Program funds can be used on housing, economic development,  neighborhood revitalization, and other community development activities. According to HUD’s data, CDBG recipients spend the  largest percentage of their funding on public improvements and housing  activities. In fiscal year 2005, recipients spent  about $4.8 billion in CDBG funds to address a wide range of local needs. HUD Does Not Centrally Maintain the Data Needed to Determine Compliance with Statutory Spending Limits on Public Service Activities and Administration and Planning

HUD does not centrally maintain the data needed to determine if  entitlement communities and states are complying with the statutory  spending limits on public services and administration and planning. In the absence of centralized data on all recipients, we requested that HUD  contact its field offices to provide data on the extent to which the 100 most  populous entitlement communities had complied with the statutory  spending limits in program year 2004. These entitlement communities  received about one-third of the CDBG funds allocated in fiscal year 2006. Our analysis of the limited data showed that not all of these entitlement  communities complied with the statutory spending limits. Of the 100  entitlement communities, 3 exceeded their public service spending limit,  and 1 exceeded the administration and planning spending limit. Although HUD Uses a Risk-Based Approach to Monitor CDBG Recipients, It Lacks a Plan to Replace Monitoring Staff and Has Not Fully Involved Field Staff in Its Plans to Redesign IDIS

While HUD has implemented a risk-based monitoring strategy for the  CDBG program, it has not developed a plan to ensure that it has enough  staff with the skills needed to conduct monitoring or fully involved its field  staff in plans to redesign IDIS, an information system they use to monitor  recipients. HUD’s monitoring strategy calls for its field offices to consider  various risk factors when determining which recipients to review because  it has limited monitoring resources, and its workload has increased as its  staffing levels have decreased. For example, 13 of the 42 field offices  overseeing CDBG recipients do not have a financial specialist, and 39  percent of its field staff is eligible to retire within the next 3 years. Despite  these statistics, HUD has not developed a plan to hire staff with needed  skills or help manage upcoming retirements. Finally, although IDIS is one  of the tools that HUD field staff use to monitor recipients, HUD  headquarters has solicited little input from them on efforts to redesign  IDIS. HUD Has Implemented a Clear Timeliness Policy, but Has Not Issued Similar Guidance on Other Enforcement Actions

Although HUD has issued a clear policy stating what actions it will take  when entitlement communities fail to meet the statutory requirement that  funds be spent in a timely manner, it has not developed similar guidance  establishing a consistent framework for holding CDBG recipients  accountable for deficiencies identified during monitoring. As it  monitors CDBG recipients, however, HUD has the flexibility to assess other  sanctions ranging from issuing a warning letter to advising the recipient to  pay back CDBG funds. Entitlement communities collectively spend at or close to the limits on  public services and planning and administration. Therefore, it is important  for HUD to be able to report on the extent of entitlement community  compliance with these limits. We will also send copies to the  Secretary of Housing and Urban Development. In particular, we examined (1)  how recipients have used CDBG funds, including the extent to which they  have funded activities that meet national program objectives, complied  with spending limits, and reported accomplishments achieved with funds;  (2) how HUD has monitored recipients’ use of CDBG funds; and (3) how  HUD has held recipients that have not complied with CDBG program  requirements accountable for their actions. Given the great flexibility  that exists when taking sanctions, we believe it would be useful to  provide field office staff further guidance to ensure they are treating  recipients that commit similar infractions equitably.
Why GAO Did This Study

The Community Development Block Grant (CDBG) program provides funding for housing, economic development, and other community development activities. In fiscal year 2006, Congress appropriated about $4.2 billion for the program. Administered by the Department of Housing and Urban Development (HUD), the CDBG program provides funding to metropolitan cities and urban counties, known as entitlement communities, and to states for distribution to nonentitlement communities. This report discusses (1) how recipients use CDBG funds, including the extent to which they comply with spending limits, (2) how HUD monitors recipients' use of CDBG funds, and (3) how HUD holds recipients that have not complied with CDBG program requirements accountable. To address these objectives, we visited 20 recipients, analyzed HUD data, and interviewed HUD staff.

What GAO Found

HUD data show that CDBG recipients spend the largest percentage of their grants on public improvements (such as water lines and streets) and housing, but HUD does not centrally maintain the data needed to determine compliance with statutory spending limits. Due to the lack of centralized data, GAO was not able to determine the extent to which all recipients have complied with statutory spending limits on public services (such as health and senior services) and administration and planning. However, data provided by HUD for the 100 most populous entitlement communities, which received about one-third of the CDBG funds allocated in fiscal year 2006, showed that not all of these entitlement communities complied with the limits. Of the 100 communities, 3 exceeded their public service spending limit, and 1 exceeded the administration and planning spending limit. Given that entitlement communities collectively spend at or close to the limits, it is important for HUD to be able to report on the extent of their individual compliance with these limits. HUD uses a risk-based approach to monitor CDBG recipients; however, it has not developed a plan to replace monitoring staff or fully involved its field staff in plans to redesign an information system they use to monitor recipients. HUD's monitoring strategy calls for its field offices to consider various risk factors when determining which recipients to review because it has limited monitoring resources, and its workload has increased as its staffing levels have decreased. For example, 13 of the 42 field offices that oversee CDBG recipients do not have a financial specialist to evaluate the financial operations of each recipient, and 39 percent of CDBG monitoring staff is eligible to retire within the next 3 years. Despite these statistics, HUD has not developed a plan to hire staff with needed skills or manage upcoming retirements. Finally, although the Integrated Disbursement and Information System (IDIS) is a tool that HUD field staff use to monitor, HUD headquarters has solicited little input from them on efforts to redesign IDIS. Although it has issued a clear policy stating what actions it will take when entitlement communities fail to meet the statutory requirement that funds be spent in a timely manner, HUD has not developed similar guidance establishing a consistent framework for holding CDBG recipients accountable for deficiencies identified during monitoring. For deficiencies other than being slow to expend funds, HUD has the flexibility to institute sanctions ranging from issuing a warning letter to advising the recipient to return funds. Although its field offices have great flexibility when taking sanctions, HUD has not issued guidance establishing a framework to ensure that they are treating recipients that commit similar infractions equitably. We found instances in fiscal year 2005 where treatment seemed inconsistent. For example, several field offices found that recipients had not documented that a funded activity met any one of the program's three national objectives, but took different actions. In the continued absence of guidance, HUD lacks a means to better ensure consistency in the sanctioning process.