Enterprise was founded in 1982 as a vehicle for helping low-income people  revitalize their communities. Originally the act  focused on providing funding for capacity building in 23 urban areas. Currently, it provides funding to groups and activities in urban, rural, and  tribal areas nationwide. Grantees Use a Variety of Methods to Help Build Capacity

LISC and Enterprise are national organizations that use local program  offices to provide financial and technical support to CDCs. Generally, Section 4 funds are used to pay for staff salaries, training,  technology, and office supplies and equipment and to fund the operating  support collaboratives. Figure 4 illustrates  the broad impact that Section 4 funding had for this nonprofit organization  on other CDCs. All four grantees currently have initiatives that  focus on these areas. Grantees Have Raised Significant Amounts of Private Sector Funding and other cash and in-kind contributions. However, we could not demonstrate Other Resources

Since the four grantees became eligible for Section 4 funding, they have  raised nearly $800 million from the private sector in matching funds and  empirically that Section 4 funding influenced the grantees’ fund-raising  owing to external factors such as economic trends and private sector  interests. However, HUD relies on the grantees to ensure that they and their  subrecipients are matching funds correctly. Furthermore, in response to a GAO report  recommendation that HUD require program offices to determine the  practicability of measuring the impact of technical assistance and  establishing objective, quantifiable, and measurable performance goals,  HUD is working with a group of national technical assistance providers to  develop a framework to assess the effectiveness of its technical assistance  programs. HUD is responsible for ensuring that  grantees are utilizing Section 4 funds according to federal law and  regulations and has several controls in place to ensure that they do. While HUD has overarching responsibility for detecting such  internal control failures, the cost-effectiveness of adding additional federal  controls at the subrecipient level must be weighed against the size of the  program and the amount of federal funding involved. Given the relative  size of the Section 4 program and the fact that similar problems should not  recur if HUD and the grantees remain vigilant, we do not believe that  additional controls are necessary at this time. To determine the importance of Section 4 funding to private sector  involvement in community development initiatives, we reviewed public  laws, federal regulations, HUD directives, budget documents, and other  materials. To determine how HUD and Section 4 grantees controlled the  management and measured the impact of Section 4 programs, we  reviewed and analyzed HUD and grantee criteria, processes and  procedures for monitoring, controlling, and measuring performance and  tested grantee monitoring and control procedures at seven subrecipients. We will also  send copies to the Secretary of Housing and Urban Development and the  Director of the Office of Management and Budget.
Why GAO Did This Study

Congress recognized the importance of building the capacity of community development organizations by passing Section 4 of the HUD Demonstration Act of 1993. The act authorized the Department of Housing and Urban Development (HUD) to partner with several national nonprofit organizations that provide funding to these community groups for such things as training, staff salaries, office equipment and supplies, and management information systems. In 2002, HUD provided $31 million for capacitybuilding activities. To help Congress with its oversight of Section 4, we reviewed the evolution and use of Section 4 funding, the importance of Section 4 funding to private sector involvement, and the management controls and measurements that are in place to assess Section 4.

What GAO Found

We found that Section 4 has evolved from a narrowly targeted initiative that focused on providing funding for capacity building in 23 urban areas to a broader program that funds groups and activities in urban, rural, and tribal areas nationwide. The four organizations (grantees) use Section 4 funding to provide a variety of capacity-building support to their subrecipients. These subrecipients are nonprofit organizations that undertake locally targeted initiatives in areas such as economic development, low-income housing construction, and job training. The Section 4 funds that the grantees receive help leverage private sector funding and in-kind contributions such as land and equipment, pro bono legal services, office space, and voluntary labor. Since the four grantees became eligible for Section 4 funding, they have leveraged nearly $800 million in cash and in-kind contributions from the private sector. HUD is responsible for ensuring that Section 4 funds are used according to federal law and regulations and that grantees are utilizing funds efficiently and effectively. However, HUD relies on grantees to oversee their subrecipients. The grantees had far-reaching organizational structures and processes in place to monitor and control their subrecipients. But we found that one of the seven subrecipients we tested for monitoring and control procedures had reimbursed a subrecipient for an item that was prohibited by the Office of Management and Budget (OMB). While HUD has the overall responsibility to prevent such internal control failures, the cost-effectiveness of adding additional federal controls must be weighed against the amount of the federal dollars involved. We believe that as long as HUD and the grantees remain vigilant, additional controls are not necessary at this time. HUD is taking steps to develop a framework for assessing the effectiveness of its technical assistance programs and will take part in an OMB Program Assessment Rating Tool review.