United States General Accounting Office

GAO Report to Congressional Requesters

April 1999 COMMUNITY

DEVELOPMENT

Weak Management

Controls Compromise

Integrity of Four HUD

Grant Programs

GAO/RCED-99-98

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-281322 

April 27, 1999

The Honorable Wayne Allard

Chairman, Subcommittee on Housing

 and Transportation

Committee on Banking, Housing,

 and Urban Affairs

United States Senate

The Honorable Rick A. Lazio

Chairman, Subcommittee on Housing

 and Community Opportunity

Committee on Banking

 and Financial Services

House of Representatives

In response to a request by you as Chairman of the Subcommittee on Housing and Community

Opportunity, House Committee on Banking and Financial Services, and the former Chairman of

the Subcommittee on Housing Opportunity and Community Development, Senate Committee on

Banking, Housing, and Urban Affairs, this report discusses whether controls are in place to

ensure that block grant programs’ objectives are being achieved and that funds are being

managed appropriately. In particular, the report discusses whether (1) the Department of

Housing and Urban Development’s (HUD) on-site monitoring of grantees under the Grants

Management System is adequate and (2) the Integrated Disbursement and Information System

provides the data HUD needs to accurately assess grantees’ performance.

As arranged with your offices, unless you publicly announce its contents earlier, we plan no

further distribution of this report for 30 days after the date of this letter.

We are providing copies of this report to Senator Connie Mack, the Chairman of the

Subcommittee on Economic Policy, Senate Committee on Banking, Housing, and Urban Affairs;

the Honorable Andrew Cuomo, the Secretary of Housing and Urban Development; and other

interested parties. We will also make copies available to others upon request. Major

contributors to this report are listed in appendix II.

Judy A. England-Joseph

Director, Housing and Community

 Development Issues
Executive Summary

Purpose About one-quarter of the Department of Housing and Urban

Development’s (HUD) budget—almost $6 billion in fiscal year 1998—is

devoted to four formula block grant programs that support community

development: the Community Development Block Grant Program, the

Home Investment in Affordable Housing Program, the Emergency Shelter

Grant Program, and the Housing Opportunities for Persons With AIDS

Program. While each of these programs has a different purpose, they all

provide federal funds to help grantees—primarily state and local

governments—finance projects and services for local residents. In 1995,

HUD revamped its approach to managing these formula block grants by

requiring grantees to develop a consolidated plan that lays out how they

will use all four programs. As part of its revamped approach, HUD changed

its monitoring of grantees to reflect the collaborative relationship it was

trying to establish with them. Under this approach, known as the Grants

Management System, HUD developed the Integrated Disbursement and

Information System so that grantees could enter information into a

database that describes their planning and projects, draw federal funds,

and inform the Department about how they are using those funds and

what they are achieving with them.

Concerned about changes in HUD’s approach to program monitoring, the

former Chairman of the Subcommittee on Housing Opportunity and

Community Development—now the Subcommittee on Housing and

Transportation—Senate Committee on Banking, Housing, and Urban

Affairs, and the Chairman of the Subcommittee on Housing and

Community Opportunity, House Committee on Banking and Financial

Services, asked GAO to assess whether controls are in place to ensure that

the block grant programs’ objectives are being achieved and that funds are

being managed appropriately. In particular, GAO examined whether

(1) HUD’s on-site monitoring of grantees under the Grants Management

System is adequate and (2) the Integrated Disbursement and Information

System provides the data HUD needs to accurately assess grantees’

performance.

Background The Grants Management System and the Integrated Disbursement and

Information System are administered by HUD’s Office of Community

Planning and Development through 42 field offices throughout the United

States. The Grants Management System—which HUD developed to

deemphasize compliance monitoring of grantees and to promote a more

collaborative approach that includes up-front assistance and a reliance on

grantees’ monitoring systems—uses the Integrated Disbursement and

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Executive Summary

Information System as its chief monitoring tool. Allowed considerable

independence in carrying out the Grants Management System, the field

offices develop their own work plans, conduct their own evaluations of

grantees to determine which need more oversight and assistance, set their

own monitoring schedules, and determine the type and amount of

technical assistance they provide to their grantees.

Results in Brief While the Grants Management System provides a logical, structured

approach to managing the four block grant programs, HUD’s monitoring

under the system—including on-site monitoring of grantees and the

Integrated Disbursement and Information System—does not ensure that

the programs’ objectives are being met and that grantees are managing

their funds appropriately. HUD considers its on-site monitoring of grantees

essential, but GAO found this monitoring is inadequate. The five field

offices GAO visited (accounting for about 20 percent of all block grant

funds in fiscal year 1998, or $1.18 billion) conduct on-site monitoring

infrequently because of a shift to a more collaborative relationship with

the grantees and because of a lack of resources, according to the directors

of the field offices. Furthermore, on-site monitoring seldom targets the

grantees that receive the poorest evaluations from the field offices

compared with other grantees, and this monitoring is not uniform or

comprehensive because the field offices lack specific guidance. The

reviews of some grantees conducted by GAO and others, especially HUD’s

Inspector General, have identified significant problems in grantees’

finances and performance. And while such reviews are not generalizable

to all block grant programs, these reviews, along with the breakdowns in

monitoring, call into question the integrity of programs funded at nearly

$6 billion in fiscal year 1998, including their safeguards against fraud,

waste, and abuse. This report makes recommendations designed to

improve the integrity of the block grant programs.

For its part, HUD’s Integrated Disbursement and Information System does

not provide the information the Department needs to accurately assess

grantees’ performance and thus does not compensate for these

breakdowns in monitoring. Fraught with major design flaws, the

information system makes the process for establishing and maintaining

accounts difficult and provides ample opportunity for major problems

with entering data, does not allow such problems to be corrected easily,

cannot track the program income from the revolving funds that grantees

establish, does not provide timely and accurate information, and has

difficulty producing reports. GAO also determined that the security controls

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Executive Summary

for the information system are weak and therefore do not provide

assurance that the system is safe from fraud and abuse. This report

recommends modifying or replacing the Integrated Disbursement and

Information System, whichever is more cost-effective, and taking other

steps to improve system security.

Principal Findings

Monitoring Under the

Grants Management

System Does Not Ensure

That the Programs’

Objectives Are Being Met

and That Grantees Are

Managing Their Funds

Appropriately

Although HUD’s Grants Management System Policy Notebook states that

on-site monitoring is an essential tool for determining whether program

requirements are being met, it does not specify when on-site monitoring

should be done. During fiscal year 1998, the five field offices GAO reviewed

conducted visits to 33 grantees, or just 14 percent of their 228 grantees.

Moreover, while HUD’s annual comparative review of grantees’

performance is intended to target the grantees most in need of attention,

only 38 of the 85 grantees HUD had originally designated for on-site

monitoring were determined to be among the lowest performing grantees,

or those needing the most oversight or assistance. Of the 33 grantees that

actually received on-site monitoring, only 15 were among the lowest

performing. According to the directors of four of the five field offices, the

level of on-site monitoring fell by 88 percent from 1990 through 1998

because of the shift to a more collaborative relationship with the grantees

and a lack of staff resources to conduct on-site monitoring, combined with

increased responsibilities for field office staff. Despite recognition of this

problem, the Office of Community Planning and Development has not

conducted a workforce analysis since 1996. Furthermore, the on-site

monitoring that does occur is not uniform or comprehensive because the

Policy Notebook does not specify the issues that should be covered during

a visit. Another problem is the latitude granted field offices in evaluating

grantees’ performance. The Policy Notebook provides the individual field

offices with considerable discretion in targeting grantees for review.

In visits to 11 grantees, GAO found significant problems that could have

been detected with on-site monitoring. Some project files had no evidence

that the grantees monitored the recipients of funds, such as nonprofit

organizations, and in one instance, the grantee acknowledged that it had

not monitored any of its recipients in the 1998 program year. Other files

lacked documentation to support payments and to justify cost overruns,

including one overrun of about $100,000. At one grantee, the nine project

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Executive Summary

files GAO reviewed lacked such key information as certifications that the

recipients have low or moderate incomes, statements of work, and

contracts, making determinations about the grantee’s performance

impossible. Similarly, in 11 reports since the implementation of the Grants

Management System, HUD’s Inspector General has found that grantees are

not complying with financial and performance requirements and has

questioned the expenditure of about $26 million. The Inspector General

has also faulted HUD’s monitoring of grantees. In some cases, the Inspector

General could not determine the extent of this monitoring because of

missing information, and in other cases, HUD had not annually assessed

grantees, as required.

The Integrated

Disbursement and

Information System Is Not

Providing Needed

Information

Although the Integrated Disbursement and Information System (IDIS) was

designed to provide complete, accurate, and timely information on

grantees’ expenditures and accomplishments, these goals are not being

achieved because of four significant problems. First, because of flaws in

the design of the information system, grantees have had to enter the same

information multiple times—into another of HUD’s information systems;

into IDIS, several times; and into the grantees’ own systems for reporting to

their city—which could result in errors simply because of the multiple

data entries. According to HUD, as of mid-February 1999, grantees had

access to a batch file transfer process, referred to as Electronic Data

Interchange, which allows grantees to automatically extract data from

their own information systems and enter it into IDIS. Another difficulty is

the time involved for grantees to access and use the system; in visits to

grantees, GAO observed that accessing the system took as long as 40

minutes.

Second, when grantees enter incorrect information into IDIS, making

corrections is difficult. Five of the 11 grantees GAO visited reported having

multiple, significant errors in the system that they could not readily rectify.

To make the corrections, IDIS technical staff sometimes instructed the

grantees to create fake activities within IDIS (“dummy accounts”) to

reverse the incorrect data—although some of the grantees GAO spoke with

were reluctant to do this because the information could appear to be

inaccurate or fraudulent to outside observers.

Third, IDIS cannot track program income as it is received from the

revolving loan funds that many grantees establish for such things as

economic development loans. IDIS operates on the assumption that

program income, from whatever source, should be used immediately to

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Executive Summary

fund the next activity. That is, the system cannot segregate income from

revolving funds from other program income, although regulations permit

grantees to preserve program income for reuse exclusively in their

revolving funds. To work around this limitation, HUD instructs grantees to

delay entering information on such income until they are ready to spend

the money, but this approach requires grantees to keep two sets of books

and prevents HUD from using IDIS to determine how much income grantees’

are earning from their revolving funds and if grantees are meeting a

regulatory requirement to spend grant money in a timely manner.

Fourth, while IDIS was intended to allow HUD to track grantees’

performance on a real-time basis, it does not do so. IDIS does not require

grantees to enter performance information before it releases grant funds

to them. Grantees can obtain all funds for an activity without entering any

performance information about it, and most of the grantees GAO visited

waited until the end of the program year to enter information, when they

were required to complete annual reports. And after grantees have entered

the performance information, they have found that printing reports is

difficult, requiring staff to work through a number of computer

screens—as many as 70 at one field office GAO visited. GAO also determined

that the security controls for IDIS are weak and therefore do not provide

assurance that the information system is safe from fraud and abuse.

Although GAO’s Standards for Internal Controls states that users should

have limited, or segregated, access to a computer system according to

their responsibilities,1 GAO found instances in which particular users at

grantee locations had access that allowed them to both establish activity

accounts and draw down funds, thereby increasing the opportunity for

undetected errors or fraud. GAO also found instances in which terminated

employees retained access to IDIS. According to the HUD official

responsible for IDIS security, the staff resources devoted to arranging

access for grantees are strained. Just he and two others handle the

thousands of requests for access, he explained, and they cannot review the

requests for appropriateness. In addition, GAO found that the security

officer was not knowledgeable about computer security; the officer

acknowledged that while he is familiar with computer networks, he has

not done any work in security and has had no pertinent training. HUD is

now developing a new Department-wide information system based on IDIS

to manage all of its grant programs. IDIS’ major functions are to be

converted to a Windows environment, which will be more user-friendly.

But given the extent and nature of the problems with IDIS, GAO questions its

1

GAO Internal Control: Standards for Internal Control in the Federal Government Exposure Draft

(GAO/AIMD-98-21.3.1.).

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Executive Summary

use as a model for the Department-wide system. To address the problems

GAO identified, IDIS will need to be modified extensively or replaced,

whichever is more cost-effective.

Recommendations To improve the integrity of the four block grant programs, GAO

recommends that the Secretary of Housing and Urban Development direct

the Assistant Secretary for Community Planning and Development to

(1) emphasize the importance of on-site monitoring by specifying the level

of grantee performance that requires it and the steps that should be taken

in conducting it; (2) conduct a workforce analysis to determine the

resources that may be required to better support the monitoring of

grantees; and (3) improve the Grants Management Process information

system by providing guidance to the field offices to ensure that they are

entering information consistently. GAO also recommends that HUD consider

whether it is more cost-effective to modify IDIS or replace it. Furthermore,

before IDIS is used as the base for developing the new grants management

information system for all of HUD’s grant programs, GAO recommends that

the problems it has identified with IDIS be corrected.

Lastly, HUD should immediately take steps to ensure that access to the

Integrated Disbursement and Information System (IDIS) is appropriately

limited and to ensure that the security officer for IDIS is fully aware of his

responsibilities and has the appropriate training and staff. Chapters 2 and

3 contain additional details on these recommendations.

Agency Comments GAO provided HUD with a draft of this report for its review and comment.

HUD disagreed with a number of points in the report. HUD did not comment

directly on the recommendations aimed at strengthening the integrity of

the formula grant programs or improving the Integrated Disbursement and

Information System. (See app. I.)

HUD commented that the report is unduly critical of its controls over the

four formula block grant programs. HUD offered two overall reasons for

this view. First, it commented that the report did not document the

large-scale changes that HUD had undertaken and that have led to

significant managerial improvements and strengthened accountability in

the programs. Second, HUD disagreed about the extent of on-site

monitoring of grantees that was necessary to provide effective

management oversight, noting it has “taken a more comprehensive,

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Executive Summary

modernistic approach”—that is, an ongoing, continuous process of which

on-site monitoring visits are one of several elements.

GAO’s report recognizes that HUD has undertaken important changes to

improve program management and accountability. It notes, among other

things, that HUD has revamped its approach to managing the programs by

requiring grantees to develop a consolidated plan that lays out how they

will use the funds for all four programs, changed its monitoring of grantees

to reflect a collaborative relationship, and developed the Integrated

Disbursement and Information System so that grantees could, among

other things, enter information describing their planning and projects and

draw federal funds. GAO’s report also concludes that HUD’s revamped

system provides a logical, structured approach to managing the block

grant programs and that HUD has recognized the need for effective systems

for overseeing the handling of program funds and the achievement of

program objectives. Furthermore, GAO added to this report information on

management improvements made to the Grants Management System that

HUD reported after GAO had completed its field work. This information

included, for example, HUD’s distribution of additional instructions for

incorporating more traditional risk elements, such as unresolved audit and

monitoring findings, into the field offices’ annual comparative review

process.

GAO also agrees that HUD has taken a more ongoing, continuous approach

to monitoring grantees and that this approach can provide useful insights

into grantees’ problems and achievements. However, GAO questions

whether, at this time, approaches other than significant levels of on-site

monitoring of grantees can adequately ensure that program objectives are

being met and that funds are being managed appropriately, given the

shortcomings of the Integrated Disbursement and Information System and

other monitoring tools, such as consultations and technical assistance

visits. GAO believes on-site monitoring is currently all the more important

to compensate for these shortcomings. This is not to say that on-site visits

should be made to every grantee each year; but rather, GAO believes

periodic visits to grantees HUD identifies as needing improvements are

essential.

HUD also did not comment on GAO’s findings about the accuracy,

completeness, and timeliness of the Integrated Disbursement and

Information System information on grantees’ expenditures and program

performance. Instead, it commented that GAO’s assessment fails to

consider recent efforts to improve it. HUD provided compensating factors

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Executive Summary

for some of the Integrated Disbursement and Information System’s

weaknesses and pointed to recent and planned changes to the system it

believed will correct these problems. GAO believes that HUD’s recent and

planned changes could, if properly implemented, improve the Integrated

Disbursement and Information System. However, the numerous additional

problems in usability, accuracy, and security still compromise HUD’s ability

to ensure the integrity of the four formula block grant programs.

Therefore, we did not make any changes to our recommendations.

GAO continues to believe that HUD’s revamped approach to managing the

programs, as implemented, does not provide adequate assurance that the

four block grant programs are meeting their objectives and that the funds

are being managed appropriately. In the draft of this report, GAO proposed

that HUD provide clearer and more detailed guidance on the factors that

should be considered in evaluating grantee performance, with a heavier

emphasis on factors that ensure compliance with program requirements.

In view of the fact that HUD has distributed guidance adding more

traditional risk factors to its annual comparative review, GAO has deleted

that proposed recommendation from the report. Furthermore, GAO

proposed that HUD improve the Grants Management Process information

system so that field offices have a single data entry point for information

on their monitoring activities. In view of the fact that on March 29, 1999

HUD added Grants Management Process screens to allow field offices to

describe their monitoring activities, GAO has deleted that proposed

recommendation from the report. In addition, GAO added information to

the report to reflect HUD’s guidance on conducting its annual comparative

review and its plans to update the Grants Management Policy Notebook.

Where appropriate, GAO has included other technical changes to the report.

GAO’s detailed responses and HUD’s comments appear in appendix I and are

discussed in chapters 2 and 3.

Page 9 GAO/RCED-99-98 Community Development
Contents

Executive Summary 2

Chapter I 

Introduction

12

Four Block Grant Programs Provide Funds for Community

Revitalization and Aid to the Homeless

12

CPD’s Oversight of Grants Through the Grants Management

System

14

IDIS 19

Objectives, Scope, and Methodology 20

Chapter 2 

Monitoring Under the

Grants Management

System Does Not

Ensure That Grantees

Are Managing Their

Funds Appropriately

to Achieve Program

Objectives

23

CPD’s Implementation of the Grants Management System Does

Not Ensure That On-Site Monitoring Occurs and That the Poorest

Performing Grantees Are Reviewed

24

Reviews Have Identified Significant Financial and Performance

Problems at Grantees

32

Little Oversight by CPD Headquarters of Field Offices’ Operations 34

Conclusions 36

Recommendations to the Secretary of Housing and Urban

Development

37

Agency Comments and Our Evaluation 37

Chapter 3 

Financial and

Management

Information System Is

Not Providing the

Information Needed

to Manage and

Monitor Grant

Programs

39

IDIS’ Design Flaws Make the System Difficult to Use, and

Information Is Not Always Complete, Accurate, and Timely

39

Security Controls Do Not Provide Assurance That IDIS Is Safe

From Fraud and Abuse

44

HUD Plans Major Changes 47

Conclusions 47

Recommendations to the Secretary of Housing and Urban

Development

48

Agency Comments and Our Evaluation 49

Appendixes Appendix I: Comments From the Department of Housing and

Urban Development

50

Appendix II: Major Contributors to This Report 81

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Contents

Figures Figure 1.1: The Grants Management System’s Seven-Step Process 17

Figure 1.2: CPD’s Management of Formula Grant Programs 20

Figure 2.1: Five Field Offices’ On-Site Monitoring of Grantees,

Fiscal Year 1998

25

Figure 2.2: Field Offices’ On-Site Monitoring of Poor Performing

Grantees

26

Abbreviations

AIDS Acquired immunodeficiency syndrome

HIV/AIDS Human immunodeficiency virus/acquired

immunodeficiency syndrome

HOME Home Investment in Affordable Housing Program

HUD Department of Housing and Urban Development

IDIS Integrated Disbursement and Information System

CPD Office of Community Planning and Development

Page 11 GAO/RCED-99-98 Community Development
Chapter I 

Introduction

About one-quarter of the Department of Housing and Urban

Development’s (HUD) budget—almost $6 billion in fiscal year 1998—is

devoted to four formula block grant programs that support community

development. While those programs have different purposes, they all

provide federal funds to grantees to help finance projects and services for

local residents. The grantees include (1) 964 communities known as

entitlement communities—generally cities designated as central cities of

metropolitan statistical areas, other cities with populations of at least

50,000, and qualified urban counties with populations of at least

200,000—and (2) 48 states and some communities besides entitlement

communities whose programs are administered directly by HUD.

In 1995, HUD revamped its management of these formula block grant

programs. Instead of having a grantee develop separate plans for each

program, a grantee is now required to develop a consolidated plan that

lays out how it will use funds from the four programs for community

development. To implement the use of consolidated plans and focus on

performance monitoring, HUD instituted the Grants Management System—a

seven-step process for managing program funds and activities—which

placed greater reliance on the communities’ actions to police themselves;

it also phased in the Integrated Disbursement and Information System

(IDIS), which is a computerized reporting system for recording the

information grantees provide on their withdrawal of grant funds and their

accomplishments.

Four Block Grant

Programs Provide

Funds for Community

Revitalization and Aid

to the Homeless

HUD’s Assistant Secretary for Community Planning and Development

administers four formula block grant programs that help communities plan

and finance their growth and development and provide shelter and

services for homeless people. The four programs are the Community

Development Block Grant Program, the Home Investment in Affordable

Housing Program (HOME), the Emergency Shelter Grant Program, and the

Housing Opportunities for Persons With AIDS Program. The grantees in

these programs distribute their grant funds to some 10,000 “subrecipients,”

such as nonprofit providers, while the states distribute their grants to local

governments. These subrecipients and local governments provide services

directly to the beneficiaries of the programs.

In order to participate in the four programs, grantees must meet general

and specific requirements. For instance, in order to apply for one of the

four formula grants, a grantee must develop a long-term plan, generally for

3 to 5 years, that lays out activities under all four programs. This plan must

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Chapter I 

Introduction

include an assessment of needs for housing and the homeless; a housing

market analysis; a 1-year action plan; certifications of compliance with

various regulatory requirements, standards, and procedures that the

jurisdiction will use to monitor activities carried out in furtherance of the

plan; and a citizen participation and government consultation plan.

Projects and activities undertaken with program funds must meet the

specific objectives and requirements of each program.

Community Development

Block Grant Program

The Community Development Block Grant Program has long been the

principal federal community development program, providing funding for

metropolitan cities and urban counties and for small cities. The program

provides annual grants on a formula basis that takes into account

population, poverty, housing overcrowding, the age of the housing, and

any change in an area’s growth in comparison with that of other areas. The

activities undertaken must address at least one of three national

objectives: They must (1) benefit low- and moderate-income families,

(2) aid in the prevention or elimination of slums or blight, or (3) meet

urgent community development needs. In fiscal year 1998, the Congress

appropriated about $4.9 billion for the Community Development Block

Grant Program. This funding was subject to over $700 million in set-asides,

including ones for Indian tribes and historically black colleges.

Home Investment in

Affordable Housing

The HOME Program provides federal assistance to participating

jurisdictions or Indian tribes for housing rehabilitation, rental assistance,

assistance to first-time homebuyers, and new housing construction. The

HOME formula for allocating funds measures a jurisdiction’s share of the

total need for an increased supply of affordable housing.

In fiscal year 1998, the Congress appropriated about $1.5 billion for the

HOME Program—$863 million was allocated by formula to cities, urban

counties, and consortiums (contiguous units of local government), and

$575 million went to the states. The program’s funding is also subject to

several set-asides.

Emergency Shelter Grants

Program

The Emergency Shelter Grants Program is designed to supplement state,

local, and private efforts to provide emergency shelter assistance for the

homeless. Program funds can be used to rehabilitate or convert buildings

for use as emergency shelters for the homeless, to pay for certain

operating expenses and essential services in connection with emergency

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Chapter I 

Introduction

shelters for the homeless, and to conduct activities to prevent

homelessness.

Under this program, HUD makes grants to the states, units of general local

government, and territories on the basis of the Community Development

Block Grant formula. In fiscal year 1998, the Congress appropriated

$823 million for Homeless Assistance Grants, of which $165 million was

allocated for the Emergency Shelter Grants program.

Housing Opportunities for

Persons With AIDS

The Housing Opportunities for Persons With AIDS Program gives states and

localities the resources and incentives to devise long-term strategies for

meeting the housing needs of low-income persons with human

immunodeficiency virus/acquired immunodeficiency syndrome (HIV/AIDS)

or related diseases.

HUD awards 90 percent of the annual appropriation by formula to eligible

metropolitan statistical areas and states. Metropolitan areas with

populations greater than 500,000 and more than 1,500 cumulative cases of

AIDS are eligible for grants; the most populous city in an eligible

metropolitan area serves as that area’s grantee. In addition, states with

more than 1,500 cumulative cases of AIDS in areas outside of eligible

metropolitan areas qualify for funds. The remaining 10 percent of the

program’s annual appropriation is set aside for grants awarded on a

competitive basis. In fiscal year 1998, the Congress appropriated

$204 million for the Housing Opportunities for Persons With AIDS Program.

CPD’s Oversight of

Grants Through the

Grants Management

System

HUD’s Office of Community Planning and Development (CPD) administers

the four formula grant programs through 42 field offices located

throughout the United States. These offices report directly to CPD’s Office

of Executive Services, Field Management Division. Both headquarters and

field offices are now relying on the Grants Management System to oversee

grantees.

Field Office Organization Each field office is managed by a director, who is responsible for ensuring

that the field office’s annual work plan is carried out. An annual work plan

is based on the field office’s annual assessment of each grantee and a

comparison of the grantees’ performances (known as an annual

comparative review). The work plan describes the actions the field office

plans to take for each grantee during the year. For example, grantees

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Chapter I 

Introduction

designated as needing improvement may be scheduled for technical

assistance or on-site monitoring.

Reporting to the director are teams of CPD representatives who are

responsible for monitoring a caseload of grantees. Each team is managed

by a program manager. Several types of support staff supplement the

efforts of the CPD representatives. For example, financial analysts review,

monitor, evaluate, and provide technical advice and assistance on financial

matters concerning grant awards and grantees’ financial systems. Other

support staff include environmental, relocation and real estate, and

clerical staff.

CPD Headquarters’

Organization

The 42 field offices report directly to the Office of Executive Services,

Field Management Division. The division is responsible for setting

priorities, promulgating departmental goals, providing resources, solving

problems, representing the field offices in headquarters, training, and

evaluating field offices’ performance. It operates through eight desk

officers, each of whom is responsible for a number of field

offices—including monitoring the offices’ operations, providing

assistance, and providing input to the field offices’ end-of-the-year

evaluation signed by the Director of the Office of Executive Services.

The desk officers oversee the field offices through telephone

conversations and E-mail correspondence, occasional on-site visits, and

periodic queries to the Grants Management Process information system.

This information system is a computerized management information

system that the field offices use to record their interactions with their

grantees. For example, once a CPD representative completes a review and

assessment of the grantee’s annual plan for using its formula grant funds,

the results are entered into the Grants Management Process information

system.

Grants Management

System

In 1995, HUD introduced the Grants Management System to ensure that

formula block grantees are achieving high performance and are in

compliance with program requirements. This system deemphasized

compliance monitoring and placed greater emphasis on (1) promoting a

more collaborative approach that includes up-front assistance to help

grantees achieve their goals and identify and solve their problems and

(2) ensuring that grantees develop systems to monitor their own

performance. Before the Grants Management System, HUD’s primary

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Chapter I 

Introduction

activities in administering the block grant programs were to assist

communities in understanding program requirements and to monitor local

programs to ensure compliance with statutory and regulatory

requirements.

The Grants Management System and the information systems supporting

it—the Integrated Disbursement and Information System (IDIS) and the

Grants Management Process information system—are intended to help HUD

comply with the requirements of the Government Performance and

Results Act of 1993 (P.L. 103-62). The act requires agencies to establish

long-term general goals as well as associated annual goals. In addition,

agencies must measure their performance against the goals they have set

and report publicly on how well they are doing. The Grants Management

System is intended to target limited resources so that they can best be

used to achieve locally defined goals while also providing best practices to

serve as models to enhance and improve performance among all grantees.

As figure 1 shows, the Grants Management System is a seven-step process

of interaction between CPD and the grantees that involves (1) consulting,

(2) conducting a plan review and assessment, (3) monitoring a grantee’s

performance (performance-based program management), (4) reviewing

the grantee’s consolidated annual performance and evaluation report,

(5) conducting an annual community assessment, (6) conducting an

annual comparative review, and (7) systematically identifying and

encouraging the use of best practices. Broadly, the Grants Management

System establishes internal controls—plans, methods, and procedures

used to meet objectives—that involve monitoring and, according to GAO’s

Standards for Internal Controls in the Federal Government, must

themselves be monitored. Field offices enter the results of each of these

steps into the Grants Management Process information system.

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Figure 1.1: The Grants Management System’s Seven-Step Process

Source: CPD.

Consultation CPD uses consultation as a tool to enhance the quality and effectiveness of

a grantee’s plans and programs. These consultations are held as early as

possible in the grantee’s process for developing its next year’s planned

activities. The participants in these meetings should include the chief

elected official of the community and other stakeholders, as appropriate.

The discussions should be centered on relevant planning, performance,

and compliance issues. When possible, these discussions should be

conducted at the grantee’s offices.

Plan Review and Assessment CPD uses the grantee’s consolidated plan and annual action plan as the

basis for its program management and evaluation responsibilities. CPD’s

review and assessment focuses on the plans’ completeness; their

effectiveness as communication tools for citizens; the soundness of their

strategies and the likelihood that they will address identified needs; and

their ability to serve as the basis of future assessment and performance

evaluation. CPD has 45 days from receipt of the plans to review and

approve or disapprove them or the plans are automatically approved.

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Performance-Based Program

Management

CPD is to oversee the grantee’s activities throughout the program year

through performance-based management. This process includes an

assessment of the performance and overall effectiveness of the programs

implemented by the grantees as well as traditional compliance monitoring.

CPD must use a wide range of tools in evaluating a grantee’s performance.

These tools include the consolidated and action plan review and

assessment, performance data that the grantee enters into IDIS, the annual

community assessment, on-site monitoring, and consultations with

community officials and other stakeholders to define or improve a local

program.

Consolidated Annual

Performance and Evaluation

Report

At the end of the program year, a grantee submits a consolidated annual

performance and evaluation report whose goal is to show what the grantee

has accomplished with the grant funds. The report allows CPD, local

officials, and the public to draw conclusions on grantees’ performance. A

grantee should submit this report to its CPD field office 90 days after the

end of the grantee’s program year, which varies by grantee. The report is

to cover all activities undertaken by the grantee during the program year

regardless of the fiscal year of the grant. If a grantee fails to submit the

report in a timely manner, CPD can suspend or terminate the grantee’s

funding. According to the Grants Management System Policy Notebook,

CPD’s review of the report should be completed within 60 days of receipt;

however, this time frame is not required by regulation.

Annual Community Assessment Using the consolidated annual performance evaluation report and other

available information, such as the results of monitoring activities, CPD

annually assesses each grantee’s performance to determine whether the

grantee has carried out its planning, activities, and reporting in accordance

with statutory requirements and provides the grantee with a written report

on its performance. This assessment is to begin no later than 3 months

after the end of the program year. CPD is to complete the assessment

within 60 days and provide the grantee with a letter that cites the grantee’s

accomplishments and any areas that need improvement. The grantee is

given 30 days to comment on the assessment’s findings.

Annual Comparative Review In conducting an annual comparative review, each field office evaluates its

portfolio of grantees by quality and risk and identifies grantees that it

considers to be performing exceptionally well, those that are performing

adequately, and those that need more oversight or assistance. At the

completion of this review, CPD develops a work plan for each grantee that

describes the management strategy for the grantee for the coming program

year. If the grantee has areas needing improvement, the field office will

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identify actions and strategies for addressing that problem. Actions may

include on-site monitoring, technical assistance provided by staff and

contractors, peer-to-peer assistance, and training.

Best Practices During the annual comparative review or at any time, field offices identify

best practices—systems and programs that work particularly well and that

can be used to improve the performance of other grantees. Best practices

are programs or projects, management tools, and/or techniques that fulfill

at least two of the following characteristics:

• They generate a significant positive impact on those they are intended to

serve or manage and are replicable in other areas of the country, region, or

local jurisdiction.

• They demonstrate the effective use of partnerships among government

agencies, nonprofit organizations, and/or private businesses.

• They display creativity in addressing a problem.

IDIS IDIS is a computer-based management information system that

consolidates planning and reporting processes across the four formula

grant programs. The grantees use this system to enter information on

consolidated planning, establish projects and activities to draw down

funds, and report accomplishments. The system is supposed to reduce the

grantees’ reporting burden by providing a single computer system for

obtaining funding and reporting on the use of grant funds, regardless of

the formula grant program. Moreover, the system is supposed to provide

CPD staff with real-time performance data from the grantees, such as the

number of people served, jobs created, houses rehabilitated; income

characteristics of beneficiaries; benefits provided; information to judge if

national objectives are being met; and information on funds drawn down

by the grantees. This information is needed for CPD to evaluate grantee

performance and to determine the assistance is needed.

Figure 1.2 shows CPD’s structure and information systems in managing the

four formula grant programs.

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Figure 1.2: CPD’s Management of

Formula Grant Programs

Source: GAO’s analysis of CPD data.

Objectives, Scope,

and Methodology

The former Chairman of the Subcommittee on Housing Opportunity and

Community Development—now the Subcommittee on Housing and

Transportation—, Senate Committee on Banking, Housing, and Urban

Affairs, and the Chairman of the Subcommittee on Housing and

Community Opportunity, House Committee on Banking and Financial

Services, asked GAO to assess whether controls are in place to ensure that

the block grant programs’ objectives are being achieved and that funds are

managed appropriately. In particular, we examined whether (1) HUD’s

on-site monitoring of grantees under the Grants Management System is

adequate and (2) the Integrated Disbursement and Information System

provides the data HUD needs to accurately assess grantees’ performance.

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Our work focused on CPD’s four formula grant programs—the Community

Development Block Grant Program, HOME Investment in Affordable

Housing Program, Housing Opportunities for Persons With AIDS Program,

and Emergency Shelter Grants Program. We evaluated IDIS operations and

the Grants Management System, CPD headquarters’ oversight of its 42 field

offices, and 5 field offices’ oversight of 11 grantees. In selecting field

offices, we considered geographic dispersion, size, grant fund allocations,

and past performance.

In addressing both questions, we examined information from a number of

sources, including relevant GAO reports, the HUD Office of the Inspector

General’s audits of CPD’s formula grant programs, and independent

contractor’s audits and studies of IDIS and CPD’s internal controls. In

addition, we interviewed key agency officials, the independent contractors

supporting IDIS and reviewing the Grants Management System, and

representatives of various grantee organizations.

In evaluating the Grants Management System, we interviewed CPD officials

at field offices located in Fort Worth, Texas; Boston, Massachusetts; Los

Angeles, California; Coral Gables, Florida; and Omaha, Nebraska. In our

analysis, we applied the relevant criteria GAO has issued on internal

controls and guidelines for evaluations and the laws, regulations, and

procedures pertaining to the four formula block grant programs. We

evaluated the Grants Management System’s design and reviewed its

implementation in each of the five field offices. Specifically, we assessed

the caseloads of each field office representative; analyzed the offices’

process for reviewing and monitoring grantees’ action plans, transactions,

and performance information; and documented the field offices’ responses

to this information.

We also visited a total of 11 grantees managed by the five field offices we

visited. These grantees were selected on the basis of their size,

performance evaluations, and proximity to the field offices. While at these

grantees, we interviewed relevant city officials and conducted limited file

reviews to determine if HUD was effectively managing these grants,

obtained the grantees’ opinions on the level of monitoring and technical

assistance provided by the CPD field office; and validated selected

information provided through IDIS. The grantees we visited include Fort

Worth, Arlington, and Dallas, Texas; Lincoln, Nebraska; Council Bluffs,

Iowa; Medford, and Lowell, Massachusetts; Inglewood, and Ontario,

California; and Miami, and Pompano Beach, Florida.

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We evaluated IDIS internal controls and conducted selective testing of IDIS

transactions. We interviewed key HUD officials both in headquarters and

the field as well as staff at the grantees we visited regarding IDIS’

functionality, training, and security. We also tested IDIS’ accuracy by

tracing financial and accomplishment data to source documents for

randomly selected activities.

Our review was conducted from May 1998 through April 1999 in

accordance with generally accepted government auditing standards.

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While the Grants Management System provides a logical, structured

approach to managing the four block grant programs, CPD’s monitoring

under the system, of which IDIS is a critical part, does not ensure that

program objectives are being met and that funds are being managed

appropriately. While the on-site monitoring of grantees is an essential tool

for making such determinations, it is all the more important because of the

shortcomings of IDIS (discussed in ch. 3) and other monitoring tools, such

as consultations, technical assistance visits and audits performed by

independent public accounting firms. For the five CPD field offices we

visited, accounting for approximately 20 percent of all formula grant funds

in fiscal year 1998 ($1.18 billion), most of the poorest performing grantees,

identified by CPD through the annual comparative review, were not

identified for on-site visits. And even when on-site visits were scheduled

for the poorest performing grantees, the visits often did not occur because

of a shift in emphasis away from intensive on-site monitoring and resource

constraints in the field offices. Furthermore, CPD headquarters has reduced

its oversight of the field offices because of a desire for a more

collaborative relationship and because of resource constraints.

Such breakdowns in monitoring make the Department vulnerable to fraud,

waste, and abuse in its formula grants programs. In our review of 11

grantees, we identified various problems related to the financial

operations of and results achieved by grantees, including vouchers

assigned to the wrong project and year and incomplete or missing

information on key data such as recipients, statements of work, and

contracts. In addition, since the Grants Management System was

introduced in 1995, HUD’s Inspector General has questioned grantees’

expenditure of about $26 million. Finally, the Inspector General and an

independent study performed in 1998 of six field offices and 11 grantees

reported that CPD’s monitoring is inadequate.

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CPD’s Implementation

of the Grants

Management System

Does Not Ensure That

On-Site Monitoring

Occurs and That the

Poorest Performing

Grantees Are

Reviewed

While HUD’s Grants Management Policy Notebook emphasizes the

importance of on-site monitoring in implementing the Grants Management

System, stating that on-site monitoring is an essential tool for determining

whether important program requirements are being met, the five field

offices we visited have generally conducted limited on-site monitoring of

grantees and of those grantees CPD identifies as most in need of oversight

or assistance. Furthermore, when on-site reviews occur, field offices may

not obtain the comprehensive, in-depth information they need to oversee

grantees’ performance. A problem exists with the definition of poor

performance because CPD has not established standard criteria for

determining the level of performance grantees achieve, which means that

CPD has no assurance that the grantees most at risk of failing to meet

program requirements are consistently being identified for more intensive

review.

Field Offices Have

Conducted Limited On-Site

Monitoring of Grantees

and Have Not Focused on

the Poorest Performing

Grantees

The field offices we visited targeted about 37 percent of their grantees for

on-site monitoring but visited far fewer. As figure 2.1 shows, during fiscal

year 1998, the five field offices identified 85 of their 228 grantees for

on-site monitoring but only conducted 33 visits—14 percent of all grantees.

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Figure 2.1: Five Field Offices’ On-Site

Monitoring of Grantees, Fiscal Year

1998

Source: GAO’s analysis of CPD’s data.

Furthermore, while the grantee evaluation performed during the annual

comparative review is intended to maximize the use of limited resources

by targeting the grantees most in need of attention, the 33 grantees visited

by the five field offices were not necessarily those CPD had determined

were the poorest performers. As figure 2.2 shows, only 38 of the 85

grantees designated for on-site monitoring were rated among the lowest

performing grantees in the annual comparative review, that is, those

needing the greatest oversight or assistance. Moreover, only 15 were

actually monitored, and the remaining 23 visits were cancelled because of

resource limitations, according to the field office directors.

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Figure 2.2: Field Offices’ On-Site Monitoring of Poor Performing Grantees

Source: GAO’s analysis of CPD’s data.

According to the CPD directors of four of the five field offices, they have

significantly reduced their on-site monitoring of grantees in recent years.2

According to monitoring information provided by the four directors,

on-site monitoring in these offices fell by about 88 percent between 1990

and 1998. Nevertheless, officials of two associations that represent

grantees—the National Community Development Association and the

National Association for County Community and Economic

Development—and several grantees we visited supported more on-site

monitoring because monitoring ensures that they are generally on the right

track. They said they want to know whether they are operating their

programs properly and to have problems corrected before they are

penalized for inadequate management. One association official said that

some grantees are becoming concerned because they have not been

monitored in years.

2

The Miami field office could not provide historical monitoring information because it was not

established until 1996.

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Infrequent on-site monitoring by CPD has occurred for two principal

reasons discussed below: (1) a shift in emphasis under the Grants

Management System and (2) significant resource reductions.

Shift in Monitoring Emphasis The Grants Management System shifted the focus of the

government/grantee relationship from one of monitoring grantee

compliance with program requirements to a more collaborative

relationship that includes up-front assistance to help grantees achieve

their objectives and identify and solve problems. In line with this

philosophy, CPD encouraged the field offices to increase the level of remote

monitoring through IDIS and other tools such as IDIS reports, consultations,

technical assistance visits, and audits performed by independent

accounting firms and reduce the level of intensive on-site monitoring. In

February 1997, we reported that of the 32 CPD directors surveyed,

41 percent said that headquarters’ emphasis on completing essential

monitoring was low, and 66 percent believed that the amount of on-site

inspections should increase.3

Significantly Reduced

Resources

As the directors of the five field offices said, and as we reported in

February 1997, the level of on-site monitoring is lower than it should be

principally because of a lack of staff and travel funds. Resources have

been reduced while responsibilities have increased. CPD lost almost

one-fourth of its staff—264 people—between 1992 and 1997. At the same

time, staff have had to take on new responsibilities for programs worth

billions of dollars: homelessness programs, technical assistance grants,

and Empowerment Zone and Enterprise Community grants.4

 This caused

the annual grants per employee to double from about two to about four

over approximately the same period. In addition, the staff in some field

offices have to carry out administrative tasks because of administrative

staff shortages. CPD directors told us that staff reductions, combined with

workload increases, have forced them to have to make sacrifices, and they

consistently mentioned the elimination of on-site monitoring as one of

those sacrifices.

Furthermore, CPD directors told us that the Grants Management System

was not generating resource efficiencies as they had hoped. While IDIS,

along with the Grants Management Process information system, were to

3

 HUD: Field Directors’ Views on Recent Management Initiatives (GAO/RCED-97-34, Feb. 12, 1997).

4

CPD oversees a number of programs designed to reduce homelessness, technical assistance grants to

help grantees correctly administer CPD programs, and the Empowerment Zone and Enterprise

Community Program, which is designed to help selected distressed communities develop

comprehensive approaches for dealing with their social and economic problems.

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foster the efficiencies of remote monitoring, IDIS requires substantial time

to learn and maintain, and the annual consultations also use time and

travel dollars, the directors reported. According to the directors, these

extra requirements make on-site monitoring more difficult.

Officials in one field office told us that the cost of travel is a major factor

in determining which grantees will receive on-site monitoring because the

field office has to cover a large geographic area. They said that the

grantees that are relatively close to the field office receive the greatest

oversight. For instance, while this field office had nominated a grantee for

a best practices award, field office staff still made weekly technical

assistance visits to that grantee because it was nearby. Yet, of the field

office’s 16 poorest performing grantees, only 3 received on-site

monitoring. In May 1997, CPD acknowledged these problems in its

Management Reform Plan, which noted the following:

“Among . . . [CPD’s] key problems are: a. Staff and travel funds are too limited to do

adequate on-site monitoring and validation of high risk activities of grantees. b. CPD

approves over 1,300 competitive grants a year and has to monitor cumulatively many

thousands of competitive grants, a workload increasingly difficult to handle with the loss of

23% of staff since 1992 and continued drop in staff under the downsizing. c. With the

approval of hundreds of economic development projects in the past several years, CPD has

insufficient staff resources in both number and expertise to monitor these programs

adequately.” 5

Despite recognition of this problem, CPD has not conducted a workforce

analysis to determine its staffing needs and accurately target its staff

resources since 1996. Furthermore, while HUD’s travel budget increased

from $15.6 million in fiscal year 1998 to $19 million for fiscal year 1999,

HUD decreased CPD’s field office travel allocation from $416,051 in 1998 to

$412,000 in 1999. Moreover, the field office travel allocation for fiscal year

1999 is over $100,000 less than it was in fiscal year 1994.

On-Site Monitoring That Is

Conducted Is Not Uniform

or Comprehensive

Before the Grants Management System was established, field offices used

the CPD Monitoring Handbook more universally. This handbook specified

the level of monitoring warranted for high-risk grantees and the scope and

intensity of the on-site review. It indicated that on-site monitoring should

include validating reported information by reviewing case files; reviewing

financial information; spot-checking capital improvement projects; and

5

The HUD 2020 Management Reform Plan presents a fundamental management overhaul that focuses

on improving HUD’s management of its programs and staff.

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visiting sites that provide direct services to beneficiaries, such as a

homeless shelter. It also included checklists that focused on compliance

with program requirements, such as the grantee’s progress in achieving

project objectives, compliance with national objectives for the Community

Development Block Grant Program, grant administration, citizens’

participation, and property rehabilitation activities, among others. Some of

these activities were reviewed by CPD representatives, while others were

reviewed by specialists such as financial analysts. Staff had to report on

the results of the review in the form of a letter to the grantee and other

relevant officials. According to one field office director we spoke with, a

comprehensive on-site review would usually take about a week or two to

complete.

Under the Grants Management System, however, CPD has no assurance

that such comprehensive on-site monitoring will occur. The Grants

Management System Policy Notebook does not ensure that field offices

will conduct comprehensive monitoring of the grantees that they do visit

because it does not provide specific procedures that have to be carried out

during such a visit. Two field office directors and the Director of CPD’s

Field Management Division said that the principles in the monitoring

handbook still applied but that field offices are not required to follow

them. Field offices have significantly curtailed the actions they take during

on-site monitoring.

Instead, monitoring under the Grants Management System targets the

specific aspects of grants administration in which the grantee needs

improvement. For example, one field office focused its monitoring visits

only on the grantees’ monitoring of subrecipients. Of the five offices that

we visited, only one office had conducted a comprehensive on-site

monitoring of a grantee in 1998. According to the field office director, the

field office no longer routinely conducts comprehensive on-site

monitoring, but did so in this instance in response to a citizen’s allegation

of fraud in the use of federal funds.

The lack of specific monitoring guidance thus allows for significant

variation in the way HUD field offices oversee almost $6 billion in formula

grant funds. While one field office we visited focused its half-day

monitoring visits only on the grantees’ monitoring files for subrecipients,

another office conducts complete multiday reviews of one of a grantee’s

programs. In a third field office, the complete fiscal year 1998 on-site

monitoring for one grantee that receives $28 million annually in CPD

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formula allocations consisted of a one-day visit to one HOME project by a

single HUD employee, who had never before conducted a monitoring visit.

According to HUD, the Grants Management Policy Notebook will be revised

to provide detailed guidance to field offices on ensuring compliance with

program laws and regulations. This guidance is scheduled to be made final

and distributed at the end of July 1999.

Tools Other Than On-Site

Monitoring Are Not

Providing Accurate and

Complete Information

The directors of the five CPD field offices we visited generally agreed that

comprehensive on-site reviews provide a higher level of assurance of

program compliance and proper use of funds than other available

tools—IDIS reports, consultations, technical assistance visits, and audits

performed by independent public accounting firms. These other tools do

not provide the detailed information that field offices need to effectively

monitor program performance, according to the directors. As we discuss

in chapter 3, we found during our visits to field offices that grantees were

not always entering complete and accurate information into IDIS and that

the system cannot provide timely and accurate information on grantees’

performance. In addition, some CPD representatives were not using IDIS to

retrieve information on grantees’ performance. Furthermore, field offices’

consultations with grantees are primarily geared to providing local

officials with an evaluation of the grantees’ performance and to identifying

technical assistance needs and resources, rather than reviewing projects

and activities and documentation supporting those activities. Similarly,

technical assistance visits are made to provide the grantees with

information to help them operate their programs more effectively. One

director acknowledged that field office staff can make observations on

grantees’ financial and performance matters during these visits, but the

visits’ primary purpose is not monitoring. Moreover, technical assistance is

often performed by contractors who do not have a monitoring role.

Finally, according to the Director of the Field Management Division and all

five field office directors, independent public accounting audits do not

provide enough detailed program performance information.6

6

The Single Audit Act, 31 U.S.C. 7501-750, provides uniform audit requirements for all federal

assistance programs, that award funds to states, local governments, or nonprofit organizations. Rather

than being a detailed review of individual grants or programs, a single audit is an organizationwide

financial and compliance audit that focuses on accounting and administrative controls. A single audit

is designed to advise federal and grantee officials and program managers on whether an organization’s

financial statements are fairly presented and to provide reasonable assurance that federal financial

assistance programs are managed in accordance with applicable laws and regulations. It is not

intended to provide detailed performance information.

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The Grants Management

System Does Not Provide

Uniform Criteria for

Evaluating Grantees’

Performance

The latitude allowed in evaluating the level of grantees’ performance is

another problem for monitoring under the Grants Management System.

The field offices have considerable discretion in setting their annual work

plans—including deciding on which grantees are poor performers and

what type of oversight they may need. The Grants Management Policy

Notebook, which describes how to manage a grantee’s performance,

provides only general criteria for evaluating this performance. These

criteria include the adequacy of the grantee’s consolidated plan and the

grantee’s efforts to (1) address the continuing needs of the homeless

population, (2) provide affordable housing to all populations and income

groups, (3) increase economic opportunity, (4) provide a suitable living

environment for its recipients, and (5) meet program requirements. The

policy notebook leaves it to the individual field office to determine which

of these factors to weigh more heavily in targeting grantees for review. On

the basis of these criteria, the field office is to determine which grantees

are performing exceptionally well, performing adequately, or needing

more oversight or assistance.

While these criteria include an important focus on results in the

community, they do not provide assurance that field offices will

consistently emphasize the factors that will target grantees on the basis of

compliance with internal controls designed to protect against fraud or

abuse. According to two field office directors, in determining which

grantees need to be monitored more closely in the coming year, the Grants

Management System shifted the focus from the factors that could result in

the inappropriate use of federal funds to the more performance-based

factors presented in the Grants Management Policy Handbook.

Furthermore, in reviewing the Community Development Block Grant

Program, an independent accounting firm noted the need to identify at-risk

grantees by using more traditional risk factors, such as unresolved audit or

monitoring findings, the number of subgrantees and subrecipients

receiving funds, the amount of program income, the size of the grant, the

last date of monitoring, and staff turnover.7

 In response to this report, on

September 29, 1998, HUD promulgated risk analysis guidance that included

most of these risk factors.

7

Soza & Company Ltd. U.S. Department of Housing and Urban Development Office of Audit

Resolution, Verification Review of Material Weakness 91-02, Community Development Block Grant

“CDBG”, March 19, 1998.

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Reviews Have

Identified Significant

Financial and

Performance

Problems at Grantees

Our visits to 11 grantees and 11 reports by HUD’s Inspector General, while

not generalizable to all block grant programs, identified significant

problems that could have been identified if field offices were conducting

comprehensive on-site monitoring. Specifically, at several grantees, we

found problems in the monitoring of subrecipients that ranged from a lack

of records showing that such monitoring had been done, although the

grantees said monitoring had occurred, to an acknowledgement by one

grantee that no monitoring had occurred during the 1998 program year.

Without subrecipient monitoring, HUD has no assurance that subrecipients

are complying with program requirements and are achieving their intended

objectives.

For other grantees, in examining the project files, we found inadequate

documentation to support payments to contractors, payment vouchers

that were unrelated to the project, and a lack of documentation to justify

project overruns. For example, at one grantee, the project files were

missing so much information that we could not determine if we had

identified all of the problems. This grantee had incomplete or missing

information—on such key data as the qualifications of recipients served,

such as certifications that recipients are of low or moderate-income,

statements of work, and contracts—in the nine project files we reviewed.

Although this grantee received a monitoring visit in the 1998 program year,

the monitoring was targeted to specific program areas, and the monitoring

report did not disclose the problems we identified. For example, for one

project budgeted for $30,000, the file included two contracts indicating

that it had received $40,000 and then another $60,000. We were told that

the latter $60,000 contract was cancelled, but the file included no

documentation of this. For another project budgeted for $135,000, the file

included weekly progress reports, but payment vouchers (justifying the

payments made to contractors) and other important documents, such as a

statement of work, were missing. And for still another project, the file

indicated that the project was budgeted at $145,000 and internal

accounting records indicated that over $300,000 was spent, but neither of

these figures could be reconciled with the withdrawal of approximately

$240,000 that was recorded in IDIS. The file did not include any justification

or support for the discrepancies and the overrun. This grantee was not

alone in poorly accounting for its use of funds. For example, at another

grantee, we could not reconcile payment vouchers with project totals for a

street-paving project that cost $259,200.

Our reviews also showed problems with reporting accomplishments and

determining whether grantees were following regulations. For example, at

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another grantee, we observed the double-counting of accomplishments

from one project. In particular, the project file supported only half as

many demolitions as were reported in IDIS.

In 11 reports based on reviews of some grantees, HUD’s Inspector General

found that grantees are not complying with financial and performance

requirements and consequently has questioned the expenditure of about

$26 million in grant funds since HUD began using the Grants Management

System. For example, the Inspector General reported that a grantee had

improperly charged over $2 million in administrative costs to prior

program years. Since the costs were transferred before the end of the

program year, the grantee did not disclose these costs in its annual

performance report. Without on-site validation of the information in the

report, the CPD field office could not determine that improper transfers had

been made. According to the CPD representative who was responsible for

this grantee, the limited monitoring that was done during this period could

not have identified the conditions the Inspector General had uncovered.

In another audit, the Inspector General found significant weaknesses in a

grantee’s internal controls for its housing rehabilitation program under its

Community Development Block Grant Program. For example, the

Inspector General identified 11 houses that had recently been

rehabilitated, inspected, and approved by the grantees’ inspectors.

However, the Inspector General’s inspectors said these houses should not

have passed inspection. According to the Inspector General’s report, the

deficiencies identified by the Inspector General’s inspectors had been

allowed to go uncorrected because the grantee’s inspectors were not

specifically trained to perform inspections and were pressured to perform

cursory inspections in order to meet production goals. In addition, the

Inspector General reported that because the grantee did not have any

procedures for collecting payments on rehabilitation loans, the grantee

had a delinquent loan balance of over $100,000. Some of these loans had

been delinquent for over 8 years. The Inspector General reported that this

audit was initiated by the grantee, not CPD, following up on an audit

conducted by an independent accounting firm.

HUD’s Inspector General has also specifically faulted CPD’s monitoring of

grantees. For example, in its audit of HUD’s fiscal year 1997 financial

statement,8

 the Inspector General focused on whether the Grants

Management System had been implemented and whether the system was

8

HUD’s Office of Inspector General, Financial Audits Division, Office of Audit. U.S. Department of

Housing and Urban Development Audit of Fiscal Year 1997 Financial Statements (98-FO-177-0004,

Mar. 20, 1998)

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providing adequate oversight of grantees. For some of the grantees, the

Inspector General could not determine the extent of CPD’s monitoring of

grantees’ performance because it could not find documentation of

monitoring in CPD’s files. It also found that CPD had not done annual

community assessments for some grantees. Though these required

assessments are needed in order to reach an opinion on the grantees’

performance for the year, CPD officials explained that staff shortages

resulting from HUD’s downsizing during fiscal year 1997 had prevented

them from conducting the assessments. The Inspector General concluded

that CPD could not ensure that all grantees were expending funds only on

eligible activities and individuals.

In addition, the independent accounting firm assigned to the verification

review of CPD’s actions to correct material weaknesses in the Community

Development Block Grant Program faulted CPD’s practices for monitoring

grantees. Its report indicated that four of the six field offices visited had

not conducted significant on-site monitoring visits for fiscal years 1996 and

1997.

Little Oversight by

CPD Headquarters of

Field Offices’

Operations

In addition to the problems in CPD’s monitoring of grantees, CPD

headquarters is not adequately monitoring the field offices’ operations.

According to representatives of an independent accounting firm that

reviewed CPD’s actions to correct material weaknesses in the Community

Development Block Grant Program (which represents almost

three-quarters of the funding for the four block grant programs examined),

CPD headquarters’ oversight of the field offices is almost nonexistent. The

March 1998 report states the following:

“CPD had conducted Field Office Reviews in the past, however these reviews have been

discontinued. We were unable to identify any procedures being performed by Headquarters

that would be adequate for evaluating the quality and sufficiency of procedures being

applied by the Field Offices.”

In addition, the representatives of the accounting firm said that the lack of

headquarters oversight represents a material weakness in internal

controls. The report recommended that CPD headquarters design a

methodology for determining the adequacy of field offices’

compliance-monitoring procedures. HUD is still reviewing the report to

determine how it will respond to the recommendations.

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Headquarters staff infrequently visit the 42 field offices—making fewer

than five visits in the last 2 years—according to the Director of the Field

Management Division. When they do visit, headquarters staff do not have

to formally report their findings. These limited visits to field offices reflect

a change in headquarters’ oversight in recent years. One desk officer told

us that headquarters had moved away from field office monitoring in an

attempt to improve relationships with the field offices—headquarters

believed that these visits antagonized the field offices. However, he

believed that monitoring visits helped bring headquarters closer to the

problems and realities that the field offices faced. In the past, he

explained, these visits always generated findings, and the field offices

welcomed the feedback and suggestions for improvement that resulted.

But now, he stated, he does not have enough information to assess the

field offices’ performance.

In addition, the desk officers’ primary monitoring tool—the Grants

Management Process information system—yields incomplete and

inconsistent data. Consequently, headquarters staff do not know if field

offices are fulfilling their program responsibilities. Our review of a Grant

Management Process report on the field offices’ compliance with the time

requirement for approving or disapproving grantees’ annual action plans

showed that the field offices are interpreting the requirement differently

and consequently entering different, sometimes misleading, approval dates

into the system.9

 For example, one field office we visited believed that the

approval date was the day the CPD representative approved the plan;

another, that it was the date the field office director approved the plan;

and a third, that it was the date the local Congressman notified the grantee

that the grant had been approved. Moreover, the desk officer responsible

for one of these offices could not explain an apparently significant number

of late approvals. However, in our visit to this field office, we learned that,

for many of the plans reviewed, field office staff had either incorrectly

entered the data or had found deficiencies in the plans but failed to reject

them while they waited a resolution of the deficiencies. On-site

monitoring, or even more questioning of the field offices, would have

identified this problem and allowed the headquarters staff to resolve it.

Finally, while the Grant Management Process’s information system is

supposed to be the headquarters staff’s principal monitoring tool, it has

not been useful for recording information about field offices’ monitoring

of grantees. At the time of our review, it did not contain a clear data entry

9

Field offices are required to review and approve or disapprove grantees’ annual action plans within 45

days after receiving the plan. If the field office does not act on the plan within 45 days, the plan is

automatically approved.

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point for field offices to record the results of their monitoring activities in

the database. Therefore, field offices entered these results in different

locations in the system. In order to determine where field offices were

recording this information, HUD hired a contractor to peruse the system

and identify all recorded information that appeared to be related to

monitoring. The contractor’s report—covering the third and fourth

quarters of fiscal year 1997—showed that the field offices were entering

monitoring data in three of the system’s eight data entry points, and no

monitoring information was entered for more than 75 percent of the

grantees that were scheduled for on-site monitoring. Without a specific

area in which field offices can record monitoring activities, headquarters

staff cannot be assured that they have access to all pertinent monitoring

information to oversee field offices’ operations.

We were told by HUD that a process for tracking on-site monitoring

activities was implemented. This includes the addition of Grants

Management Process screens to allow field offices to describe their on-site

monitoring activities in terms of the program monitored, program issues

covered, the number of days spent with the grantee, issues identified and

sanctions imposed. According to HUD, this addition to the system was

implemented on March 29, 1999.

Conclusions As it is currently implemented, CPD’s Grants Management System provides

little assurance that four block grant programs, funded at nearly $6 billion

annually, are meeting their objectives and that the funds are being

managed appropriately. While the Grants Management System’s approach

to monitoring seems logical, it has not been effective. The field offices we

visited are conducting limited on-site monitoring of grantees, although

such monitoring is all the more important because of the shortcomings of

IDIS. And when on-site monitoring does occur, it does not focus on the

grantees who are the poorest performers, and it is not uniform or

comprehensive. These problems are caused in part by a lack of uniform

criteria on how to assess the level of performance for each grantee and the

lack of specificity in the broad criteria that do exist to determine grantees’

compliance with program requirements, although such requirements are

intended to encourage the safeguarding of funds. According to the

directors of the field offices, the level of on-site monitoring is also lower

because of a combination of a lack of staff resources and travel funds and

increased responsibilities.

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While we found these problems with field offices’ monitoring of grantees,

we also found that the headquarters staff’s oversight of the field offices

was problematic. Headquarters staff rarely visit the field offices, and while

the Grants Management Process information system is intended to be

headquarters’ staff primary tool to oversee the field offices’ monitoring of

grantees, at the time of our review, the information system did not contain

a specific data entry point for field offices to enter data on their

monitoring activities.

In all, HUD has no assurance that program requirements are being fulfilled.

These requirements are critical to its goal of restoring the public trust in

its management of billions of dollars in formula grant funds. Until HUD

strengthens its monitoring of the financial operations of and results

achieved by program grantees and its field office operations, the integrity

of its formula grant programs is at risk.

Recommendations to

the Secretary of

Housing and Urban

Development

In order to ensure that the Grants Management System identifies problems

in achieving program objectives and safeguarding grant funds and protects

the integrity of the block grant programs, we recommend that Secretary of

Housing and Urban Development direct the Assistant Secretary for

Community Planning and Development to take the following actions to

improve oversight by field offices and headquarters:

• Emphasize the importance of on-site monitoring by specifying the level of

grantee performance that requires on-site monitoring and the steps that

should be taken in conducting such monitoring.

• Conduct analyses to determine the staffing and travel funds that may be

required to better support the monitoring of grantees and direct available

resources to the field offices as needed.

• Direct desk officers within the Office of Community Planning and

Development at headquarters to visit their field offices to better assess

how well the field offices are monitoring their grantees, to determine what

problems the field offices are experiencing, and to provide technical

assistance.

• Improve the Grants Management Process information system by providing

guidance to the field offices to ensure that they are entering information

consistently.

Agency Comments

and Our Evaluation

While HUD did not comment on our recommendations, it commented that

our report did not recognize its recent improvements to internal controls

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and that our report focused too much on on-site monitoring. Specifically, it

commented that its revamped approach to grants management ensures

basic program compliance through a continuing, on-going process that

includes on-site monitoring along with other elements. HUD commented

that the majority of its monitoring activities can be done remotely,

including review of key documents, the high risk assessment process, the

grantee consultation, and the effective use of the Grants Management

Process information system and IDIS. HUD also stated that it conducts

on-site monitoring when conditions require it. Furthermore, HUD

commented that it has distributed guidance adding more traditional risk

factors to its annual comparative review and is in the process of updating

its Grants Management Policy Notebook and Grants Management Process

information system to better account for on-site monitoring.

We disagree that the majority of monitoring activities can be done

remotely. Our report shows that the tools other than on-site monitoring

are not, at this time, providing the accurate and complete information HUD

needs to effectively monitor program performance. We believe the

questionable quality of the data from remote monitoring sources such as

IDIS increases the need for on-site monitoring at this time. Additionally, for

the field offices we visited, we found that HUD did not conduct on-site

visits to many of the grantees it regarded as the poorest performers in

1998. Consequently, we continue to believe that HUD’s approach to

managing the programs, as implemented, provides little assurance that the

four grant programs are meeting their objectives and that the funds are

being managed appropriately.

In a draft of this report, we proposed that HUD provide clearer and more

detailed guidance on the factors that should be considered in evaluating

grantee performance, with a heavier emphasis on the factors that ensure

compliance with program requirements. In view of the fact that HUD has

distributed guidance adding more traditional risk factors to its annual

comparative review, we deleted our proposed recommendation from the

report. Furthermore, GAO proposed that HUD improve the Grants

Management Process information system so that field offices have a single

data entry point for information on their monitoring activities. In view of

the fact that on March 29, 1999 HUD added Grants Management Process

screens to allow field offices to describe their monitoring activities, GAO

has deleted that proposed recommendation from the report. In addition,

we added information to our report to reflect HUD’s new guidance on

conducting its annual comparative review and its plans to update the

Grants Management Policy Notebook.

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CPD’s chief monitoring tool for the Grants Management System—the

Integrated Disbursement and Information System (IDIS)—does not produce

the complete, accurate, and timely information that the Department

should obtain from a computerized database to effectively manage and

monitor almost $6 billion in block grants. The first of nine new standard

integrated systems deployed by HUD to manage and monitor the programs,

IDIS has major design flaws that make it difficult for grantees to enter

information accurately and for field office officials and grantees to use the

information to monitor performance.10 Furthermore, CPD cannot ensure

that IDIS is safe from fraud and abuse because it has not put into place the

security controls needed to safeguard the formula block grant funds. CPD

has not developed a security plan to control and monitor access to the

system to minimize opportunities for unauthorized or inappropriate

transactions. In addition, CPD has not ensured that the security officer in

charge of the system has clearly defined duties and the technical expertise

and staff needed to oversee the system. HUD is now developing an

agencywide information system that manages all 51 grant programs for the

agency, and it plans to use IDIS, along with a grants management system

being developed by the Department of Health and Human Services, as the

basis for the new system.

IDIS’ Design Flaws

Make the System

Difficult to Use, and

Information Is Not

Always Complete,

Accurate, and Timely

Although IDIS was designed to provide CPD with accurate, complete, and

timely information on grantees’ expenditures and program performance,

these goals are not being achieved because of four significant problems.

Specifically, (1) the process for establishing and maintaining grant activity

information is time-consuming and cumbersome and provides ample

opportunity for major data entry problems, (2) correcting major data entry

problems in IDIS is difficult, (3) IDIS does not readily enable grantees to

accurately report income generated by grant-funded revolving funds

(program income), and (4) grantees find it difficult to produce

comprehensive and timely reports using IDIS.

10In 1991, HUD initiated the Financial Systems Integration effort to develop and deploy an integrated

financial and management information system that would provide timely and accurate information to

managers and enable HUD to properly manage its financial resources. IDIS is 1 of 9 standard

integrated systems approved under the system integration effort that would replace about 100 financial

and mixed systems. See, HUD Information Systems: Improved Management Practices Needed to

Control Integration Cost and Schedule (GAO/AIMD-99-25, Dec. 18, 1998).

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IDIS’ Design Makes

Establishing and

Maintaining Project and

Activity Accounts

Unnecessarily Difficult

IDIS information is critically important in managing and monitoring

grantees’ performance given CPD’s emphasis on remote monitoring (as

discussed in ch. 2). Nevertheless, the system is so cumbersome that

grantees, even though trained on IDIS, find it difficult to use to set up

project and activity accounts and to maintain those accounts. For most of

the grantees we visited, grantees had to enter data two or more times,

found accessing and using IDIS to be time consuming, and had to work

through a complicated series of steps to enter or retrieve information.

To set up project and activity accounts, grantees have to enter much of the

same information into two separate HUD information systems—IDIS and

HUD’s Community 2020 system11 (or its precursor, Consolidated Planning

Software). These systems are not automatically linked so that entering

data into one system would automatically update both systems. In addition

to the errors that grantees could make simply because they have to enter

the data twice, other types of errors could occur that reduce the quality of

the information produced by these systems. For example, one grantee we

visited numbered projects differently between the two systems;

consequently, it was difficult to compare the grantees’ project plan with

the actual use of grant funds. While this initial set of double data entries is

time-consuming and cumbersome, IDIS’ design provides yet another

opportunity for redundancy. For example, for some projects grantees must

enter nearly exactly the same information a third time to describe the

projects’ activity. In one field office, the IDIS focal point told us that for

98 percent of the office’s projects, data had to be entered three times.

Redundant data entry problems also occurred for most of the grantees we

visited because they must enter activity information into their own

automated accounting systems, as well as HUD’s systems, to comply with

their city’s requirements. At the time of our review, CPD had not developed

a reliable method to electronically transfer data between grantees’ systems

and IDIS. This problem is especially troublesome for states that must enter

data for all small cities under their program. For example, Texas—which

at the time of our review had not yet started using IDIS—has the largest

state community development program—287 subrecipient cities for which

it must enter data. According to HUD, as of mid-February 1999, grantees

had access to a batch file transfer process, referred to as Electronic Data

11HUD’s Community 2020 software contains information on HUD projects, such as housing and

community development projects; funding sources; performance indicators; and neighborhood

locations. It combines this information with U.S. Bureau of the Census’ geographic and demographic

information to provide a means for community constituents to understand where and how HUD

resources are being spent.

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Interchange, which allows grantees to automatically extract data from

their own information systems and pass it to IDIS.

Another difficulty for grantees is simply the amount of time it can take to

access and use IDIS. Each time grantees enter information into IDIS, they

use their desktop computers to link to a communications system, dial into

IDIS, and enter a user identification number and password to obtain access

to IDIS at authorized levels. We observed that it took up to 40 minutes to

obtain access to IDIS. Remaining connected to IDIS is also difficult. One

grantee estimates that it loses its connection to IDIS prematurely 50 percent

of the time.

Once they have obtained access, IDIS’ design forces grantees to work

through a complicated series of steps to enter or retrieve information. The

grantees must use designated function keys on the computer keyboard to

take required actions at various points in this process, but the meaning of

the function keys sometimes changes from screen to screen, causing some

confusion and missteps for the grantees and prolonging the time it takes to

enter data. In addition, a grantee must work through and exit two separate

series of screens in order to enter both financial and performance data for

the same activity.

Opportunities for

Significant Data Entry

Errors Exist, and

Corrections Are Not

Always Possible

When grantees enter incorrect data, IDIS does not easily allow them to

rectify the errors. Five of the 11 grantees we visited reported having

multiple, significant errors in IDIS data entries that they could not readily

correct. To address these problems, the IDIS technical assistance staff

instructed grantees to open accounts for nonexistent activities (“dummy

accounts”) in some instances, which in effect reverse the incorrect data. In

one case, a grantee had incorrectly entered program income funds and had

to open multiple dummy activity accounts and charge false amounts

against them to rectify its error. Some grantees we spoke to were reluctant

to create dummy accounts because these accounts would appear

inaccurate or fraudulent to outside observers.

Some of these problems were so severe that they made CPD’s monitoring

activities through IDIS impossible. For example, one grantee had

incorrectly entered all of its 1997 program year activities as occurring in

the 1996 program year, thereby mixing activities for both years. To further

complicate matters, this grantee had not expended all grant funds for 1996.

As a result, CPD field and headquarters officials could not determine the

amount of funds drawn down or the performance of program activities for

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either year without actually auditing the grantee’s documents. We brought

this matter to CPD’s and the grantee’s attention in October 1998, and as of

January 1999, it had still not been resolved.

At 8 of the 11 grantees we visited, we compared data shown in IDIS with

the information in the grantee’s files on the same activities. Although we

only looked at a small number of randomly selected activities, we found a

wide variety of significant data problems, ranging from a complete lack of

performance data at one grantee to double-counting of accomplishments

at another. For example, one grantee set up an activity to cover five types

of services for senior citizens, ranging from home maintenance to

transportation to a recreational center. The grantee then lumped all

accomplishment data for these widely varying services together as one

total number of elderly people served, even though individuals might

participate in more than one of the services or be multiple users of the

same service. These types of problems would not only make reports on

individual grantees inaccurate but also make reports that combined data

at a regional or national level meaningless or misleading.

IDIS’ Flaws Preclude the

Tracking of Program

Income From Revolving

Funds

In addition to its overall design problems, IDIS also does not enable

grantees to link program income—income produced by projects they have

funded or repayments into revolving loan accounts—to the activity that

generated it, such as economic development loans.

HUD has instructed formula grantees not to enter program income from

revolving fund programs into IDIS when they are received, as is done with

other types of program income. This is because the design of IDIS does not

allow grantees to segregate revolving fund income from other types of

program income. IDIS operates on the assumption that all program income

is depleted before grant funds are used, regardless of the type of grant

activity being funded. Handling program revenues in this manner does not

create a problem unless the income is associated with a revolving fund.

However, CPD regulations provide grantees with specific permission to

reserve program income from revolving fund programs for re-use

exclusively in the revolving fund. According to a HUD official, 3,230

revolving funds were created in the Community Development Block Grant

Program in 1994.12

12The last year for which HUD could provide a complete number of revolving funds for the Community

Development Block Grant Program was 1994. Twenty-one percent of the data for 1995 was missing.

Subsequent years’ data are stored in IDIS, and HUD officials have not yet determined how to aggregate

the data on revolving funds.

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To ensure that the program income from revolving funds is recycled into

the revolving fund, HUD instructs grantees to only enter the income in IDIS

at the moment they redistribute the money. However, HUD’s recommended

remedy is flawed. It requires grantees to keep two sets of books: the actual

amount of the revolving fund and the amount entered into IDIS. Entering

program income only when it is needed for another loan shields the true

amount from CPD representatives that monitor the project remotely

through IDIS. It also makes it very difficult to ensure that the grantee is

meeting its regulatory requirements. For example, because CPD cannot use

IDIS to determine how much program income is being generated from

revolving funds and therefore what a grantee’s total program income is,

CPD cannot use IDIS to determine if a grantee is meeting a requirement to

spend grant money in a timely manner. In addition, interest produced by

revolving funds should not be recycled into the revolving fund for future

use but should instead be returned to CPD, which is responsible for

overseeing interest repayments—and forwarding the interest to the U.S.

Treasury. Given the lack of information about revolving fund balances in

IDIS, CPD will have trouble determining if a grantee is repaying interest as

required. One regional CPD office, for example, received large interest

repayment checks that resulted from revolving fund balances, but the

office had not expected these repayments because it had been unaware of

the balances. One grantee sent a check for $10,728.03 for interest earned

by a revolving fund balance during a 13-month period.

IDIS Does Not Provide

Timely and Accurate

Information and Makes It

Difficult to Produce

Reports on Grantees’ Use

of Funds and Performance

While IDIS was intended to allow CPD to track grantees’ performance on a

real-time basis, it does not do so for several reasons. First, a grantee can

withdraw all funds for an activity without entering any performance

information for that activity, as was often the case with the grantees we

visited. Most did not enter any performance data until the end of the

program year, when such data were required to complete annual reports.

Second, three grantees that did try to enter performance data were

hindered from doing so because IDIS requires grantees to enter financial

and performance data separately. Third, even when grantees enter

information more frequently, the information may not be useful for

tracking performance because IDIS does not identify when the performance

data were entered. IDIS has only one entry field for entering performance

data for the year, so that additional data entries erase previous entries.

In addition to these overall problems, IDIS does not enable grantees to

always record exact information on the outcomes of activities.

Specifically, IDIS provides 12 choices for describing benefits, such as the

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number of youth, households, or businesses benefiting from projects.

However, this list is not comprehensive enough to cover the wide range of

benefits that occur in program activities. For example, one grantee had

demolished four blighted buildings and to record this information in IDIS

had to describe the work as four “public facilities” because there was no

better option. At the field office level, then, real-time inquiries to IDIS for

information on grantees’ performance are unreliable.

Equally important, creating reports at the end of the program year or at

any time is difficult. To create and print a report, the user—either the

grantee or field office staff—must work through a series of IDIS

screens—as many as 70 at one field office we visited—to begin to create a

report. Problems can occur during this process. For example, at one field

office, the staff could not produce any of the reports we had requested for

3 days because the IDIS software for producing reports was not

functioning. In another field office, the staff could create reports for only

one grantee—the first on the list of choices—and it took 24 hours to

correct the problem. Furthermore, IDIS’ error messages can be difficult to

decipher, making the task of fixing the problem even more

time-consuming. Once the report is produced in IDIS’ mainframe computer,

the user still has to transfer it to a desktop computer and edit it before it

can be printed. Because of these difficulties, many of the grantees we

visited did not produce any more reports from IDIS than were necessary for

the end of program year reporting to HUD. In addition, at the time of our

review, CPD had removed the function for the consolidated annual

performance and evaluation report—a report all grantees must submit to

HUD at the end of the program year—because IDIS was generating reports

with errors. For example, we found that one grantee had entered correct

information into IDIS, but the system produced a report with incorrect

information. Besides reporting to HUD, grantees use the end of the year

report to communicate information about the use of block grant funds to

their citizens. This problem also frustrated the ability of CPD field office

staff to provide headquarters with some progress reports. In January 1999,

HUD was still attempting to correct the reporting capability within IDIS.

Security Controls Do

Not Provide

Assurance That IDIS

Is Safe From Fraud

and Abuse

Although grantees use IDIS to initiate the transfer of approximately

$6 billion a year in grant funds, CPD has not established a secure method

for setting up and maintaining access rights for using IDIS. While HUD

cannot select which grantee staff should have access rights—that is the

grantee’s responsibility—it can take actions to ensure that designated

grantee staff have appropriate levels of access and that staff who leave the

grantee’s employment do not retain access. To provide security against the

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inappropriate use of funds, for example, grantee staff should have limited,

or segregated, access to the computer system.13 In such a case, the

individual who could establish activity accounts would not also be able to

approve the withdrawal of funds for those activities. However, HUD has not

taken these actions to safeguard federal grants, either at headquarters or

in the field offices.

Furthermore, according to the HUD official responsible for IDIS security, at

a basic level the staff resources devoted to this task are strained. He

explained that the thousands of requests for new user accounts,

reinstatement of expired user accounts, and revocation of accounts are

handled only by himself, an assistant, and one contract employee. As a

result, assigning access rights to a new user takes a month or more and

there are no staff to catalogue the forms requesting access, making it

difficult to review original access rights or retrieve forms when necessary.

Additionally, neither the security official nor his staff review these

requests for appropriateness, to determine whether the requested access

rights are necessary to perform the duties assigned to the user or whether

access rights ensure segregation of tasks such as setting up activities and

approval of drawdowns. Instead, their main function has been to assign

access rights to IDIS or to reinstate rights when passwords have expired.

Even when notified by grantees that IDIS access rights should be revoked

because the person with those rights is no longer employed by the grantee,

the security official told us that removing the person’s rights is not a high

priority. Once IDIS accounts have been established, grantees have the

authority to change access levels for their staff without any level of

oversight by CPD. At the time of our review, CPD did not periodically

produce any reports for the grantees’ IDIS focal points or field office staff

that showed the current access rights of the grantees’ staff.

Not surprisingly, given this absence of oversight, we found multiple

problems with access rights at five of the eight grantees with whom we

discussed access rights. Specifically:

• Duties among authorized users were not adequately segregated at three of

the grantees, so these users could both set up activity accounts and draw

13According to GAO Internal Control: Standards for Internal Control in the Federal Government

Exposure Draft (GAO/AIMD-98-21.3.1), page 21, “Key duties and responsibilities should be divided or

segregated among different people to reduce the risk of error or fraud. This should include separating

the responsibilities for authorizing transactions, processing and recording them, reviewing the

transactions, and handling the related assets. To reduce the risk of error, waste, or fraud or to reduce

the risk of their going undetected, no one individual should control all key aspects of a transaction or

event.”

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down funds for those activities. Consequently, one individual could

control key aspects of grant funding, increasing the opportunities for

undetected error or fraud.

• IDIS user accounts for terminated employees or those on extended leave

had not been revoked at two grantees. Furthermore, at one grantee, the

terminated former IDIS system administrator continued to have all rights to

the system, including the right to change access rights for other users.

• HUD had erroneously assigned three individuals who had never been

employees of one grantee a variety of access rights to the grantee’s data. In

combination, the access rights for these individuals would have allowed

them to set up activities as well as approve and draw funds.

• Accounts were shared or used by individuals other than the authorized

individual at two grantees.

We also found a key control—passwords that cannot be easily

replicated—was not in place to ensure that access to grantees’ IDIS

resources is restricted to authorized users. Authorized access rights are

circumvented when an authorized user’s account is used by another

individual. We found that the combination of user account identifications

and passwords to gain access to IDIS could be easily duplicated by

knowledgeable users, making it hard to detect error, fraud, and

abuse—including malicious tampering.

The security official’s lack of basic knowledge about computer security

generally, and security for IDIS in particular, presents another problem. The

security officer told us that, although he is familiar with networks and

desktop computers, his background does not include any security work,

and he has not had any training in security methods for information

systems since becoming a security officer for IDIS. He also does not have a

working knowledge of the security software that contractors use to grant

access and therefore cannot properly oversee them. Moreover, it is unclear

whether CPD expects this official to oversee the contractor staff and what

the scope of his duties should be in general. The officer could not provide

us with a clearly defined position description that included his specific IDIS

duties. Finally, he explained he views himself more as an “access

facilitator” than a security person.

HUD’s Inspector General’s report on HUD’s fiscal year 1998 consolidated

financial statements also noted the need to improve IDIS’ security. The HUD

Inspector General expressed concern that until the software for access

controls is fully implemented, the mainframe system on which IDIS resides

will not be protected against accidental or intentional damage. The

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Inspector General also reported that there is no consistent method of

controlling changes in HUD’s applications system software, of which IDIS is

a part. This creates an unnecessary risk to the software integrity of HUD’s

mainframe application systems, according to HUD’s Inspector General.

HUD Plans Major

Changes

HUD officials told us they are in the process of developing a new

Department-wide information system that manages all of its 51 grant

programs. In September 1998, HUD completed a feasibility study on using

existing information systems, such as IDIS, as the basis for that system. The

study, performed by two HUD officials and a group of contractors, included

interviews with a variety of HUD officials and other federal government

officials, but none with users of IDIS. The study recommended that HUD

develop a new system, called the Departmental Grants Management

System, modeled on IDIS and the Grants Administration Tracking and

Evaluation System, a grants management system being developed by the

Department of Health and Human Services. The Grants Administration

Tracking and Evaluation System, which uses a Windows environment,

would provide the user interface for the Departmental Grants Management

System.14 IDIS, converted for use in the new environment, would be used as

the basis for withdrawing grant funds and reporting performance.

On the basis of this recommendation, HUD is proceeding with development

of the Departmental Grants Management System, which will rely on

Windows and therefore be more user-friendly than the system we

reviewed. In November 1998, HUD informed us that it is moving forward

with the project, and HUD plans to have a pilot test of the converted IDIS in

September 1999.

Conclusions With billions of dollars and the needs of millions of people at stake in the

formula grant programs, HUD has recognized that it needs effective systems

for overseeing the handling of program funds and the achievement of

program objectives. While we agree that a tool providing timely and

accurate data about grantees’ financial activities and performance would

be greatly beneficial in overseeing the grant programs, the current system,

IDIS, is not capable of serving as such a tool. IDIS has not provided the

complete, accurate, and timely information field offices need for such

monitoring. IDIS’ design makes grantees’ efforts unnecessarily difficult;

affords multiple opportunities for incorrect data entry that grantees

cannot then readily rectify; does not provide grantees with a

14The current version of IDIS does not use Windows.

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straightforward method for managing program income from revolving

funds, which results in an inaccurate portrayal of grantees’ financial

activities; and does not require grantees to provide performance

information when they draw down funds. In addition, without adequate

security controls to prevent unauthorized access to the system, CPD cannot

ensure that information in the system is reliable and that funds are

safeguarded.

Although HUD is in the process of developing the Departmental Grants

Management System, it plans to convert IDIS and use it as a basis for the

new system, which is to be used by all 51 of HUD’s grant programs. We

agree that a more user-friendly system would be an improvement; but

given the extent and nature of problems with IDIS, we question the use of

IDIS as a model for the Department-wide system. To address the problems

we identified, IDIS will need to be modified extensively or replaced,

whichever is more cost effective. Of immediate concern, IDIS is not secure,

and while it continues to be insecure, federal funds will not be protected

appropriately.

Recommendations to

the Secretary of

Housing and Urban

Development

Because IDIS has not proven to be a useful tool in managing grantees, we

recommend that the Secretary of Housing and Urban Development direct

the Assistant Secretary for Community Planning and Development to

consider whether it is more cost-effective to modify IDIS or replace it. After

this determination is made and before IDIS is used as the base for

developing the new grants management information system for all of HUD’s

51 grant programs, the problems we identified with IDIS should be

corrected. HUD should ensure that the new system does not require

redundant data entry, reduces the time needed to enter information,

readily allows timely corrections of data, provides a straightforward

method of accounting for program income from revolving funds, provides

timely and accurate information on grantees’ performance, and readily

produces reports.

We also recommend that the Secretary—regardless of the decision on the

future of IDIS—immediately take steps to ensure that access to IDIS is

limited to authorized users and that those users have access levels

appropriate to the duties they perform. Steps should also be taken to

ensure that the security officer for IDIS is fully aware of the responsibilities

that must be carried out and has the appropriate training and staff for

those responsibilities.

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Agency Comments

and Our Evaluation

While HUD did not comment on our recommendations, it commented that

our assessment of IDIS fails to consider recent efforts to improve IDIS. HUD

commented that several of the weaknesses we identified did not take into

account compensating factors. For instance, HUD commented that our

assessment of IDIS’ inability to accurately track program income from

revolving funds did not account for the quarterly Federal Cash Transaction

Report (SF 272), which includes information on program income.

Similarly, HUD commented that limitations in IDIS security are less

important because accounts automatically expire after a period of nonuse.

For other weaknesses we identified, HUD pointed out recent or planned

changes to IDIS that it believed will correct the problems we identified.

We continue to believe that IDIS’ untimely, inaccurate, and incomplete data,

as well as its inability to track program income, hinder HUD’s ability to

remotely monitor its grantees. While the Federal Transaction Report

provides quarterly information on program income, as does IDIS, that

information can be used only to track program income from nonrevolving

funds. Furthermore, HUD is right that automatic account expirations

resulting from nonuse have a security benefit, but the system is still

vulnerable to unauthorized access until the account expires, and the

account will not expire if someone continues to access the system

inappropriately. We believe that HUD’s recent and planned changes could,

if properly implemented, improve the integrity of IDIS. Training the IDIS

security officer and providing periodic reports to field offices that show

the current access rights of the grantees’ staff will improve security.

Additionally, the data quality review effort could improve the quality of the

data currently in IDIS, but future data quality may be impaired by the

unresolved system design problems we noted. We also believe that the

numerous additional problems in usability, accuracy, and security detailed

in our report still compromise HUD’s ability to ensure the integrity of the

four formula block grant programs. Therefore, we did not make any

changes to the recommendations.

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Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

See comment 1.

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Now on p. 23.

See comment 2.

See comment 3.

See comment 4.

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See comment 5.

Now on p. 24.

See comment 6.

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Now on p. 24.

See comment 7.

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Now on p. 27.

Now on p. 27.

See comment 8.

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Now on p. 28.

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See comment 9.

See comment 10.

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See comment 11.

See comment 12.

Now on p. 30.

See comment 13.

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Now on p. 31.

See comment 14.

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Now on p. 32.

See comment 15.

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Now on p. 34.

See comment 16.

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Now on p. 39.

See comment 17.

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See comment 18.

Now on p. 40.

See comment 19.

Now on p. 40.

See comment 20.

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Now on p. 5.

See comment 21.

See comment 22.

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Now on p. 6.

See comment 23.

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Now on p. 6.

See comment 24.

p. 6.

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Now on p. 6.

See comment 25.

Now on p. 6.

Now on p. 39.

Now on p. 44.

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See comment 26.

Now on p. 45.

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See comment 27.

Now on p. 45.

Now on p. 45.

See comment 27.

Now on p. 46.

See comment 28.

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Now on p. 46.

Now on p. 46.

Now on p.46.

See comment 29.

Now on p. 46.

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See comment 30.

Now on p. 5.

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The following are GAO’s comments on the Department of Housing and

Urban Development’s letter dated March 26, 1999.

GAO’s Comments 1. Our report recognizes that HUD has undertaken important changes to

improve program management and accountability. It notes, among other

things, that HUD has revamped its approach to managing the four formula

block grant programs by requiring grantees to develop a consolidated plan

that lays out how they will use all four programs, changed its monitoring

of grantees to reflect a collaborative relationship, and developed the

Integrated Disbursement and Information System (IDIS) so that grantees

could, among other things, enter information describing their planning and

projects and draw federal funds. Our report also concludes that HUD’s

revamped system provides a logical, structured approach to managing the

formula grant programs and that HUD has recognized the need for effective

systems for overseeing the handling of program funds and the

achievement of program objectives. In addition, we added to our report a

description of management improvements made to the program. These

were reported to us by HUD after we had gathered information for this

report and after HUD had distributed additional instructions for

incorporating more traditional risk elements into the field offices’ annual

comparative review process. We agree that HUD has taken a more ongoing,

continuous approach to monitoring grantees. We also believe that this

approach can provide useful insights into the problems and achievements

of program grantees. However, we question whether approaches other

than significant levels of on-site monitoring of grantees can, at this time,

ensure that program objectives are being met and that funds are being

managed appropriately given the shortcomings of IDIS and other

monitoring tools such as consultations, technical assistance visits, and

audits performed by independent public accounting firms. Moreover,

several grantees we visited and officials of two associations that represent

grantees—the National Community Development Association and the

National Association for County Community and Economic

Development—supported more on-site monitoring because monitoring

ensures that they are generally on the right track in implementing the

program. This is not to say that on-site visits should be made to every

grantee each year; but rather, we believe periodic visits to grantees

needing improvements are essential.

2. We do not believe that the other steps in the Grants Management System

provide the same level of assurance as on-site monitoring that grantees are

managing their funds appropriately to achieve program objectives. While

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consultations provide a forum for discussing how well the grantee

performed during the preceding program year and areas for improvement

that should be factored into the next year’s operations, they are not

intended to be a substitute for on-site monitoring. This is because

consultations sometimes involve a discussion between HUD and senior

program and elected officials and sometimes are handled over the

telephone. They provide no assurance that a grantee is meeting program

requirements because HUD does not review the grantee’s files or visit

projects or subrecipients to determine compliance with program

requirements. In fact, the consultation is usually based on the results of

other monitoring efforts, such as on-site monitoring. During the

consolidated plan review and assessment, HUD primarily reviews the plan

for completeness, acceptability, and its usefulness as a future assessment

tool. HUD does not review the individual projects and activities to

determine whether they qualify for grant funding. In addition, our report

mentions that other monitoring tools—such as IDIS reports, technical

assistance visits, and audits by independent public accounting firms—do

not provide the same level of assurance of program compliance and the

proper use of federal funds as does on-site monitoring. Finally, the other

stages of the Grants Management System—such as the annual community

assessment, the annual comparative review, and best practices—are

generally done at the end of the year and depend on results of on-site as

well as other forms of monitoring.

3. The report does not state that the Grants Management System was

intended to obviate the need for on-site monitoring. It states that the

Grants Management System deemphasized compliance monitoring and

promoted a more collaborative approach to grants management.

4. While CPD estimates that in fiscal year 1997 approximately 160 intensive

on-site monitoring visits were made by the CPD field offices, our work

focused on the performance of five field offices in fiscal year

1998—accounting for approximately 20 percent of formula grant

funds—and did not reflect this level of on-site monitoring. In addition, it is

not clear what HUD means by intensive on-site monitoring, since the Grants

Management Policy Notebook does not specify the activities field offices

are to conduct during a monitoring visit.

5. We added information to the report stating that HUD has implemented a

process for tracking on-site monitoring activities, which include the

addition of Grants Management Process screens to allow field offices to

describe their on-site monitoring activities in terms of programs

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monitored, issues covered, days spent at the grantee, issues identified, and

sanctions imposed.

6. As we indicated in comment 2, we do not believe that the other steps in

the Grants Management System provide as much assurance as on-site

monitoring that grantees are managing their funds appropriately to

achieve program objectives. In addition, we disagree that most monitoring

can be done remotely at this time because of design flaws in IDIS and the

shortcomings of other monitoring tools. However, we mistakenly reported

that the Grants Management System does not ensure that monitoring

occurs; therefore we changed our report to reflect that the Grants

Management System does not ensure that on-site monitoring occurs.

7. Contrary to HUD’s comment, our report did not state that the HUD offices

did not conduct on-site visits to grantees in 1997. Rather, our review

focused on the most recent program year—1998. For 1998, we found that

the Boston Field Office conducted four monitoring visits and that six

planned visits were cancelled. In addition, during 1998, the Ft. Worth Field

Office conducted four monitoring visits and cancelled seven others. In

total, the five field offices we visited conducted 33 on-site monitoring

visits, or only 14 percent of their grantees in 1998. Moreover, our report

stated that monitoring was not always targeted to the poorest performing

grantees. Only 15 of the 38 poorest performing grantees were visited.

8. We agree that the reductions in on-site monitoring are based on

management decisions by the directors of the five field offices we visited,

but as our report indicates, these decisions were necessary because of

reductions in resources and increased workload. Furthermore, as

discussed in our report, the five field offices we visited cancelled 52

on-site monitoring visits in 1998 because of inadequate time, staff, and

budget resources, according to the directors of those offices.

9. HUD states that its field offices initiate comprehensive on-site monitoring

when conditions require, and in fiscal year 1998, these offices made 162

comprehensive on-site monitoring visits. We disagree that field offices

initiate comprehensive on-site monitoring when conditions require. As our

report stated, at the five field offices we visited, only 38 of the 85 grantees

that were scheduled for on-site monitoring visits were among the poorest

performers, and only 15 of these grantees were actually visited. It should

also be noted that the 162 on-site monitoring visits that HUD said were done

represent a small portion of the approximately 1,000 local and state

grantees. Furthermore, although the Grants Management Policy Notebook

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does not define what constitutes comprehensive on-site monitoring, our

review of the five field offices, representing 20 percent of all grant funds,

showed that of the 33 on-site visits made in 1998 only 1 was considered

comprehensive—as defined by the five field office directors.

10. The lack of specific monitoring guidance in the Grants Management

Policy Notebook allows for significant variation in the way HUD field

offices oversee almost $6 billion in formula grant funds. As our report

stated, prior to the Grants Management System, field offices were required

to follow the CPD Monitoring Handbook. This handbook specified the level

of monitoring warranted for high-risk grantees and the scope and intensity

of the on-site review.

11. HUD indicated that its field offices had conducted “Comprehensive

On-site Monitoring” at several grantees and the results of these visits were

shared with us. The results of the 33 on-site visits conducted by the five

HUD field offices we visited were the only on-site monitoring information

provided to us. We could not determine whether these were

comprehensive visits.

12. We changed our report to reflect that on September 29, 1998, HUD

promulgated risk analysis guidance that included traditional risk factors,

such as unresolved audit or monitoring findings, subrecipient activity, the

amount of program income received by the grantee, the size of the grant,

staff turnover, and the last date of monitoring.

13. Our report states that on-site monitoring is an essential tool to ensuring

that program objectives are being met and funds are being managed

appropriately because of the shortcomings of IDIS and other monitoring

tools, such as consultations, technical assistance visits, and audits by

independent public accounting firms. HUD’s program guidance also

indicates that on-site monitoring is a critical tool to determine whether

program requirements are being met. In addition, we did not state that

independent audits by public accounting firms do not provide benefits.

Our report states that HUD headquarters and field officials do not believe

that independent audits by public accounting firms produce enough

detailed program performance information. Our report also states that

these audits are not intended to provide detailed performance information

but are designed to advise federal and grantee officials and program

managers on whether an organization’s financial statements are fairly

presented and provide reasonable assurance that federal financial

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assistance programs are managed in accordance with applicable laws and

regulations.

14. We believe that standard criteria are necessary to ensure that the

riskiest grantees are identified for on-site monitoring, and once this

occurs, to establish and carry out a monitoring schedule in accordance

with the resources and workload available. The current criteria provide no

assurance that field offices will consistently emphasize factors that will

target grantees on the basis of compliance with internal controls designed

to protect against fraud and abuse.

15. HUD is right that visiting every grantee would be unrealistic. However,

our report does not state that every grantee should receive an on-site

monitoring visit. In fact, our recommendation asks HUD to emphasize the

importance of on-site monitoring by specifying the level of grantee

performance that requires on-site monitoring.

Furthermore, HUD pointed out that $26 million in Inspector General audit

findings represents only a fraction of the amount of grant funds that had

been made available between fiscal years 1996 and 1998. While this is true,

we were told by the Assistant Inspector General for Audits that the

Inspector General does not generally audit CPD programs because the

flexible nature of the block grant programs make almost any activity

eligible for program funding. Therefore, the Inspector General

concentrates its efforts on programs that produce a greater return from

the resources invested. In addition, while we agree that the amount that

will ultimately be disallowed may be less than what was questioned, it

does not negate the fact that the Inspector General found significant

problems to question $26 million in grant funding.

16. The Grants Management Process—the CPD headquarters desk officers’

primary monitoring tool—produces inconsistent and inaccurate data, as

outlined in our report. Therefore, periodic visits to field offices are

essential to ensuring that they are adequately accomplishing their annual

work plans. In addition, two field office directors told us that the level of

understanding by desk officers of field office operations is questionable.

One director said that he gets very little feedback from his desk officer.

Another said that headquarters has unrealistic expectations of the field

office because his desk officer does not understand his workload and how

time consuming it is. We received desk officer file documents as an exhibit

with HUD’s official comments on our report. After a review of these

documents, we continue to believe that CPD headquarters is not adequately

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monitoring field office operations. Specifically, the majority of the

documents provided by HUD did not concern the field offices we visited;

many of the documents were prepared after our work was completed and

we had discussed our findings with CPD headquarters; the documents

included many e-mail messages that did not appear to be related to

monitoring; the documents provided little support for field office

performance evaluations; and for all but one desk officer’s files, there was

little evidence of the use of the Grants Management Process information

system for field office remote monitoring. Additionally, in the one

complete file for a field office we visited, the desk officer concluded that

an end of the year assessment for that field office could not be done

efficiently without an on-site visit.

17. We agree that the grantees that use CPS/Community 2020 to create

their consolidated plans can send a disk to HUD for conversion into IDIS.

However, a field office IDIS focal point and several grantees told us that the

conversion process was disappointing because only four project fields are

converted. Therefore, the majority of the data have to be reentered

manually. Additionally, converting Community 2020 data to IDIS takes time,

and conversion errors occur. For these reasons, one HUD field office we

visited recommended that its grantees not send Community 2020 disks to

HUD for conversion into IDIS.

18. HUD indicates that grantees can download IDIS information into an

ASCII file (a text file with no formatting information) and write a program

to post the information to their systems. However, HUD provided no

evidence that grantees have the technical expertise to do this. In addition,

HUD indicates that grantees are recording only about 60 percent of the data

IDIS requires in their own computer systems. We believe that the burden on

the grantees is significant. For example, one grantee initially spent 8

weeks manually inputting its data into IDIS. Another grantee told us that

double entries between its local accounting system and IDIS are wasteful

and lead to mistakes.

19. HUD’s comment appears to state that CPD has a monthly report that

compares actual to planned project information. HUD did not provide this

report during our review, and we have not had a chance to evaluate it.

Nevertheless, our report stated that one grantee we visited numbered

projects differently between Community 2020 and IDIS; consequently it was

difficult to compare the grantee’s project plan with the actual use of grant

funds. We do not know whether CPD’s report addresses this problem.

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20. See comments 17 and 18.

21. We changed our report to clarify that HUD cannot use IDIS to determine

how much program income is being generated from revolving funds,

rather than stating that HUD has no way of knowing how much program

income is being generated from revolving funds. However, we disagree

that the “Federal Cash Transactions Report,” SF 272, can be used to track

program income from revolving funds. Like IDIS, it can only be used to

track program income from nonrevolving funds. In addition, on March 29,

1999, the HUD Inspector General reported on HUD’s fiscal year 1998

financial statements, stating that grantees were not submitting the

quarterly cash transaction report. This problem was accentuated by the

fact that, because of the way IDIS processes program income, some

grantees were not entering this information. As a result, CPD staff did not

know how much program income was being produced by grantees who

were not entering this information into IDIS and did not submit the report.

22. Our report does not indicate that IDIS was intended to replace grantees’

accounting systems.

23. While a positive step to improving the data already in IDIS, the data

quality review effort HUD describes will not alter grantees’ ability to draw

funds without entering performance data.

24. We disagree. We believe that the survey results support our finding that

it is difficult and cumbersome to use the IDIS reporting functions. For

example, the survey results show that the reports module is not

user-friendly. Specifically, the survey report states, “The process to

print/download reports is considered cumbersome, time-consuming and

not user-friendly.”

25. We agree that the grantee has the first level of responsibility for

notifying HUD to remove IDIS access rights for former grantee employees.

However, as our report indicates, HUD has not placed a high priority on

fulfilling grantees’ requests to remove IDIS access rights for former

employees. Also see comment 28.

26. While we agree that it is not practical to segregate responsibilities for a

small number of grantees, this does not justify HUD’s lack of action to

ensure that grantee staff members have limited or segregated access to

IDIS.

Page 79 GAO/RCED-99-98 Community Development
Appendix I 

Comments From the Department of Housing

and Urban Development

27. Our report does not indicate that HUD should contact the local

authorizing official prior to assigning access rights. Our report states that

at the time of our review, HUD had not produced any periodic reports for

grantee and field office staff that showed the current access rights of

grantee staff.

28. While we agree that automatic suspensions are beneficial, the system is

still susceptible to unauthorized access until the automatic suspension

takes place. Additionally, access to the system will not automatically

expire if someone continues to use the account. According to the Federal

Information Processing Standards Publication Standards for Password

Usage (FIPS PUB 112), 3.3.4, “Passwords shall be deleted or replaced with

an invalid password as quickly as possible but at least within 3 working

days from the time that an owner is no longer an authorized ADP system

user or any one of a set of owners is no longer authorized access to the

data.”

29. We have agreed with HUD not to print this comment and not respond to

it because of concerns over IDIS security.

30. We believe that security requirements should be developed by staff

who have a basic knowledge of computer security issues. Guidance for

establishing appropriate security is given in the Federal Information

Processing Standards Publication Guidelines for Security of Computer

Applications (FIPS PUB 73).

Page 80 GAO/RCED-99-98 Community Development
Appendix II 

Major Contributors to This Report

Resources,

Community and

Economic

Development Division

Keith Cunningham

Barbara Johnson

Frank J. Minore

Robert Procaccini

Carol Herrnstadt Shulman

John H. Skeen, III

Office of Information

Management and

Communications

Howard M. Williams Jr.

(385731) Page 81 GAO/RCED-99-98 Community Development
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