The ESG  program is targeted at persons experiencing homelessness. Grantees and Subgrantees We Visited Reported a Range of Administrative Activities Whose Costs Generally Were Not Fully Covered by the ESG Allowance

We found that ESG grantees and subgrantees in the states we visited  performed a range of administrative activities, but the program’s  allowance for administrative costs generally did not fully cover the cost of  these activities. In addition, there are minimal standards  that can be used as guidance for evaluating the appropriateness of ESG  administrative costs, and we found that grantees and subgrantees in the  states we visited monitored ESG administrative costs at varying levels of  detail. Our review found these  grantees’ ESG administrative activities generally focused on awarding  subgrants and monitoring subgrantee performance. Our review found that their ESG  administrative activities generally focused on operating programs and  reporting outcomes. Overall, the unfunded  administrative costs reported to us across the eight grantees and 22  subgrantees we visited for which information was available averaged an  estimated 13.2 percent of the ESG allocation, with a range of 2.5 percent to  56 percent. Thus, reliance on private  donations to cover unfunded ESG administrative costs may become more  challenging. Some grantees and subgrantees in the states we visited told us the need to  cover unfunded ESG administrative costs using other funding sources has  diminished their ability to fund other program activities. Funding and Treatment of Administrative Costs Varied Across Selected Federal Grant Programs

We found that the funding and treatment of administrative costs varied  across the other targeted federal homeless grant programs we reviewed. Among programs with a maximum administrative allowance, the ESG  program’s current 5 percent maximum administrative allowance for  grantees is one of the lower allowances. The maximum administrative  allowance for the other programs that have specified a maximum  allowance ranges from 4 percent to 50 percent. For example, HUD’s Supportive Housing  Program requires grantees to share administrative allowances with  subgrantees, but does not specify the amount. Third, we found that program guidance on the appropriateness of  administrative costs differed across the targeted homeless programs we  reviewed, and that no program offered comprehensive direction on  eligible and ineligible administrative activities. Some ESG Recipients Expect the Nature of Administrative Costs to Change and the Amount to Increase under New Activities Authorized by the HEARTH Act

A number of grantees and subgrantees in the states we visited and others  told us they expect that the newly allowable ESG activities authorized by  the HEARTH Act will result in different kinds of administrative activities  that in many cases will be more costly than before. Overall, grantees and subgrantees told us they  expect changes in areas including client screening and eligibility  verification, technical assistance to subgrantees, number of applicants for  grants, and facility management and collaboration with third parties,  which in turn could affect administrative costs. Although the HEARTH Act makes significant changes to allowable ESG  activities, it remains unclear when actual program changes might be  implemented. Uncertainty over how and when the new ESG program might be  implemented, as well as variation in the nature of administrative activities  seen in the current ESG program, complicate any attempt to determine the  appropriate size of the program’s administrative allowance. Appendix I: Scope and Methodology

To determine the types of administrative activities performed and costs  incurred under the Emergency Shelter Grants Program (ESG) of the U.S.  Department of Housing and Urban Development (HUD), and the extent to  which grant proceeds cover these administrative costs, we made site visits  to four states: California, Georgia, Michigan, and Pennsylvania. To determine how the ESG program’s allowance for administrative costs  compares with administrative cost allowances for selected other targeted  federal homeless grant programs, plus selected other HUD formula-based  grant programs, we interviewed officials from HUD and the Departments  of Education, Labor, and Health and Human Services. To determine how the nature or amount of administrative costs might be  different under the changes Congress made to the ESG program in the  Homeless Emergency Assistance and Rapid Transition to Housing Act of  2009, we reviewed relevant provisions of the act detailing the newly  allowable activities.
Why GAO Did This Study

The Homeless Emergency Assistance and Rapid Transition to Housing Act of 2009 (HEARTH Act) directed GAO to study the appropriate administrative costs of the U.S. Department of Housing and Urban Development (HUD) Emergency Shelter Grants Program (ESG)--a widely used, formula-based program that supports services to persons experiencing homelessness. This report discusses (1) for selected recipients, the types of administrative activities performed and administrative costs incurred under the ESG program, and the extent to which grant proceeds cover these administrative costs; (2) how the ESG program's allowance for administrative costs compares with administrative cost allowances for selected other targeted federal homeless grant programs, plus selected other HUD formula-based grant programs; and (3) how the nature or amount of administrative costs might be different under changes Congress made to the ESG program in the HEARTH Act that expand the types of activities that may be funded. To address these issues, GAO reviewed relevant policies and documents, interviewed officials of HUD and other agencies, made site visits in four states, reviewed HUD and other available standards on eligible administrative costs for federal grants, and reviewed cost allowances for homeless programs of the Departments of Education, Labor, and Health and Human Services. GAO makes no recommendations in this report.

What GAO Found

ESG grantees and subgrantees we visited in four states performed a range of administrative activities, but the ESG program's allowance for administrative costs--currently 5 percent--did not fully cover the cost of these activities. Grantees generally focused their administrative activities on awarding subgrants and monitoring subgrantee performance, while subgrantees focused their administrative activities on operating their programs and reporting results to their respective grantees. To cover unfunded ESG administrative costs, grantees and subgrantees told us they used other sources, such as other grants or private donations. They added that these estimated unfunded administrative costs, which averaged 13.2 percent and ranged from amounts equal to 2.5 percent to 56 percent of their ESG grant proceeds, diminished their ability to support other program activities. In addition, we found minimal standards available for evaluating the appropriateness of ESG administrative costs, and grantees and subgrantees in the states we visited monitored ESG administrative costs in varying levels of detail. The funding and treatment of administrative costs varied across other targeted federal homeless grant programs we reviewed. For example, the maximum administrative allowance for grantees ranged from 4 percent to 50 percent for programs with such a provision; the ESG program's current 5 percent allowance is thus one of the lower amounts provided. Programs with similar funding structures varied in their requirements for grantees to share their administrative allowance with subgrantees; the ESG program generally does not require grantees to share their allowance. In addition, none of the programs we reviewed offered comprehensive direction on eligible and ineligible administrative activities. Overall, these and other varying program features make it difficult to make direct comparisons between the administrative cost provisions of the ESG program and those of other targeted federal homeless grant programs. A number of ESG grantees and subgrantees we visited told us they expect the new ESG activities authorized by the HEARTH Act will result in different kinds of administrative activities that in many cases will be more costly. They cited client screening and eligibility verification, technical assistance to subgrantees, number of grant applicants, and facility management and collaboration with third parties as among areas where administrative costs may increase. Although the HEARTH Act makes significant changes, including increasing the administrative cost allowance to 7.5 percent, it remains unclear when new program activities might be implemented. Uncertainty over how and when the new ESG program might be implemented, plus variation in administrative activities under the current program, complicate any attempt to determine the appropriate size of the ESG administrative allowance. HUD told us in comments on a draft of this report that some subgrantees appear to be confusing program and administrative costs, thus potentially overstating any need for a larger administrative allowance.