United States Government Accountability Office

GAO Report to Congressional Committees

TREASURY’S BANK 

ENTERPRISE AWARD 

PROGRAM 

Impact on 

Investments in 

Distressed 

Communities Is 

Difficult to Determine, 

but Likely Not 

Significant 

July 2006 

 

GAO-06-824 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 2006

TREASURY’S BANK ENTERPRISE 

AWARD PROGRAM 

Impact on Investments in Distressed 

Communities Is Difficult to Determine, but 

Likely Not Significant 

Highlights of GAO-06-824, a report to 

congressional committees 

Established in 1994, the

Department of the Treasury’s Bank

Enterprise Award (BEA) program 

provides cash awards to banks that 

increase their investments in

community development financial 

institutions (CDFI) and lending in 

economically distressed

communities. CDFIs are

specialized institutions that provide

financial services to areas and 

populations underserved by

conventional lenders and investors. 

In 2005, Treasury provided nearly

$10 million in BEA awards. 

The BEA program has faced 

longstanding questions about its

effectiveness and experienced

significant declines in funding in 

recent years. This report (1) 

examines the extent to which the 

BEA program may have provided 

banks with financial incentives and 

(2) assesses the BEA program’s 

performance measures and internal

controls. 

To complete this study, GAO 

reviewed relevant award data;

interviewed Treasury, bank, and 

CDFI officials; and assessed the 

BEA program’s performance 

measures and internal controls

against GAO’s standards for

effective measures and controls. 

What GAO Recommends

GAO recommends that Treasury

strengthen its internal controls to

ensure proper award payments.

Treasury disagreed with aspects of 

GAO’s analysis but agreed to

implement the recommendation. 

The extent to which the BEA program may provide banks with incentives to 

increase their investments in CDFIs and lending in distressed communities is 

difficult to determine, but available evidence GAO reviewed suggests that 

the program’s impact has likely not been significant. Award recipients GAO 

interviewed said that the BEA program lowers bank costs associated with 

investing in a CDFI or lending in a distressed community, allowing for 

increases in both types of activities. However, other economic and 

regulatory incentives also encourage banks to undertake award-eligible 

activities, and it is difficult to isolate and distinguish these incentives from 

those of a BEA award. For example, banks may have economic incentives to

lend in distressed communities because of the potential profitability of such 

lending. Although it is difficult to determine the BEA program’s impact, 

available evidence suggests that the impact likely has not been significant. 

For example, the size of a BEA award for large banks (which was .0004 

percent of assets in 2005) suggests that a BEA award does not have much 

influence on such banks’ overall investment and lending decisions (see 

figure). However, BEA awards may allow large banks to incrementally 

increase their award-eligible investments and lending. 

The BEA program’s performance measures likely overstate its impact, 

and GAO identified weaknesses in certain program internal controls. To 

assess the BEA program’s performance, Treasury, among other 

measures, annually aggregates the total reported increase in CDFI 

investments and distressed community loans by all applicants but does 

not account for other factors, such as economic and regulatory

incentives that also affect bank decisions. GAO also found that Treasury 

has limited controls in place to help ensure that BEA program applications 

contain accurate information. In particular, Treasury provides limited 

guidance to application review staff to identify potential errors and does not 

require the reviewers to completely document their work. As a result, GAO 

found that the BEA program is vulnerable to making improper payments. 

Average BEA Award as a Percentage of Large Banks’ Assets,a2003 through 2005 

Year Number of banksb

Average award as percentage

of total assets

2003 21 .0005

2004 17 .0004

2005 22 .0004

Source: GAO analysis of Treasury data. 

a

Large banks, for purposes here, are those with assets of $1 billion or more. 

b

Large banks received 43 percent of all BEA dollars in 2003, 8 percent in 2004, and 38 percent in 

2005. 

www.gao.gov/cgi-bin/getrpt?GAO-06-824.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact George A. 

Scott at (202) 512-5932 or scottg@gao.gov. 
Contents 

Letter 1

Results in Brief 4

Background 6

The BEA Program Reportedly Produces Benefits, but Available 

Evidence Suggests That the Program’s Impact Has Likely Not 

Been Significant 9 

The BEA Program’s Performance Measures Likely Overstate Its 

Impact, and Treasury’s Internal Controls to Ensure Proper 

Award Payments Have Weaknesses 14 

Conclusions 18

Recommendation for Executive Action 19 

Agency Comments and Our Evaluation 19 

Appendix I Objectives, Scope, and Methodology 24 

Appendix II Comments from the Department of the Treasury 26 

GAO Comments 31 

Appendix III GAO Contact and Staff Acknowledgments 32 

Tables 

Table 1: Percentage of Reported Increase in Award-Eligible 

Activities, Fiscal Year 2005 and 2006 7 

Table 2: Average BEA Award as a Percentage of Large Banks’ 

Assets, 2003 through 2005 13 

Page i GAO-06-824 Treasury's Bank Enterprise Award Program
Abbreviations 

BEA Bank Enterprise Award 

CDFI community development financial institution 

CRA Community Reinvestment Act of 1977 

OMB Office of Management and Budget 

Treasury U.S. Department of the Treasury 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page ii GAO-06-824 Treasury's Bank Enterprise Award Program
United States Government Accountability Office

Washington, DC 20548 

July 31, 2006

The Honorable Christopher Bond 

Chairman 

The Honorable Patty Murray 

Ranking Minority Member 

Subcommittee on Transportation, Treasury, 

 the Judiciary, Housing and Urban Development,

 and Related Agencies 

Committee on Appropriations 

United States Senate 

The Honorable Joe Knollenberg 

Chairman 

The Honorable John W. Olver 

Ranking Minority Member 

Subcommittee on Transportation, Treasury, 

 and Housing and Urban Development, the Judiciary, 

 the District of Columbia and Independent Agencies 

Committee on Appropriations 

House of Representatives 

Established in 1994, the Department of the Treasury’s (Treasury) Bank 

Enterprise Award (BEA) program was designed to provide financial 

incentives for FDIC-insured banks and thrifts (hereafter referred to as 

banks) to increase their investments in community development financial

institutions (CDFI)1

 and lending within eligible distressed communities as 

defined by statutory and regulatory requirements.2

 CDFIs are private forprofit or not-for-profit financial institutions that provide financial services 

(e.g., loans) to communities traditionally underserved by conventional 

lenders and investors and that Treasury may certify for participation in the 

 1

For purposes of this report, investments in CDFIs are equity investments, equitylike loans, 

grants, loans, deposits or shares, and technical assistance. 

2

See 12 C.F.R. §1806.200, which requires a BEA award applicant to designate one or more 

distressed communities in which it will carry out distressed community financing or 

service activities and establishes minimum eligibility and distress requirements for such a

community. 

Page 1 GAO-06-824 Treasury's Bank Enterprise Award Program
BEA program and other related programs.3

 CDFIs include community 

development banks, which may receive BEA awards because they are 

FDIC-insured; credit unions, which are ineligible for BEA awards because 

they are not FDIC-insured; loan funds; and venture capital funds.4

 Due to 

statutory and regulatory requirements, community development banks, 

which tend to be small institutions, receive relatively larger BEA awards 

for increasing certain award-eligible investments and lending compared to 

traditional banks.5

 In providing banks with incentives to increase their 

award-eligible activities, the BEA program seeks to build the financial 

capacity of CDFIs, so they may better serve their customers, and the 

availability of direct lending within distressed communities.

However, the BEA program has faced long-standing questions about its 

effectiveness and experienced significant funding declines in recent years. 

A 1998 GAO report, as well as a 2002 review by the Office of Management 

and Budget (OMB), both questioned the extent to which the BEA program 

provided banks with financial incentives to increase their award-eligible 

activities.6

 For example, we and OMB stated that the Community 

Reinvestment Act of 1977 (CRA) provides banks with incentives to make 

similar investments and loans that the BEA program awards and that it can 

 3

Treasury has a process for certifying a CDFI, which means that the institution meets

certain CDFI eligibility requirements—including having a primary mission of promoting 

community development and a predominant business activity of providing financial 

products, development services, or other similar financing to a target population or an

investment area. 12 C.F.R. § 1805.201. 

4

As of January 1, 2006, Treasury had certified 752 CDFIs. Among these, 55 were community

development banks that FDIC insures, 146 were credit unions that the National Credit 

Union Share Insurance Fund insures and therefore are ineligible for BEA awards, 505 were 

loan funds, 22 were venture capital funds, and 24 were depository-holding companies. For 

purposes of this report, depository-holding companies are considered banks. 

5

Community development banks, for purposes of this report, are those Treasury has

certified as such banks. Traditional banks, for purposes of this report, are noncommunity

development banks. BEA awards to community development banks can be as much as 

three times higher than awards to traditional banks that make similar investments and 

loans. 

6

GAO, Community Development: CDFI Fund Can Improve Its Systems to Measure, 

Monitor, and Evaluate Awardees’ Performance, GAO/RCED-98-225 (Washington, D.C.: 

July 15, 1998); and Office of Management and Budget, Bank Enterprise Award Assessment 

(Washington, D.C., 2002). 

Page 2 GAO-06-824 Treasury's Bank Enterprise Award Program
be difficult to distinguish CRA’s incentives from those of a BEA award.7

Further, from fiscal years 2000 through 2005, BEA program funding 

declined from over $46 million to about $10 million, the number of award 

recipients declined from 159 to 53, and Treasury has increasingly been 

unable to award all qualified applicants.8

 The average BEA award amount 

also dropped from almost $292,000 to about $187,000 during the period. 

Noting concerns about funding reductions to the BEA program and other 

related programs within Treasury, as well as the lack of a recent thirdparty evaluation, a fiscal year 2006 report by the Senate Committee on 

Appropriations requires us to assess the BEA program, particularly the 

extent to which it affects bank behavior in providing financial services to 

distressed communities.9

 As agreed with committee staff, this review also 

includes an assessment of certain aspects of Treasury’s administration of 

the BEA program. Accordingly, this report (1) examines the extent to 

which the BEA program may have provided banks with financial 

incentives to increase their investments in CDFIs and lending in distressed 

communities and (2) assesses the BEA program’s performance measures 

and certain internal controls designed to ensure proper award payments. 

To conduct our work, we reviewed relevant program statutes, regulations, 

guidelines, memorandums, and reports; interviewed Treasury officials 

regarding the BEA program’s impact and administration; interviewed CDFI 

trade associations regarding their views of the program; and interviewed a 

nonprobability sample of nine BEA award recipients and five CDFI 

beneficiaries participating in the fiscal year 2005 round of awards.10 While 

 7

Pub. L. No. 95-128, title VIII, 91 Stat. 1147 (Oct. 12, 1977) (codified at 12 U.S.C. §§ 2901–

08). CRA requires financial regulators, for each institution they regulate, to assess the 

institution’s record of meeting the credit needs of all areas in the community served, 

consistent with safe and sound banking operations, and to take that record into account in 

evaluating the institution’s applications for a deposit facility, such as opening new branch

offices. 12 U.S.C. § 2903. 

8

Treasury’s inability to award all eligible activities has resulted in some banks’ reported

activities, such as increased lending in distressed communities, not receiving BEA award 

dollars. For fiscal year 2006, the Senate Committee on Appropriations expressed an 

expectation that the BEA program would be funded at no less than $11,000,000. See S. Rep.

No. 109-109, 129 (July 26, 2005). 

9

S. Rep. No. 109-109, 129 (July 26, 2005). 

10For purposes of this report, CDFI beneficiaries, also known as CDFI partners, consist of 

community development banks, credit unions, loan funds, and venture capital funds. They 

are the recipients of a BEA awardee’s investment. 

Page 3 GAO-06-824 Treasury's Bank Enterprise Award Program
results from these interviews cannot be projected to the entire population

of BEA award recipients and beneficiaries, we selected these recipients 

and beneficiaries for interviews to assure variation on a range of 

characteristics, including differing asset sizes, frequency of program 

participation, award-to-asset percentages, and CDFI type. Our interviews 

with award recipients included both community development banks and 

traditional banks. We also assessed the BEA program’s performance 

measures and internal controls against our standards for effective 

measures and controls. 

We conducted our work from October 2005 through July 2006 in 

Washington, D.C., in accordance with generally accepted government 

auditing standards. Appendix I provides a description of our scope and 

methodology in greater detail. 

The extent to which the BEA program may provide banks with incentives 

to increase their investments in CDFIs and lending in distressed 

communities is difficult to determine, but available evidence we reviewed 

suggests that the program’s impact likely has not been significant. 

According to Treasury officials and some BEA award recipients we 

interviewed, the BEA program produces a range of benefits, such as 

lowering bank costs associated with investing in a CDFI or lending in a 

distressed community, which encourages and allows banks to increase 

both types of activities. According to Treasury officials, the BEA program 

has also encouraged partnerships between banks and CDFIs. However, 

independently evaluating and isolating the BEA program’s impact is 

difficult because other economic and regulatory incentives also affect 

bank behavior. For example, banks have economic incentives to lend in 

distressed communities because BEA-eligible loans can be profitable. In 

addition, CRA provides banks with a regulatory incentive to undertake 

award-eligible activities. In accordance with CRA, federal regulators 

examine and assess banks based on their efforts to provide financial 

services (e.g., investments in CDFIs or loans in distressed communities) in 

all areas of the community they serve and may consider inadequate 

compliance when reviewing a bank’s application to merge or expand 

operations. Moreover, even when not accounting for other economic and 

regulatory incentives, BEA awards for large banks may be small and, 

therefore, may not have much influence on their overall investment and 

lending decisions, although the awards may provide such banks with the 

capacity to incrementally increase their award-eligible activities. In 

addition, until 2003, BEA awards may have provided certain community 

development banks with incentives to benefit financially from activities 

Results in Brief 

Page 4 GAO-06-824 Treasury's Bank Enterprise Award Program
that were inconsistent with program goals, and available studies indicate

that certain CDFIs have been able to raise an increased amount of capital 

from banks concurrent with recent declines in BEA program funding and 

participation. 

The BEA program’s performance measures likely overstate the program’s 

impact; in addition, we identified weaknesses in certain BEA program 

internal controls. To assess the BEA program’s performance, Treasury, 

among other measures, annually aggregates the total reported increase in 

CDFI investments and distressed community loans by all applicants and 

attributes this increase solely to the BEA program. For example, Treasury 

attributed a reported $100 million increase in applicants’ CDFI 

investments and distressed community loans to the $10 million in BEA 

awards it distributed in 2005. Because this and similar BEA program 

performance measures do not isolate the prospect of BEA award receipt 

from other economic and regulatory incentives, such as loan profitability 

and CRA requirements, they likely attribute more influence to the program 

than can be substantiated. Furthermore, we identified weaknesses in the 

BEA program’s system of internal control, which increase its vulnerability 

to improper payments. Specifically, we found that Treasury has limited 

controls in place to ensure that BEA applications contain accurate 

information upon which to make award determinations (i.e., bankfinanced properties are located in eligible distressed communities as 

defined by statutory and regulatory requirements). We also found that 

Treasury provides limited guidance to its application review staff to 

identify potential errors in the reporting of a financed property’s location

and does not require the reviewers to completely document their work. 

This report recommends that Treasury revise its guidance to application 

review staff and require staff to document their work to help ensure that 

errors in the reporting of property location are identified and the risk of 

improper payments is minimized. Treasury provided written comments on

a draft of this report that are reprinted in appendix II. In its comments, 

Treasury agreed with our conclusion that determining the BEA program’s 

impact is difficult, but disagreed with certain aspects of our analysis. For 

example, Treasury said that our examination of the BEA program’s impact 

on bank behavior bases many of its conclusions on information that is 

overly general, outdated, or developed for purposes other than to evaluate

the BEA program. Treasury also said that we did not adequately consider 

evidence the department provided regarding the BEA program’s impact. 

We believe the information and evidence used to support our conclusions 

is appropriate and continue to conclude that the BEA program’s impact on 

bank behavior has likely not been significant. Treasury did agree to 

Page 5 GAO-06-824 Treasury's Bank Enterprise Award Program
implement our report’s recommendation. Treasury’s comments and our 

evaluation of them are discussed in greater detail at the end of this report. 

Treasury also provided technical comments that we have incorporated, as

appropriate.

The BEA program’s goals are to encourage banks to increase their 

investments in CDFIs and lending and other financial services in 

distressed communities.11 Unlike grant programs, which are usually 

prospective—meaning they award applicants based on their plans for the

future—the BEA program is retrospective, awarding applicants for 

activities they have already completed. Under the program’s authorizing 

statute, BEA award recipients are not limited in how they may use their 

award and, therefore, may use their award proceeds in any manner they 

deem fit. 

Background 

To encourage increased investment and lending, the BEA program awards 

applicants on the basis of their increased activities from one year (known 

as the baseline year) to the next (the assessment year).12 For example, for 

the fiscal year 2005 round of awards, calendar year 2003 was the baseline

year and calendar year 2004 was the assessment year. When applying for 

awards, applicants may submit an application for any of the following 

three award categories: (1) CDFI-related activities, (2) distressed 

community financing activities, and (3) service activities. CDFI-related 

activities are primarily investments in CDFIs, such as equity investments 

(including grants and equitylike loans), loans, and insured deposits. 

Distressed community financing activities are primarily loans, such as 

affordable housing loans, small-business loans, commercial real estate 

loans, and education loans. Service activities include the provision of 

 11According to BEA program regulations, a distressed community is defined as a 

geographic area where at least 30 percent of its residents have incomes less than the 

national poverty level; the unemployment rate is at least 1.5 times greater than the national 

average; and (a) the population of that area is at least 4,000 residents if any portion of the

area is located in a metropolitan area with a population of 50,000 or greater, (b) the 

population must be at least 1,000 residents if no portion of the area is located within such a 

metropolitan area, or (c) the area is located entirely within an Indian reservation. 12 C.F.R.

§ 1806.200; and 69 Fed. Reg. 54718, 54719 (Sept. 9, 2004). Further, under program 

regulations, distressed communities with poverty rates as low as 20 percent may qualify 

under certain circumstances.

12In 2003, Treasury changed the baseline and assessment periods from 6 months each to 12

months each. 

Page 6 GAO-06-824 Treasury's Bank Enterprise Award Program
financial services such as check-cashing or money order services, 

electronic transfer accounts, and individual development accounts. 

Pursuant to statutory and regulatory requirements, BEA awards are 

percentage matches of an applicant’s reported increase in activities; that 

is, banks qualify for a BEA award equal to the sum of the percentage

increase in the three program areas. For equity investments in CDFIs, the 

percentage match for both community development banks and traditional 

banks is the same—15 percent (see table 1). However, community 

development banks are eligible to receive awards three times higher than

traditional banks for increasing CDFI support activities (e.g., increasing 

insured deposits in other CDFIs) or increasing their lending and service 

delivery in distressed communities. For distressed community financing 

activities, a priority factor of 3.0 or 2.0 is assigned to each type of eligible

loan a BEA applicant originates—for example, a small-business loan is 

assigned 3.0 and an affordable housing development loan is assigned 2.0. 

The change in award-eligible activity (i.e., the increase in lending from the 

baseline to the assessment year) is multiplied by the applicable priority 

factor, and the result (or weighted value) is then multiplied by the 

applicable award percentage, yielding the award amount for that 

particular activity. 

Table 1: Percentage of Reported Increase in Award-Eligible Activities, Fiscal Year 

2005 and 2006

Percent 

CDFI-related activities

BEA-eligible 

activity 

Equity

investments 

(includes

grants and

equitylike 

loans)

Support 

activities 

(includes

insured

deposits)

Distressed

communities 

financing

activities 

Service

activities

Community 

development 

bank 

15 18 9 9

Traditional bank 15 6 3 3

Source: GAO.

To illustrate how the BEA program works, suppose a community 

development bank that did not have any investments in other CDFIs or 

loans in eligible distressed communities during the baseline year. During 

the assessment year, the bank makes the following investments or loans in 

Page 7 GAO-06-824 Treasury's Bank Enterprise Award Program
CDFIs: $300,000 in insured deposits in three community development 

credit unions (three insured certificates of deposits of $100,000 each), 

$500,000 in small-business loans, and $1 million in affordable housing 

development loans in distressed communities (total increased investments 

and loans of $1.8 million). Under this example, the bank would be eligible 

for a BEA award totaling $369,00013 (a 20.5 percent return on investment).14

Under the same scenario, a traditional bank would be eligible for a BEA 

award of $123,000 (or a return on investment of 6.8 percent).15

According to Treasury officials, the BEA program is seasonal and employs 

the equivalent of about six staff annually, who work on the program on an

as-needed basis. A program manager oversees the BEA program on a dayto-day basis. During the program’s peak application season, Treasury 

reassigns roughly 10 staff members from other job responsibilities to 

review BEA applications over a period of approximately 10 business days. 

During fiscal year 2005, it cost approximately $1.2 million to administer 

the BEA program. These costs are composed of personnel compensation, 

information technology, and administrative contracting services, among 

other costs. 

CRA requires federal bank regulators to assess how well the banks they 

regulate meet the credit needs of all areas of the community they serve,

including low- and moderate-income areas (insofar as is consistent with 

safe and sound operations) and to take this performance into account 

when considering a bank’s request for regulatory approval of a regulated 

action, such as opening a new branch or acquiring or merging with another 

bank. Federal regulators conduct examinations for compliance with CRA 

requirements on a frequency that varies depending on an institution’s size 

and prior rating.16 When conducting examinations, regulators check to see 

 13There is currently a $500,000 cap on the award any one bank may receive in a given year. 

14That is, the bank would be eligible for $54,000 for making $300,000 in insured deposits in 

the credit unions ($300,000 x 18 percent), $135,000 for increased small-business lending 

($500,000 x weighting factor of 3.0 = $1.5 million x 9 percent = $135,000), and $180,000 for 

increased affordable housing lending ($1 million x weighting factor of 2.0 = $2 million x 9

percent = $180,000). In sum, $54,000 + $135,000 + $180,000 = $369,000. 

15That is, the bank would receive $18,000 for $300,000 in insured deposits ($300,000 x 6 

percent), $45,000 for $500,000 small-business lending ($1.5 million x 3 percent = $45,000),

and $60,000 for affordable housing lending ($2 million x 3 percent = $60,000). In sum,

$18,000 + $45,000 + $60,000 = $123,000. 

16For example, the frequency would be no more than every 5 years for a small bank with an 

outstanding rating and every year for a large bank with less than a satisfactory rating. 

Page 8 GAO-06-824 Treasury's Bank Enterprise Award Program
whether a bank’s CRA compliance activities are an ongoing part of the 

bank’s business and generally apply three tests to make this 

determination:17

• A lending test evaluates the number, amount, and income and geographic 

distribution of a bank’s mortgage, small business, small farm, and 

consumer loans. 

• An investment test evaluates a bank’s community development 

investments, including its investments in CDFIs. 

• A service test evaluates a bank’s retail service delivery operations, such as 

branches and low-cost checking services. 

Upon completing examinations, regulators assign one of four ratings to a 

bank: outstanding, satisfactory, needs improvement, or substantial 

noncompliance. 

Treasury officials and some BEA award recipients we interviewed said 

that the BEA program provides banks with incentives to increase their 

investments in CDFIs and lending in distressed communities. However, 

determining the program’s impact is difficult because other economic and 

regulatory incentives also encourage banks to undertake award-eligible

activities. Although it is difficult to determine the BEA program’s impact, 

the available evidence we reviewed suggests that the program’s impact has 

likely not been significant. For example, for large banks, a BEA award 

(when compared with total bank assets) is small and likely not large 

enough to have much influence on such banks’ overall investment and 

lending decisions. Other evidence also indicates that the BEA program’s 

impact has likely not been significant. In particular, until 2003, BEA 

awards may have provided certain community development banks with 

incentives to benefit financially from activities that were inconsistent with 

BEA program goals, and available studies indicate that certain CDFIs have 

been able to raise an increased amount of capital from banks, while BEA 

program funding and participation have declined.

The BEA Program 

Reportedly Produces 

Benefits, but Available 

Evidence Suggests 

That the Program’s 

Impact Has Likely Not 

Been Significant 

 17Other tests may be applied. A community development test is applied for certain 

institutions known as wholesale or limited-purpose banks, and the small-bank performance 

standards are applied in evaluating the performance of a small bank or a bank that was a 

small bank during the prior calendar year. See, for example, 12 C.F.R. § 345.21(a)(2) and 

(3) (FDIC).

Page 9 GAO-06-824 Treasury's Bank Enterprise Award Program
According to Treasury officials and some award recipients, the BEA 

program allows award recipients to increase their lending and investment 

levels beyond those that would occur without the program. Award 

recipients we interviewed stated that one of the program’s main benefits is 

reduced transaction costs. Transaction costs are primarily the time and 

expense associated with researching markets or borrower qualifications 

and underwriting loans within distressed communities. Award recipients 

stated that transaction costs are higher in distressed communities than in

other communities because, for example, loans are typically smaller (thus 

generating less interest income) and have a higher risk of default. Because 

BEA awards are in cash, award recipients said that award proceeds can be 

used to provide more loans, on more favorable terms, than are otherwise 

possible. Award recipients said that such an arrangement benefits both 

BEA award recipients and loan borrowers. 

Another benefit that award recipients cited is the formation of 

partnerships between banks and other financial institutions, including 

CDFIs. When investing in a CDFI—the activity awarded with the highest 

payout—applicants identify and select a CDFI in which to invest, such as a 

community development bank, credit union, loan fund, or venture capital

fund. According to officials from banks and CDFIs, the resulting 

investment in the CDFI produces two benefits. First, the investment 

increases the CDFI’s capacity by providing it with capital, often at belowmarket rates, which in turn allows the CDFI to provide more loans in 

distressed communities. Second, according to one CDFI official we 

interviewed, the partnership allows traditional banks to learn about and 

understand the work of CDFIs. For example, the CDFI official we 

interviewed noted that the partnership formed through the BEA program 

allowed officials from a traditional bank to sit on the CDFI’s board of 

directors, which exposed the traditional bank officials to the products and 

services of the CDFI. When initially established, Treasury intended the 

BEA program to encourage traditional banks to become involved in 

community development banking activities by, for example, investing in a 

CDFI or lending in a distressed community. 

A third benefit of the BEA program, according some award recipients we 

interviewed, is the provision of capital needed to help the community 

development banking industry grow and develop during its early years and 

sustain its level of operations today. An official representing the 

community development banking industry noted that there were only 

three Treasury-certified community development banks in the mid-1990s 

when the BEA program began, but today there are over 50 such banks, 

growth the official attributes to the BEA program. Some award recipients 

According to Treasury 

Officials and Some Award 

Recipients, the BEA 

Program Produces a Range 

of Benefits 

Page 10 GAO-06-824 Treasury's Bank Enterprise Award Program
we interviewed also stated that award proceeds have allowed them to 

sustain their current level of operations within distressed communities, 

where, as previously noted, transaction costs are higher than in other 

areas. Accordingly, the BEA program is said to help community

development banks remain true to their core missions of serving the 

financing and developmental needs of their community. 

Independently evaluating and isolating the BEA program’s impact on bank 

investment and lending decisions is difficult because other economic and 

regulatory incentives also affect bank behavior. In 1998, we reported that

the prospect of receiving a BEA award, while one factor, was not always 

the primary reason banks undertook award-eligible activities.18 In 2000, the 

Federal Reserve Board completed a survey providing additional evidence

that loan profitability can be an important factor in banks’ community 

development lending decisions.19 This survey, which focused on the 

performance and profitability of CRA-related lending, found that a 

majority of respondents’ community development loans were profitable. 

The survey also found that a majority of respondent’s CRA special lending 

programs, which target low-income borrowers and areas, were profitable.20

Because community development loans can be profitable, as noted in the 

Federal Reserve Board’s survey, banks have economic incentives to make 

these loans even without the incentive of potentially receiving a BEA 

award. 

In addition to economic incentives, regulatory incentives can also 

encourage banks to undertake award-eligible activities. In our 1998 report, 

we found that compliance with CRA was a major reason banks made 

investments in CDFIs and loans in distressed communities. CRA incentives 

may be particularly strong for banks that plan to open a new branch or 

merge with other banks because federal regulators may consider 

inadequate compliance when reviewing banks’ requests to merge with 

other banks or expand their operations. However, Treasury officials said 

that the BEA program provides banks with more targeted incentives than 

Isolating the BEA 

Program’s Impact from 

Other Existing Economic 

and Regulatory Incentives 

Remains Difficult 

 18GAO/RCED-98-225. 

19Board of Governors of the Federal Reserve System, The Performance and Profitability of 

CRA-Related Lending (Washington, D.C., July 17, 2000). 

20One limitation of this report is that no small banks (those with less than $950 million in 

assets) responded to the report’s survey and only 21 percent of banks with $950 million to 

$5 billion in assets responded. 

Page 11 GAO-06-824 Treasury's Bank Enterprise Award Program
CRA requirements do. For example, the officials said that the BEA 

program provides banks with incentives to provide financial services in 

the most distressed communities—communities that banks are not 

required to service in their efforts to comply with CRA. 

To obtain feedback on the BEA program’s design and implementation, 

Treasury has conducted surveys of BEA program applicants. Treasury’s 

most recent survey, conducted in 2002, suggests that both the BEA 

program and CRA requirements are responsible for banks’ increased 

investments in CDFIs and lending in distressed communities. For example, 

the 2002 survey of 115 program applicants found that both the prospect of

a BEA award and credit for CRA compliance motivated banks to 

undertake many CDFI-related activities, including providing CDFIs with 

loans, grants, and technical assistance, but found that the BEA program 

contributed toward the development of new financial products. The 

survey also found that, in many cases, neither the BEA program nor credit 

for CRA compliance motivated banks to lend in distressed communities.

Rather, the banks reported making loans in distressed communities 

because such lending is part of their community development mission or 

part of their everyday business activities. 

Although it is difficult to determine the BEA program’s impact, the 

available evidence we reviewed suggests that the program’s impact has 

likely not been significant for large traditional banks, although it may 

allow for incremental increases in award-eligible activities. The available 

evidence also suggests that the BEA program may have provided some 

community development banks with incentives to benefit financially 

without furthering program goals. Further, available studies we reviewed 

indicate that some CDFIs have raised an increased amount of capital from

banks while BEA program funding and participation have declined. 

Specifically, we found the following:

Available Evidence 

Suggests That the BEA 

Program’s Impact Has 

Likely Not Been Significant 

• For large traditional banks, as noted in our 1998 report, BEA awards

are likely not large enough to provide a meaningful financial incentive. 

As shown in table 2, the size of a BEA award when compared with the 

assets of large traditional banks (those with over $1 billion in assets) was 

.0004 percent of assets in 2005. For these banks, the prospect of receiving

a BEA award, independent of any economic and regulatory incentives the 

banks may have, is unlikely to serve as a significant financial incentive for 

increased CDFI investment or distressed community lending. However, 

BEA awards may provide large traditional banks with the capacity to 

incrementally increase their award-eligible activities, offset some of the 

Page 12 GAO-06-824 Treasury's Bank Enterprise Award Program
cost associated with doing so, and increase the profits of related lines of 

business. Large traditional banks may also derive public and community 

relations value from receiving a BEA award that outweighs its financial 

benefit. 

Table 2: Average BEA Award as a Percentage of Large Banks’ Assets,a 2003 

through 2005 

Year Number of banksb

Average award as 

percentage of total assets

2003 21 .0005

2004 17 .0004

2005 22 .0004

Source: GAO analysis of Treasury data. 

a

Large banks, for purposes here, are those with total assets of $1 billion or more. 

b

Large banks received 43 percent of all BEA award dollars in 2003, 8 percent in 2004, and 38 percent

in 2005. 

• Until 2003, many BEA program participants engaged in a nowprohibited practice called deposit swapping that improved their 

financial condition without necessarily furthering program goals. 

According to a Treasury official, beginning around 1998, a group of about 

30 community development banks began to purchase insured certificates 

of deposit in one another—that is, swap deposits—to increase their CDFI 

investments and thereby receive BEA awards. At the time, Treasury 

provided a 33 percent award match for community development banks 

that increased their deposits in other community development banks. 

Following the 2003 prohibition, the percentage of total BEA dollars 

awarded for CDFI investments fell substantially—from 87 percent of all 

BEA dollars awarded in 2002 to only 18 percent in 2003 (by contrast, total 

BEA dollars awarded for increased lending and services in distressed 

communities increased from 13 percent in 2002 to 82 percent in 2003). 

According to a Treasury official, the prohibition on deposit swapping was, 

in fact, the primary reason for the substantial decline in CDFI investments. 

This decline suggests that, until 2003, banks may have been responding to 

financial incentives that were inconsistent with the BEA program’s goals, 

which include increasing lending within distressed communities. 

• Community development loan funds have raised an increased amount of 

capital from banks, thrifts, and credit unions, while BEA program 

funding and bank participation in the program have declined. 

According to data from a consortium of CDFIs, community development 

loan funds—the most numerous type of CDFI and thus the largest group of 

potential BEA program beneficiaries—have continued raising capital from 

Page 13 GAO-06-824 Treasury's Bank Enterprise Award Program
banks, thrifts, and credit unions concurrent with a decline in funding and 

bank participation in the BEA program.21 According to the consortium’s 

data, the percentage of capital loan funds raised from banks, thrifts, and 

credit unions increased from 47 percent in fiscal year 2003 to 56 percent in

fiscal year 2004. As discussed previously, BEA program funding also 

declined substantially in recent years from over $46 million in fiscal year 

2000 to about $10 million in fiscal year 2005. We note that one limitation of 

the consortium’s data for purposes of this analysis is that it includes credit

unions, which are ineligible for BEA awards. However, an official involved 

with completing the studies said that loan funds raised most of the capital 

from banks and thrifts, which are eligible for BEA awards. According to 

the CDFI consortium, financial institutions are a growing source of capital 

for loan funds because loan funds provide a safe investment, allow banks 

to earn CRA credit, and are flexible partners. 

Treasury’s performance measures for the BEA program likely overstate its 

impact on bank investments in CDFIs and lending in distressed 

communities. In addition, we identified weaknesses in Treasury’s system 

of internal control for ensuring proper award payments. Specifically, we 

found that Treasury has limited controls in place to help ensure that bank

applicants finance properties located in eligible distressed communities. 

We found that Treasury also provides limited guidance to its application

review staff to identify potential errors in the reporting of a financed 

property’s location and does not require the reviewers to completely 

document their work. 

The BEA Program’s 

Performance 

Measures Likely

Overstate Its Impact, 

and Treasury’s

Internal Controls to 

Ensure Proper Award 

Payments Have 

Weaknesses 

 21The CDFI Data Project, Providing Capital, Building Communities, Creating Impact, 

Fiscal Year 2003, 3rd ed.; and Providing Capital, Building Communities, Creating

Impact, Fiscal Year 2004, 4th ed. Loan funds are typically nonprofit organizations that 

provide financing and development services to businesses, organizations, and individuals in 

low-income communities. There are about 500 Treasury-certified loan funds. 

Page 14 GAO-06-824 Treasury's Bank Enterprise Award Program
To assess the BEA program’s performance, Treasury publicly reports bank 

applicants’ total reported increase in CDFI investments and distressed 

community lending.22 To establish targets for this measure, Treasury 

assumes a complete, causal linkage between the BEA program and 

applicants’ increases in award-eligible activities. For example, in 2005, 

Treasury attributed a reported $100 million increase in award-eligible 

activities to BEA awards of approximately $10 million distributed that 

year. In reporting results for this measure, Treasury does not account for 

other factors that also affect bank lending and investment decisions, such 

as loan profitability and CRA compliance. By not accounting for such 

factors, Treasury’s performance measure likely overstates the BEA 

program’s impact. As a result, Treasury lacks accurate information needed 

to assess program accomplishments and make changes to ensure that the 

BEA program is meeting its goals. GAO’s standards for effective 

performance measures state that measures should be objective—that is,

they should be reasonably free of any significant bias or manipulation that 

would distort an accurate assessment of performance.23

Treasury internally tracks other BEA program data, but these data also 

likely overstate the program’s impact. For example, as part of a BEA 

application, Treasury requests that applicants provide such data as the 

number of full-time equivalent jobs created or maintained and the number 

of housing units developed or rehabilitated in distressed communities. 

Treasury uses this information to monitor and measure the BEA program’s 

impact. Similar to its externally reported measure, Treasury assumes a 

direct one-to-one correlation between these outcomes (new jobs and 

housing units) and the BEA program. Treasury does not account for 

external factors, such as economic and regulatory incentives that could 

also contribute to an increase in jobs created or housing units developed. 

Further, these data are self-reported and, according to Treasury, not 

verified. Therefore, they could be subject to the type of bias and 

manipulation that would distort an accurate assessment of performance. 

We acknowledge that developing performance measures for the BEA 

program is challenging. As stated in our 1998 report, to an extent that 

BEA Program 

Performance Measures 

Likely Overstate Program 

Impact 

 22Treasury reports results for this measure in its annual Performance and Accountability

Report. 

23For a more thorough discussion of criteria for effective performance measures, see GAO,

The Results Act: An Evaluator’s Guide for Assessing Agency Performance Plans, 

GAO/GGD-10.1.20 (Washington, D.C.: April 1998). 

Page 15 GAO-06-824 Treasury's Bank Enterprise Award Program
neither we nor Treasury can quantify, banks are receiving awards for 

investments and loans they would have made without the prospect of 

receiving a BEA award. The available evidence discussed in this report 

(e.g., the relatively small size of BEA awards for large banks) further 

supports this analysis. While it may have been advisable for Treasury to 

attribute less influence to the BEA program when developing its 

performance measures, it is not clear that a reliable and appropriate 

methodology exists to accurately measure the BEA program’s impact on 

bank behavior. 

According to a Treasury official, one of the most significant risks the BEA 

program faces is that applicants may provide inaccurate information 

regarding the location of properties financed by their activities. That is, the 

potential exists for banks to receive BEA awards based on loans that 

finance properties, such as commercial or affordable housing development 

loans, that were not located in eligible distressed communities. While 

Treasury has established controls to mitigate this risk, these controls are 

not fully consistent with federal internal control standards, which state 

that policies and procedures, including appropriate documentation, should 

be designed to help ensure that management’s directives, such as 

verification procedures, are carried out and that appropriate supervisory 

oversight of established processes is exercised. Without sufficient controls 

to help ensure that properties are located in eligible distressed 

communities, the BEA program is vulnerable to making improper 

payments. 

According to a Treasury official, application review staff are to perform 

the following procedures to ensure that properties are located in eligible

distressed communities: 

Treasury Has Not 

Established Effective 

Controls to Help Ensure 

That Bank-Financed 

Properties Are Located in 

Eligible Distressed 

Communities 

• Use an online Treasury system, for all loans of $500,000 or more, to verify 

that borrower addressers or, in some cases, properties secured by the 

loans (collateral) are located in eligible census tracts (generally referred to

as loan geocoding). 

• Geocode a sample of loans valued at $250,000 to $500,000 to verify that 

borrower or collateral addresses are located in eligible census tracts. 

Treasury officials said that BEA program application review staff have 

identified properties that were not located in eligible distressed 

communities. For example, a Treasury official said that, in one case, the 

address of the borrower (a developer), which was located in an eligible

Page 16 GAO-06-824 Treasury's Bank Enterprise Award Program
distressed community, was given as a basis for the bank to receive a BEA 

award.24 However, the official said that the address of the property under 

development was not in an eligible distressed community. The official said

that she was familiar with the area where the property was located and 

knew that it did not meet eligibility requirements, which prompted her to 

do follow-up analysis. According to the official, Treasury staff disallowed 

this particular loan as a basis for the bank to receive a BEA award. 

While a Treasury official said that the department has established controls 

to mitigate errors in the reporting of property locations, we identified 

limitations with the guidance that Treasury provides to its application 

review staff. For example, Treasury’s guidance states that for loans of 

$500,000 or above and for a sample of loans from $250,000 to $500,000, 

staff should geocode the borrower’s address. However, for development 

loans where the address of the borrower (such as a developer) may differ 

from the address of the property under development, the guidance does 

not specifically require staff to geocode the property address. A Treasury 

official confirmed that the department has not provided specific guidance 

to reviewers on geocoding property addresses in such instances. As noted

previously, Treasury staff have identified at least one example in which the 

location of the borrower was in a distressed community but the location of 

the property was not, although this identification was largely because of 

the reviewer’s familiarity with the area where the property was located. By

not specifying in the guidance that reviewers should geocode property 

addresses where appropriate, the potential exists that banks will receive 

BEA awards based on erroneous information. 

We reviewed two banks’ BEA applications for the fiscal year 2004 and 

2005 rounds of BEA awards (a total of four applications) to conduct a 

limited test of Treasury’s implementation of procedures for verifying 

certain application data. Each bank in our review received the maximum 

$500,000 award in the 2005 funding round. The files we reviewed did not 

contain any documentation of the staff’s geocoding of property location

data (for loans exceeding $250,000 or $500,000). A Treasury official we 

interviewed agreed that the files did not contain any documentation of the 

staffs’ geocoding effort. Further, our review of Treasury’s BEA application 

guidance found that the guidance does not establish specific 

documentation requirements for the program staff’s geocoding efforts. 

 24BEA application materials may contain both the address of the borrower and the address 

of the property financed through reported bank lending activities. 

Page 17 GAO-06-824 Treasury's Bank Enterprise Award Program
Without such guidance and documentation requirements, Treasury 

management and supervisors, as well as outside reviewers, cannot be 

assured that the geocoding is being conducted or that errors in the 

reporting of property location are detected. 

To assess the potential for improper BEA award payments, we used 

Treasury’s online geocoding system to determine the locations of 

properties contained in the 2004 and 2005 applications for the two banks. 

We identified 1 commercial and 5 affordable housing development loans 

among these applications, out of a total of 18 such loans with a value of 

$250,000 or more, where we had questions as to whether properties 

financed by the loans were located in eligible distressed communities. For 

example, we identified an affordable housing development loan of 

approximately $423,500 that was made to purchase an apartment building.

Our geocoding analysis determined that the address of the property was 

not in an eligible distressed community, whereas the address of the 

borrower was in a distressed community that could qualify under certain 

circumstances. In this case, according to a Treasury official, the reviewer

probably geocoded the address of the borrower rather than the address of 

the property. The Treasury official also suggested that the address of the 

property may have been in an eligible distressed community at the time 

the application was made in 2004. However, our analysis of census data 

indicates that the relevant census tract was not an eligible distressed 

community in 2004. Consequently, Treasury’s decision to provide a BEA 

award to this bank may have been based in part on erroneous information. 

Because of other economic and regulatory incentives that also affect bank 

behavior, it remains difficult to isolate and determine the BEA program’s 

impact on banks’ decisions to invest in CDFIs and lend in distressed 

communities. Treasury’s BEA program performance measures do not 

provide additional insights into the program’s impact because they assume 

that all reported increases in eligible investment and lending occur solely 

because of the program’s financial incentives. However, based on available 

evidence we reviewed, it is reasonable to conclude that the program likely

does not provide significant financial incentives for large banks, due to the 

typical award’s relatively small size for such institutions. To an extent that

is unquantifiable, a significant percentage of reported large bank increases

in CDFI investments and distressed community loans each year would 

likely have occurred without the BEA program. Further, the program also 

appears to have provided certain community development banks with 

financial incentives and opportunities to benefit financially without 

furthering program goals. On the other hand, the BEA program may 

Conclusions 

Page 18 GAO-06-824 Treasury's Bank Enterprise Award Program
provide some banks, including large banks, with additional incentives and

capacity to incrementally increase their award-eligible activities, offer 

public and community relations benefits to some award recipients, 

contribute to the development of new financial products, and help 

establish partnerships between banks and other CDFIs. 

Treasury’s internal controls to ensure proper award payments are 

insufficient. Treasury’s guidance to its BEA application review staff does 

not require them to geocode property addresses, even though evidence 

exists that applications may contain errors in reported information. The 

guidance also does not establish standards for documenting verification 

efforts. Consequently, the BEA program is vulnerable to making improper 

payments. 

To help ensure the integrity of the BEA award payment process, we 

recommend that the Secretary of the Treasury revise the guidance for 

reviewing program applications so that program staff are required to (1) 

geocode property addresses where appropriate and (2) document their 

efforts to verify property addresses. 

We provided a draft of this report to the Department of the Treasury for its 

review and comment. Treasury provided written comments that are 

reprinted (with annotations) in appendix II. In its comments, Treasury 

agreed with our conclusion that determining the extent to which the BEA 

program provides banks with incentives to increase their investments in 

CDFIs and lending in distressed communities remains difficult given the 

number of external factors that drive such decisions. However, Treasury 

stated that our report bases many of its conclusions on information that is 

overly general, outdated, or developed for other purposes and, as a result, 

does not reflect an accurate portrayal of the BEA program or its 

importance within the banking industry. Treasury also said that we did not 

adequately consider evidence the department provided regarding the BEA 

program’s impact. Treasury did agree to implement our recommendation 

that application review staff (1) geocode property addresses, where 

appropriate; and (2) document their efforts to verify property addresses. 

Further, Treasury stated that it will adopt a policy requiring applicants to 

report addresses for transactions; provide program staff with updated 

instructions to geocode all transactions over $250,000 (not just

transactions over $500,000, as is the current practice); and initiate and 

implement steps to analyze a statistically significant sample of 

transactions less than $250,000. 

Recommendation for 

Executive Action 

Agency Comments 

and Our Evaluation 

Page 19 GAO-06-824 Treasury's Bank Enterprise Award Program
In its comments, Treasury stated that the focus of our report was 

inherently flawed. Treasury said our report did not assess, as it expected,

whether the BEA program, as currently structured, is effective at 

motivating banks to undertake community development financing 

activities they would not normally undertake or, if the program were 

found to be ineffective, recommend changes to its structure. In fact, we 

did seek to assess whether the BEA program, as currently structured, is 

effective at motivating banks to undertake activities they would not 

normally undertake. However, as was the case when we initially evaluated 

the BEA program in 1998 and as we state in this report, because of other 

economic and regulatory incentives that affect bank behavior, it is difficult 

to isolate the BEA program’s impact from these other incentives. We note 

an absence of change in the banking industry since 1998 that would 

facilitate isolating the BEA program’s impact for this review. On the 

contrary, isolating the BEA program’s impact may be more difficult today 

than in 1998 because the average BEA award amount and number of banks 

participating in the program have declined significantly in recent years. 

Although isolating the impact of the BEA program is difficult, we believe 

available evidence suggests that its impact has likely not been significant.

Treasury also stated that our report relied on inappropriate information 

and data to form conclusions and that we did not consider other evidence. 

For example, Treasury stated that none of the studies cited in the report—

including our 1998 report, a 2000 Federal Reserve survey on CRA-related 

lending, and two studies by a consortium of CDFIs—is an explicit 

evaluation of the BEA program. Treasury also stated that we undertook 

only a limited review of current program participants. Contrary to 

Treasury’s assertions, our 1998 report includes an assessment of the BEA 

program. Moreover, the Federal Reserve survey and reports by a 

consortium of CDFIs address issues that we believe are critical to 

independently evaluating the BEA program’s effectiveness. In particular, 

the Federal Reserve survey indicates that community development lending 

can be profitable, which suggests that a variety of factors—including 

economic and regulatory factors—influence bank lending decisions. The 

variety of factors that can influence bank lending decisions increase the 

difficulties associated with isolating and determining the BEA program’s 

impact. As discussed in this report, the data from the consortium of CDFIs 

also provide evidence that community development loan funds have been 

able to raise an increased amount of capital from banks despite recent 

declines in BEA program funding and participation. Regarding our 

interviews with program participants, as we note in appendix I, we chose 

program participants for interviews based on a variety of characteristics—

including differing bank asset sizes, frequency of program participation, 

Page 20 GAO-06-824 Treasury's Bank Enterprise Award Program
status as a traditional bank or community development bank, and CDFI 

type—to elicit a wide range of views and perspectives on the BEA 

program. 

Further, Treasury stated that we did not adequately refer to its 2002 survey 

of BEA program participants in our draft report. Treasury stated that 

evidence from the survey clearly demonstrates that the BEA program 

plays a role in program applicant investment decisions. While we 

recognize that surveys of program beneficiaries can play an important role 

in program evaluations, we believe that their results must be interpreted 

with caution. For example, survey respondents who are program 

beneficiaries have a financial incentive to overstate a program’s impact. To 

compensate for this limitation, we sought to obtain and analyze 

independent evidence, including available studies, to assess the BEA 

program’s impact. Even so, the findings of Treasury’s 2002 survey are 

consistent with the findings of our report. For example, our report states 

that prior to 2003, when deposit swapping was prohibited, the BEA 

program may have provided certain community development banks with 

incentives to make investments that benefited them financially but were 

inconsistent with program goals. In Treasury’s 2002 survey, CDFI deposits 

was the only category in which a majority of bank respondents (52 

percent) said that the BEA program was the primary reason they made an

award-eligible investment. Overall, Treasury’s 2002 survey indicates that 

various factors, which include, but are not limited to, the prospect of 

receiving a BEA award, motivate banks’ decisions to invest in CDFIs and 

lend in distressed communities. In fact, Treasury’s 2002 survey found that 

in many cases, neither the BEA program nor credit for CRA compliance 

motivated banks’ decisions to lend in distressed communities. Rather, as 

we state in our report, the survey found that respondents undertook 

lending activities because they were part of their community development 

mission or part of their everyday business activities. 

Additionally, Treasury said that some conclusions in the report appear to 

reflect a lack of understanding of the BEA program and the banking 

industry. Specifically, Treasury stated the following: 

• GAO’s analysis of the size of a BEA award relative to large banks’ total 

assets was overly general and did not consider that many banks (in 

particular large banks) carry out CDFI financing within specific lines

of business, such as community development business lines. Rather than 

comparing a large bank’s BEA award amount with its total assets, as we 

did, Treasury said a more appropriate and meaningful analysis would have 

been to consider the bank’s BEA award to the assets of a particular 

Page 21 GAO-06-824 Treasury's Bank Enterprise Award Program
business line or its relative importance in lowering the bank’s transaction 

costs. In response to this comment, we added language to the report that, 

for large traditional banks, BEA awards may provide additional capacity to 

incrementally increase award-eligible investments and lending, offset 

some of the costs associated with doing so, and increase the profits of 

related lines of business. In interviews for this report, officials from one 

large bank said BEA awards have allowed their bank to provide more 

loans than they would have in the program’s absence, and officials from 

another large bank said BEA awards have allowed their bank to provide 

loans on more favorable terms. However, the officials said that other 

factors, such as CRA compliance and loan profitability, also influence their 

community development lending decisions. Further, officials from both 

banks said their banks would continue community development lending in 

the BEA program’s absence, although officials from one bank said their 

bank would continue such lending to a lesser extent. Therefore, we 

continue to believe that the BEA program likely does not have a significant 

impact on large banks’ overall investment and lending decisions, although 

there may be an incremental impact. 

• GAO’s discussion of the now-prohibited practice of deposit swapping 

was based on outdated information, as Treasury moved to prohibit this 

practice four years ago. Treasury said it did not understand why we chose 

to include a discussion of deposit swapping in a report on the BEA 

program’s current status. In response to this comment, we assert that our 

report sought to assess the BEA program’s impact on bank behavior over 

time, rather than at a single point in time. Thus, we believe that our 

discussion of deposit swapping, which focuses on bank behavior in 

response to incentives that the BEA program provided until 2003, is 

appropriate. We note that deposit swapping provides evidence that, until

2003, the BEA program’s impact in encouraging some banks to make 

productive investments and loans in distressed communities likely was not 

significant. We also note that funding for the BEA program, and bank 

participation in it, were highest prior to 2003 when Treasury prohibited 

deposit swapping, adding significance to the issue of deposit swapping and 

its connection to bank behavior. 

• GAO’s report failed to mention other important program benefits. In 

support of this statement, Treasury cites its 2002 survey in which 19 

percent of respondents indicated that the prospect of receiving a BEA 

award prompted them to launch innovate financial products, services, or 

educational programs to meet the needs of underserved households or 

communities. In response to this comment, we revised our report to 

reflect this survey finding. Treasury also stated that it would have been 

useful if our report studied the underlying data from the consortium of 

Page 22 GAO-06-824 Treasury's Bank Enterprise Award Program
CDFIs to, among other things, determine the BEA program’s impact in 

initiating productive relationships between banks and CDFIs. Our draft 

report stated that a benefit of the BEA program is that it encourages 

partnerships between banks and CDFIs. However, it was not possible to 

determine from the CDFI consortium data we reviewed whether the loan

funds cited in the reports formed partnerships with banks participating in

the BEA program. For example, the consortium reports did not 

specifically identify the loan funds and banks that were surveyed for 

inclusion in the reports. Therefore, based on information in the reports, 

we were unable to conduct the types of analyses Treasury proposes in its 

comments. 

We are sending copies of this report to the Secretary of the Treasury and 

other interested congressional committees. We will also make copies 

available to others upon request. In addition, the report will be available at 

no charge on GAO’s Web site at http://www.gao.gov. 

If you or your staffs have any questions regarding this report, please 

contact me at (202) 512-7215 or scottg@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this report. GAO staff who made key contributions to this 

report are listed in appendix III. 

George A. Scott 

Acting Director, Financial Markets 

 and Community Investment 

Page 23 GAO-06-824 Treasury's Bank Enterprise Award Program
Appendix I: Objectives, Scope, and Appendix I: Objectives, Scope, and Methodology 

Methodology 

The objectives of this report were to (1) examine the extent to which the 

Bank Enterprise Award (BEA) program may have provided banks with 

financial incentives to increase their investments in community 

development financial institutions (CDFIs) and lending in distressed 

communities and (2) assess the BEA program’s performance measures 

and certain internal controls designed to ensure proper award payments. 

To address our first objective, we reviewed relevant documents and data, 

including BEA program statutes, regulations, memorandum, guidelines, 

and reports; GAO’s 1998 report on the CDFI Fund and BEA program; a 

2000 Federal Reserve Board study on the performance and profitability of

Community Reinvestment Act-related lending,1

 and two studies by the 

CDFI Data Project, which is an industry consortium that gathers and 

reports financial data on the CDFI industry.2

 We also interviewed three 

trade associations representing various segments of the CDFI industry to 

obtain their views on the BEA program. Further, we interviewed a 

nonprobability sample of nine BEA award recipients and five CDFI 

beneficiaries from the fiscal year 2005 round of BEA awards. We selected 

these award recipients and CDFI beneficiaries for interviews based on a 

range of characteristics, including differing bank asset sizes, frequency of 

program participation, status as a traditional bank or certified community 

development bank, and CDFI type. Our sample selection criteria was 

intended to obtain a diverse pool of respondents possessing a range of 

views and perspectives on the BEA program. 

To address our second objective, we interviewed Treasury officials to 

obtain information on the BEA program’s measures and internal controls. 

We compared the program’s performance measures to GAO’s standards 

for effective measures, as outlined in publications we have issued in 

connection with the Government Performance and Results Act. We also 

compared the BEA program’s internal controls to GAO’s Standards for 

 1

GAO/RCED-98-225; and the Board of Governors of the Federal Reserve System, The 

Performance and Profitability of CRA-Related Lending (Washington, D.C., July 17, 2000). 

2

The CDFI Data Project, Providing Capital, Building Communities, Creating Impact, 

Fiscal Year 2003, 3rd ed.; and Providing Capital, Building Communities, Creating

Impact, Fiscal Year 2004, 4th ed. 

Page 24 GAO-06-824 Treasury's Bank Enterprise Award Program
Appendix I: Objectives, Scope, and 

Methodology 

Internal Control in the Federal Government.3 To further assess the 

program’s internal controls, we reviewed application documents for two 

banks that each received multiple BEA awards from 2000 through 2005 

and used Treasury’s online geocoding system to determine the locations of 

properties contained in the 2004 and 2005 applications for the two banks. 

We also reviewed BEA program application review guidance. 

We conducted our work from October 2005 through July 2006 in 

Washington, D.C., in accordance with generally accepted government 

auditing standards.

 3

GAO, The Results Act: An Evaluator’s Guide for Assessing Agency Performance Plans, 

GAO/GGD-10.1.20 (Washington, D.C.: April 1998); Agency Performance Plans: Examples of 

Practices That Can Improve Usefulness for Decisionmakers, GAO/GGD/AIMD-99-69

(Washington, D.C.: Feb. 26, 1999); Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

Page 25 GAO-06-824 Treasury's Bank Enterprise Award Program
Appendix II: Comments from the Department Appendix II: Comments from the Department of the Treasury 

of the Treasury 

Note: GAO comments 

supplementing those in 

the report text appear at 

the end of this appendix. 

Page 26 GAO-06-824 Treasury's Bank Enterprise Award Program
Appendix II: Comments from the Department 

of the Treasury 

Page 27 GAO-06-824 Treasury's Bank Enterprise Award Program
Appendix II: Comments from the Department 

of the Treasury 

See comment 1. 

See comment 2. 

Page 28 GAO-06-824 Treasury's Bank Enterprise Award Program
Appendix II: Comments from the Department 

of the Treasury 

See comment 3. 

See comment 4. 

Page 29 GAO-06-824 Treasury's Bank Enterprise Award Program
Appendix II: Comments from the Department 

of the Treasury 

Page 30 GAO-06-824 Treasury's Bank Enterprise Award Program
Appendix II: Comments from

the Department of the Treasury 

The following are GAO’s comments on the Department of the Treasury’s 

letter dated July 21, 2006. 

1. Our report includes a statement by Treasury officials that the BEA 

program provides banks with incentives to provide financial services 

in the most distressed communities—communities that banks are not 

required to service in their efforts to comply with CRA. However, as 

discussed in our report, measuring the purported impact of the BEA 

program is difficult. 

GAO Comments 

2. Census tracts that qualify for the BEA program can exceed those 

specified in Treasury’s letter. For example, census tracts with poverty 

rates as low as 20 percent may qualify under certain circumstances. 

Therefore, the BEA program may not be as targeted as Treasury 

claims. 

3. Our report does not address this issue. However, we note that

requiring BEA award recipients to use their award proceeds for 

additional community development activities would pose complexities. 

For example, it would require Treasury to develop information about 

current award recipients’ overall community development activities 

and a mechanism for monitoring recipients’ use of award dollars. 

4. Our report does not comment on the BEA program’s funding relative 

to other related programs within Treasury. We provide information on 

the program’s funding for descriptive purposes only and make no 

assertions concerning its priority within Treasury. 

Page 31 GAO-06-824 Treasury's Bank Enterprise Award Program
A

the Department

ppendix II: Comments from

 of the Treasury 

Page 32 GAO-06-824 

Appendix III: GAO Contact and Staff 

Acknowledgments 

George A. Scott, (202) 512-7215 or scottg@gao.gov

In addition to the contact named above, Wesley Phillips (Assistant 

Director), Emilie Cassou, David Dornisch, Ronald Ito, Austin Kelly, 

Elizabeth Olivarez, David Pittman, Linda Rego, and James Vitarello made 

key contributions to this report. 

Treasury's Bank Enterprise Award Program

GAO Contact 

Staff 

Acknowledgments 

(250265) 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER