date,
we compiled the data reported for the two most common measures--the
total number of loans for both general and specific purposes and the
total dollar value of these loans.  According to these data, the 19
CDFIs made over 1,300 loans totaling about $52 million.  In addition,
the CDFIs reported providing consumer counseling and technical
training to 480 individuals or businesses. 


   IMPACT OF THE BEA PROGRAM IS
   DIFFICULT TO ASSESS
---------------------------------------------------------- Chapter 0:3

In the BEA program, as of January 1998, about 58 percent of the banks
had completed the activities for which they received the awards and
the Fund had disbursed almost 80 percent of the $13.1 million awarded
in fiscal year 1996.  Despite this level of activity, the impact of
the program on banks' investments in distressed communities is
difficult to assess.  Our case studies of five awardees and
interviews with Fund officials indicate that although the BEA awards
encouraged some banks to increase their investments, other regulatory
or economic incentives were equally or more important for other
banks.  In addition, more complete data on some banks' investments
are needed to guarantee that the increases in investments in
distressed areas rewarded by the BEA program are not being offset by
decreases in other investments in these distressed areas.  The Fund
has tried to measure the program's impact by estimating the private
investments leveraged through the BEA awards.  However, this estimate
includes banks' existing, as well as increased, investments in
distressed areas.  Furthermore, the Fund cannot be assured that the
banks' increased investments remain in place because it does not
require banks to report any material changes in these investments. 
Although the CDFI statute does not require awardees to reinvest their
awards in community development, banks have reported to the Fund that
they have done so, thereby furthering the BEA program's objectives,
according to the Fund.  Finally, the Fund does not have a postaward
evaluation system for assessing the impact of the program's
investments. 


      IMPACT OF AWARD VARIED, BUT
      REGULATORY AND ECONOMIC
      INCENTIVES GENERALLY HAD A
      GREATER INFLUENCE ON BANKS'
      INVESTMENTS
-------------------------------------------------------- Chapter 0:3.1

Our analysis indicated that the impact of the BEA award varied at our
five case study banks.  One bank reported that it would not have made
an investment in a CDFI without the prospect of receiving an award
from the Fund.  In addition, a CDFI Fund official told us that some
CDFIs marketed the prospect of receiving a BEA award as an incentive
for banks to invest in them.  We found, however, that the prospect of
an award did not influence other banks' investment activity.  For
example, two banks received awards totaling over $324,000 for
increased investments they had made or agreed to make before the
fiscal year 1996 awards were made. 

Banks have multiple incentives for investing in CDFIs and distressed
areas.  Therefore, it is difficult to isolate the impact of the BEA
award from the effects of other incentives; however the receipt of a
BEA award is predicated on a bank's increasing investments in
community development.  Discussions with our five case study banks
indicated, however, that regulatory and economic incentives have a
greater influence on these banks' investments than the prospect of a
BEA award.  A reason that the banks frequently cited for investing in
CDFIs and distressed areas was the need to comply with the Community
Reinvestment Act (CRA).\3 Economic considerations also motivated the
banks.  One bank said that such investments lay the groundwork for
developing new markets, while other banks said that the investments
help them maintain market share in areas targeted by the BEA program
and compete with other banks in these areas.  Two banks cited
improved community relations as reasons for their investments.  Some
banks indicated that, compared with these regulatory and economic
incentives, the BEA award provides a limited incentive, especially
since it is relatively small and comes after a bank has already made
at least an initial investment. 


--------------------
\3 Under CRA, federal banking agencies encourage banks to meet the
credit needs of their communities.  While the BEA award might improve
a bank's CRA rating, as one bank official suggested, we could not
determine how the award would affect the rating. 


      SOME BANKS DO NOT MAINTAIN
      DATA NEEDED FOR EVALUATION
-------------------------------------------------------- Chapter 0:3.2

According to Fund officials, a small portion of the 1996 awardees do
not maintain the geographic data needed to determine whether any new
investments in distressed areas are coming at the expense of other
investments--particularly agricultural, consumer, and small business
loans--in such areas.  Concerned about the validity of the net
increases in investments in distressed areas reported by awardees,
the Fund required the 1996 awardees that did not maintain such data
to certify that, to the best of their knowledge, they had not
decreased investments in distressed areas that were not linked to
their BEA award.  While most banks maintain the data needed to track
their investments by census tract and can thus link their investments
with distressed areas, a few do not do so for all types of
investments.\4


--------------------
\4 According to bank regulators, about 16 percent of the banks in the
United States are geocoding (tracking by census tract) small business
and small farm investments, and the remaining 84 percent are probably
not geocoding such investments unless they are reporting loan
activity under the Home Mortgage Disclosure Act.  Compared with rural
banks, nonrural banks are more likely to be geocoding their small
business and farm loans, in part because it is easier for them to
identify census tracts using specific addresses.  Rural banks face
difficulties associating census tracts with rural addresses.  As a
result, some banks are likely to continue to experience problems
reporting on these types of activities. 


      FUND'S ESTIMATE INCLUDES
      EXISTING AS WELL AS
      INCREASED INVESTMENTS
-------------------------------------------------------- Chapter 0:3.3

In an attempt to measure an impact of the BEA program, the Fund has
reported that awards of $13.1 million in 1996 leveraged over $125
million in private investment--a leveraging ratio of almost 10 to 1. 
This estimate includes banks' existing investments in CDFIs and
direct investments in distressed areas.  When we included only the
banks' new direct investments, we calculated a leveraging ratio of 7
to 1. 


      FUND DOES NOT RECEIVE
      INFORMATION ON POSTAWARD
      ACTIVITY
-------------------------------------------------------- Chapter 0:3.4

The Fund does not require awardees to notify the Fund of material
changes in their investments after awards have been made.  Therefore,
it does not know how long investments made under the program remain
in place.  We found, for example, that a CDFI in which one of our
case study banks had invested was dissolved several months after the
bank received a BEA award.  The CDFI later repaid a portion of the
bank's total investment.  Because the Fund does not require banks to
report their postaward activity, the Fund was not aware of this
situation until we brought it to the attention of Fund officials. 
After hearing of the situation, a Fund official contacted the awardee
and learned that the awardee plans to reinvest the funds in another
CDFI.  Even though this case has been resolved, Fund officials do not
have a mechanism for determining whether investments made under the
program remain in place. 

The CDFI statute does not require awardees to reinvest their awards
in community development; however, awardees have reported to the
Fund, and we found through our case studies, that many of them are
reinvesting at least a portion of their awards in community
development.  Reinvestment in community development is consistent
with the goals of the BEA program. 

While the Fund initially established reporting requirements for the
1996 awardees designed to assess the impact of their investments in
CDFIs and distressed communities, it discontinued these requirements
in 1997 when it found that the accomplishments reported by awardees
could not be linked to outcomes in their communities.  As a result,
the Fund has no system in place for determining the program's impact. 
As previously noted, accomplishments in community development are
difficult to isolate and measure.  For example, the effects of
investment in community development may not be readily
distinguishable from other influences and may not be observable for
many years.  Nevertheless, the banks we visited are using a variety
of measures to assess the effects of their investments, some of which
track accomplishments.  Such measures include loan repayment rates
and reports on the occupancy rates and financial performance of
housing projects financed by the banks.  However, the awardees are no
longer required to report this information to the Fund. 


   OPPORTUNITIES EXIST FOR
   IMPROVING THE FUND'S STRATEGIC
   PLAN
---------------------------------------------------------- Chapter 0:4

The CDFI Fund has more work to do before its strategic plan can
fulfill the requirements of the Results Act.  Though the plan covers
the six basic elements required by the Results Act, these elements
are generally not as specific, clear, and well linked as the act
prescribes.  However, the Fund is not unique in struggling to develop
its strategic plan.  We have found that federal agencies generally
require sustained effort to develop the dynamic strategic planning
processes envisioned by the Results Act.  Difficulties that the Fund
has encountered--in setting clear and specific strategic and
performance goals, coordinating cross-cutting programs, and ensuring
the capacity to gather and use performance and cost data--have faced
many other federal agencies. 

Under the Results Act, an agency's strategic plan must contain (1) a
comprehensive mission statement; (2) agencywide strategic goals and
objectives for all major functions and operations; (3) strategies,
skill, and technologies and the various resources needed to achieve
the goals and objectives; (4) a relationship between the strategic
goals and objectives and the annual performance goals; (5) an
identification of key factors, external to the agency and beyond its
control, that could significantly affect the achievement of the
strategic goals and objectives; and (6) a description of how program
evaluations were used to establish or revise strategic goals and
objectives and a schedule for future program evaluations.  The Office
of Management and Budget (OMB) has provided agencies with additional
guidance on developing their strategic plans.\5

The Results Act anticipates that agencies may need several planning
cycles to perfect their strategic plans, refining the plans from
cycle to cycle.  The Fund will, therefore, have opportunities for
improving its strategic plan in each of the following areas: 


--------------------
\5 See OMB Circular A-11. 


      MISSION
-------------------------------------------------------- Chapter 0:4.1

In its strategic plan, the Fund states that its mission is "to
promote economic revitalization and community development through
investment in and assistance to community development financial
institutions (CDFIs) and through encouraging insured depository
institutions to increase lending, financial services and technical
assistance within distressed communities and to invest in CDFIs."
Overall, the Fund's mission statement generally meets the
requirements established in the Results Act by explicitly referring
to the Fund's statutory objectives and indicating how these
objectives are to be achieved through two core programs. 


      STRATEGIC GOALS AND
      OBJECTIVES
-------------------------------------------------------- Chapter 0:4.2

Each agency's strategic plan is to set out strategic goals and
objectives that delineate the agency's approach to carrying out its
mission.  The Fund's strategic plan contains 5 goals and 13
objectives, with each objective clearly related to a specific goal. 
However, OMB's guidance suggests that strategic goals and objectives
be stated in a manner that allows a future assessment to determine
whether they were or are being achieved.  Because none of the 5 goals
(e.g.  to strengthen and expand the national network of CDFIs) and 13
objectives (e.g.  increase the number of organizations in training
programs) in the strategic plan include baseline dates and values,
deadlines, and targets, the Fund's goals and objectives do not meet
this criterion. 


      STRATEGIES TO ACHIEVE GOALS
      AND OBJECTIVES
-------------------------------------------------------- Chapter 0:4.3

The act also requires that an agency's strategic plan describe how
the agency's goals and objectives are to be achieved.  OMB's guidance
suggests that this description address the skills and technologies,
as well as the human, capital, information, and other resources,
needed to achieve strategic goals and objectives.  The Fund's plan
shows mixed results in meeting these requirements.  On the positive
side, it clearly lists strategies for accomplishing each goal and
objective--establishing better linkages than the strategic plans of
agencies that simply listed objectives and strategies in groups.  On
the other hand, the strategies themselves consist entirely of
one-line statements.  Because they generally lack detail, most are
too vague or general to permit an assessment of whether their
accomplishment will help achieve the plan's strategic goals and
objectives.  For example, it is unclear how the strategy of
"emphasizing high quality standards in implementing the CDFI program"
will specifically address the objective of "strengthening and
expanding the national network of CDFIs."


      RELATIONSHIP BETWEEN
      STRATEGIC AND ANNUAL
      PERFORMANCE GOALS
-------------------------------------------------------- Chapter 0:4.4

The Fund's strategic plan lists 22 performance goals, which are
clearly linked to specific strategic goals.  However, the performance
goals, like the Fund's strategic goals and objectives, generally lack
sufficient specificity, as well as baseline and end values.  These
details would make the performance goals more tangible and
measurable.  For example, one performance goal is to "increase the
number of applicants in the BEA program." This goal would be more
useful if it specified the baseline number of applicants and
projected an increase over a specified period of time.  Also, some
performance goals are stated more as strategies than as desired
results.  For example, it is not readily apparent how the performance
goal of proposing legislative improvements to the BEA program will
support the related strategic goal of encouraging investments in
CDFIs by insured depository institutions. 


      KEY EXTERNAL FACTORS
-------------------------------------------------------- Chapter 0:4.5

The Fund's strategic plan only partially meets the requirement of the
Results Act and of OMB's guidance that it describe key factors
external to the Fund and beyond its control that could significantly
affect the achievement of its objectives.  While the plan briefly
discusses external factors that could materially affect the Fund's
performance, such as "national and regional economic trends," these
factors are not linked to specific strategic goals or objectives. 


      PROGRAM EVALUATIONS
-------------------------------------------------------- Chapter 0:4.6

The Results Act defines program evaluations as assessments, through
objective measurement and objective analysis, of the manner and
extent to which federal programs achieve intended objectives. 
Although the Fund's plan does discuss various evaluation options, it
does not discuss the role of program evaluations in either setting or
measuring progress against all strategic goals.  Also, the list of
evaluation options does not describe the general scope or methodology
for the evaluations, identify the key issues to be addressed, or
indicate when the evaluations will occur. 


      OTHER MATTERS
-------------------------------------------------------- Chapter 0:4.7

Our review of the Fund's strategic plan also identified other areas
that could be improved.  For instance, OMB's guidance on the Results
Act directs that federal programs contributing to the same or similar
outcomes should be coordinated to ensure that their goals are
consistent and their efforts mutually reinforcing.  The Fund's
strategic plan does not explicitly address the relationship of the
Fund's activities to similar activities in other agencies or indicate
whether or how the Fund coordinated with other agencies in developing
its strategic plan.  Also, the capacity of the Fund to provide
reliable information on the achievement of its strategic objectives
at this point is somewhat unclear.  Specifically, the Fund has not
developed its strategic plan sufficiently to identify the types and
the sources of data needed to evaluate its progress in achieving its
strategic objectives.  Moreover, according to a study prepared by
KPMG Peat Marwick, the Fund has yet to set up a formal system,
including procedures, to evaluate, continuously monitor, and improve
the effectiveness of the management controls associated with the
Fund's programs. 

In closing, Mr.  Chairman, our preliminary review has identified
several opportunities for the Fund to improve the effectiveness of
the CDFI and BEA programs and of its strategic planning effort.  In
our view, these opportunities exist, in part, because the Fund is new
and is experiencing the typical growing pains associated with setting
up an agency--particularly one that has the relatively complex and
long-term mission of promoting economic revitalization and community
development in low-income communities.  In addition, staffing
limitations have delayed the development of monitoring and
evaluations systems.  Recently, however, the Fund has hired several
senior staff--including a director; two deputy directors, one of whom
also serves as the chief financial officer; an awards manager; a
financial manager; and program managers--and is reportedly close to
hiring an evaluations director.  While it is too early to assess the
impact of filling these positions, the new managers have initiated
actions to improve the programs and the strategic plan.  Our report
may include any recommendations or options we may have to further
improve the operations of the CDFI Fund. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:5

We provided a copy of a draft of this testimony to the Fund for its
review and comment.  The Fund generally agreed with the facts
presented and offered several clarifying comments, which we
incorporated. 


-------------------------------------------------------- Chapter 0:5.1

We performed this review from September 1997 through May 1998 in
accordance with generally accepted government auditing standards. 

Mr.  Chairman, this concludes our testimony.  We would be pleased to
answer any questions that you or Members of the Committee may have at
this time. 


*** End of document. ***