According to provisions in annual appropriations laws,  grantees may use up to 20 percent of their annual grants plus program  income on administration. Information that grantees enter in  IDIS is used to generate financial summary reports, which contain  information on the CDBG funds available and expenditures incurred,  including the percentage of funds used for low- and moderate-income  persons, public services, and administration. The Administrative Limit Covers a Range of Activities

As previously noted, grantees may use no more than 20 percent of the  CDBG grant and program income received for a range of activities related  to program administration. Examples of eligible administrative activities  include    managing, overseeing, and coordinating the CDBG program;    providing local officials and citizens with information about the CDBG  conducting fair housing activities;    preparing reports and other HUD-required documents;    preparing comprehensive plans;    preparing community development plans;    developing functional plans for housing, land use, urban  environmental design, and economic development; and    providing policy planning. The matrix code used most often, general program administration, is  broad. Once adjusted for inflation, the funds  available for administrative costs decreased by 47 percent. Specifically,  the aggregate amount available to CDBG grantees for administrative  costs for fiscal year 2012 was $590 million, down from approximately  $881 million in fiscal year 2001 nominal dollars (see fig. Reducing staff. For example, one grantee used its local funds to  supplement the salaries of CDBG staff. Limiting the number and types of projects. For example, officials from a grantee we  contacted told us that they had revisited the consolidated plan to determine  which CDBG activities the city could continue to fund and had determined  that it could no longer administer its housing rehabilitation program. While the grantees have taken a number of steps to address declining  funds available for administering CDBG as the program has gotten  smaller, the vast majority of the grantees we spoke with told us that a  reduction in the statutory limit on using funds for administration would  have a significant impact on their ability to administer and oversee the  projects they implemented with CDBG funding. HUD Does Not Routinely Assess Compliance with the Administrative Limit Across the Program

Incomplete data, technical limitations of IDIS, and reliance on field office  oversight have meant that HUD has not routinely assessed compliance  with the limit on the use of funds for administration across the program. If they do not choose this option, the  information is not saved. HUD allows  grantees to revise the information in IDIS or on their financial summary  reports if such errors occur. 3). In addition, because our analysis showed that  the majority of entitlement communities in program year 2010 obligated  between 15 percent and 20 percent of their funds for administration,  HUD’s lack of information on compliance across the program limits its  ability to determine how many may be affected by more stringent  requirements. While grantees are responsible for complying with the limit,  internal control guidance states that information needed to assess  compliance with laws and regulations should be timely and reported in a  manner that allows for effective monitoring. Because of  limitations in IDIS, HUD’s recent attempt to report on grantee compliance  across the program for a single year required a labor-intensive process that  ultimately produced data that were not reliable. Recommendation for Executive Action

In order to demonstrate compliance across the program with the statutory  limit on funds that can be used for administration, the Secretary of HUD  should direct the Assistant Secretary for Community Planning and  Development to develop a process for generating annual reports on  compliance across the program, including making any requisite changes  to IDIS to better ensure that the agency has complete and analyzable  data to support such reporting. As our draft report  noted, HUD can determine an individual grantee’s compliance with the  administrative limit but has to review each individual grantee’s report and  manually create a summary of compliance across the program. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to describe (1) the types of activities  that are subject to the 20 percent limit on administration and the ways in  which grantees have used their administrative funds, (2) trends in funds  available to grantees for Community Development Block Grant (CDBG)  administration and the impact of these trends on grantee spending, and  (3) the Department of Housing and Urban Development’s (HUD) reporting  on grantee compliance with the limit. To determine how grantees have used their administrative funds, we  interviewed HUD officials, reviewed the selected grantees’ annual reports  to HUD for 2010 or 2011, and reviewed and summarized expenditure  data from HUD’s Integrated Disbursement & Information System (IDIS). We  then compared HUD’s reporting on grantee compliance with internal  control standards for the federal government.
Why GAO Did This Study

CDBG is the federal government's principal community development program. In fiscal year 2012, Congress provided CDBG with approximately $3 billion for activities such as housing, economic development, and neighborhood revitalization. While a provision reducing the amount grantees can use for administration was considered but not enacted, GAO was required to examine grantees' use of administrative funds up to the allowed 20 percent of program funds. This report discusses (1) the types of activities subject to the 20 percent limit and grantees' use of their administrative funds, (2) trends in funds available to grantees for CDBG administration and the impact of these trends on grantees' administrative spending, and (3) HUD's reporting on compliance with the limit. GAO analyzed HUD data and program information, reviewed federal internal control standards, and interviewed HUD headquarters and field office staff and organizations representing grantees. GAO also interviewed 12 grantees selected based on grant size and location, among other things, to obtain a range of experiences.

What GAO Found

The annual appropriation for the Community Development Block Grant (CDBG) program allows grantees to use up to 20 percent of program funds for planning, management, and administration (collectively referred to as "administration"). Specifically, grantees may use these funds for a range of activities, including general management, oversight, and coordination; fair housing activities; preparing community development plans; and policy planning. The Department of Housing and Urban Development (HUD) uses broad categories, such as "general program administration" and "fair housing activities," to record grantees' administrative expenses. According to HUD's data for the last decade, grantees primarily recorded their administrative expenses under the general program administration category, which includes staff salaries. Grantees GAO interviewed added that they also used administrative funds to cover general administrative costs such as supplies, training, and travel.
The amount available to grantees for administrative costs decreased from 2001 to 2012 by 47 percent, or about $532 million in 2012 constant dollars, as the amount of overall CDBG funding declined. Grantees GAO interviewed reported taking various steps to address this decline, including reducing the number of CDBG staff and changing the types of projects they administered. For example, one grantee determined that it could no longer administer its housing rehabilitation program. However, the vast majority of the grantees that GAO interviewed said that reducing the statutory limit on administration would negatively impact their ability to administer and oversee CDBG-funded projects.
HUD does not routinely determine and report on compliance with the administrative limit across the program. HUD reviews financial summary reports--which contain information grantees enter in HUD's Integrated Disbursement & Information System (IDIS) and their own internal accounting systems--to determine individual grantees' compliance. Internal control guidance states that information needed to assess compliance with laws and regulations should be timely and reported in a manner that allows for effective monitoring. However, HUD managers cannot use IDIS to generate summaries of compliance with the administrative limit across the program. First, grantees are not required to save information from their own systems in IDIS. Second, when such data are saved, the information is not stored as separate data elements that can be extracted and analyzed. Rather, HUD officials must download each grantee's report and manually create a summary of compliance across the program. HUD's most recent attempt to assemble this information for a single year required a labor-intensive process that ultimately produced unreliable data. Without making changes to IDIS that allow for summaries of compliance across the program, HUD lacks the ability to monitor grantees' compliance across the program. Further, GAO's analysis of financial summary reports for program year 2010 (the most recent year available) showed that 60 percent of entitlement communities (eligible cities and counties) obligated between 15 percent and 20 percent of their funds for administration. Given these statistics, HUD could benefit from having the information it needs to determine how many grantees would be affected by reducing the administrative limit.

What GAO Recommends

GAO recommends that HUD develop a process for annually reporting on compliance across the program with the statutory limit on the use of funds for administration. In its response, HUD noted that it was not required to assess cumulative compliance with the limit. As discussed in the report, an annual report that summarizes individual grantee compliance is essential to effective monitoring.