U.S. Department of Housing and Urban Development 

Office of Policy Development and Research 

M a n a g i n g S u br e c i p i e n t S o f c D b g g r a n t e e S 
Managing Subrecipients 

of 

CDBG Grantees

Submitted To: 

Judson James 

U.S. Department of Housing and Urban Development 

Office of Policy Development and Research 

451 Seventh Street SW, Room 8140 

Washington, DC 20410 

Submitted By: 

Econometrica, Inc. 

Carol Star, James Broughman, and John Nagoski 

The Urban Institute 

Chris Walker 

ICF Consulting

Marsha Tonkovitch, Andy Zehe, and Scott Ledford 

Contract No.: 

C-OPC-22654 

December 2005 
Acknowledgements 

The authors of this report gratefully acknowledge the many important contributions that others 

made to this study. 

Most of all, we would like to thank the many community development program administrators 

and subrecipients in the 11 cities and counties we visited, who generously took time out of their 

day to help us understand their approach to management and program implementation. It is only 

with their help and openness that we could begin to identify the keys to successful subrecipient 

management. 

We thank Dr. Judson James of the Office of Policy Development and Research for the guidance, 

feedback, and assistance he provided on all aspects of this study. We also thank Mr. Kevin 

Neary, Director of the Program Evaluation Division of the Office of Policy Development and 

Research, for supporting and guiding this research effort. 

We appreciate the many thoughtful comments and suggestions we received from the Director of 

the Office of Block Grant Assistance, Mr. Richard Kennedy, and his staff, as well as Mr. Robert 

Brever, who provided valuable technical information early in the study. We especially wish to 

thank the Assistant Secretary of Community Planning and Development, Pamela H. Patenaude, 

for supporting this undertaking. 

The contents of this report are the views of the contractor and do not necessarily reflect the 

views or policies of the U.S. Department of Housing and Urban Development or the U.S. 

Government. 
compliance with subrecipient management requirements 35 percent of the time. 

The two major factors differentiating effective and ineffective subrecipient 

management are: attention to the capacity of subrecipients to comply with program 

requirements; and creation of a framework of incentives and penalties. The most 

effective oversight combines positive incentives for good performers with sanctions for 

those who do not comply with program requirements. Effective management systems 

also provide subrecipients with the knowledge and tools to comply. 

There is no single model for successful subrecipient management. Grantees must 

weigh the risks, impacts, and tradeoffs, and calibrate their use for local conditions. 

Assistant Secretary for 

Policy Development and Research 
Managing Subrecipients of CDBG Grantees 

Table of Contents 

Executive Summary ............................................................................................................... vii

Purposes and Methods....................................................................................................... viii

Use of Subrecipients in the CDBG Program....................................................................... ix

Approaches to Subrecipient Management .............................................................................x

Grantee Responses to Costs and Risks ................................................................................ xi

Conclusions......................................................................................................................... xii

1. Introduction.......................................................................................................................... 1

Relationship Among Public and Private Entities in Community Development.................... 1

Research Questions............................................................................................................... 3

Analysis Framework ............................................................................................................. 3

Study Methodology ............................................................................................................... 6

Study Samples ....................................................................................................................... 7

Report Contents .................................................................................................................... 9

2. Characteristics of CDBG Subrecipients............................................................................ 11

Definitions........................................................................................................................... 11

CDBG Program Reliance on Subrecipients ....................................................................... 12

Comparative Advantages and Disadvantages of Subrecipient Use.................................... 16

Federal Efforts to Ensure Compliance with Program Requirements................................. 19

3. Approaches to Subrecipient Management ........................................................................ 25

Introduction ........................................................................................................................ 25

Step 1: Pre-Award Assessment ........................................................................................... 27

Step 2: Subrecipient Agreements ........................................................................................ 31

Step 3: Orientation, Training, and Technical Assistance................................................... 33

Step 4: Systems and Procedures for Tracking Subrecipient Progress and Outcomes ....... 35

Step 5: Monitoring Strategies and Procedures................................................................... 37

Step 6: Follow-Up Procedures ........................................................................................... 38

Conclusion .......................................................................................................................... 40

4. Opportunities and Challenges in Creating Effective Subrecipient Management 

Systems ............................................................................................................................. 41

Grantee Responses to Costs and Risks ............................................................................... 41

Elected Officials, Program Allocations, and Performance ................................................ 46

Factors That Influence Effective Operation of Subrecipient Management Systems........... 53

5. Conclusion.......................................................................................................................... 59

Characteristics of Effective Subrecipient Management Practices...................................... 60

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Managing Subrecipients of CDBG Grantees 

Table of Contents 

(continued) 

Appendix A—Field Office Survey Sample.......................................................................... A-1

Appendix B—Field Office Survey....................................................................................... B-1

Appendix C—Interview Guides for Community Development Directors, Program 

Managers, and Subrecipients .............................................................................................. C-1

Appendix D—Exemplary Practices/Materials of Interest.................................................. D-1

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Managing Subrecipients of CDBG Grantees 

List of Exhibits 

Table 1.1. Field Site Grantees................................................................................................... 8 

Table 2.1. Spending on Subrecipient Activities by Field Site Grantees................................. 14 

Table 2.2. Types of Subrecipients Funded by Field Site Grantees......................................... 15 

Table 2.3. Number of Monitoring Events and Findings by Area Monitored, 2000–2004 .... 20 

Figure 2.1. Grantee Performance on Indicators of Subrecipient Management....................... 22 

Table 2.4. Vulnerability of Subrecipient Management Components .................................... 23 

Table 2.5. Field Office Ratings of Grantee Performance on Subrecipient Management 

Components .......................................................................................................... 23 

Table 3.1. Subrecipient Selection Approach by Grantee and Type....................................... 29 

Table 4.1. Classification of Field Sites .................................................................................. 47 

Table 5.1. Examples of Strategies, Impact, and Tradeoffs Waged by Grantees.................... 62 

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Managing Subrecipients of CDBG Grantees 

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vi 
Managing Subrecipients of CDBG Grantees 

Executive Summary 

Many American neighborhoods need help to create the economic and social conditions that 

foster individual and family well-being. These are communities that may lack affordable 

housing; thriving businesses; high-quality infrastructure; adequate health, recreational, 

cultural, and educational facilities; and other elements of supportive neighborhoods. To help 

improve conditions in these neighborhoods, city and county governments have created 

community development programs, which aim to enlist the participation of many public and 

private actors needed to help make conditions better. 

The federal government supports these local efforts, primarily through the Community 

Development Block Grant (CDBG) program. Operated by the Department of Housing and 

Urban Development (HUD), the program allocates funding to municipal and county 

governments to carry out affordable housing, economic development, social services, public 

works, and other programs. Some of these activities are highly specialized and must be 

carried out by public agencies with the expertise and programs needed to design and 

implement them effectively. Other activities benefit from the in-depth knowledge of 

communities that nonprofit agencies often have. For this reason, units of general local 

government that receive CDBG funds sometimes delegate the job of implementing CDBGfunded programs to other agencies. 

These delegate agencies are often known as “subrecipients,” because they receive funds from 

local governments that have received funds from the federal government. Although these 

federal funds can be used for a wide variety of activities that local officials are free to choose 

among, there are strings attached. Funds can be used only for eligible activities that meet 

national objectives declared by the United States Congress. The nation’s labor and 

environmental laws apply to the uses of federal funds for development. Federal standards of 

financial management and accounting must also be observed. 

These and other laws pertain to the uses of funds regardless of whether activities are carried 

out directly by local governments or by subrecipient agencies. One of HUD’s most important 

responsibilities is to ensure that these program requirements and civil rights laws are 

observed. And one of local governments’ most important responsibilities is to ensure that 

their own subrecipients comply with these requirements as well. But because subrecipients 

are one step removed from federal oversight, there is a greater risk that their activities will 

not be compliant, and this has been a continuing area of concern for HUD. 

Recently, HUD has re-focused its attention to the role of subrecipients in the delivery of the 

CDBG program and, specifically, the methods that grantees have used to ensure that 

subrecipients observe program rules. In early 2005, HUD released updated guidelines for 

grantee operation of management systems to oversee subrecipient compliance with federal 

requirements. It also commissioned Econometrica, Inc. and its subcontractors to research 

how some of the better performing subrecipient management systems operated by grantees 

have worked. This report is the product of that research. 

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Managing Subrecipients of CDBG Grantees 

Purposes and Methods 

This report describes the actual approaches being used by grantees to obtain compliance and 

achieve good community development results. The report focuses on the following research 

questions: 

• Generally, for which types of grantees and for which types of activities is subrecipient 

use most prevalent? 

• Do there appear to be different types of administrative arrangements that typify 

subrecipient management practices? What variations are there across the different 

types of subrecipient management procedures? 

• What makes for successful subrecipient management? Why do some grantees and 

subrecipients appear to be more successful than others? How have grantees managed 

to improve their own subrecipient management practices, or adopt those used by 

other grantees? 

• What administrative, programmatic, and political factors most shape the adoption and 

use of good subrecipient management practices? For example, how much of a role do 

local political leaders play in the process, and what impact does this have on effective 

operation of management systems? 

To answer these questions, we documented how a small sample of grantees carried out the 

subrecipient management process, understood as following six basic steps: 

1. Pre-award assessment, which includes methods to invite project proposals from 

subrecipients, assess the quality of the projects and subrecipient capacity to carry 

them out, and make ultimate funding decisions. 

2. Subrecipient agreements between the grantee and the subrecipient that specify types 

of products or services required, project timelines, documentation of results, and 

contract incentives or penalties. 

3. Training and technical assistance provided to subrecipient agencies, including 

provision of orientation materials, training, and other special instruction to new 

subrecipients or those carrying out particularly large or complex projects; and 

delivery of timely assistance upon request, or upon identification of issues through 

monitoring. 

4. Tracking program progress, including reporting against work plan objectives and 

targets, assessment of project performance and response to performance findings, and 

documentation and communication of results. 

5. Monitoring strategies and procedures, including procedures for assessing risk; 

assessing the scope of monitoring (for example, financial, procurement, project 

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Managing Subrecipients of CDBG Grantees 

progress, program income, benefit determinations to low and moderate income 

persons, and other issues of compliance with their agency agreement); and inspection 

of work products and the quality of reporting. 

6. Follow-up procedures, including corrective action to handle detected violations of 

law and regulations, and effective action on the part of agency decision-makers to 

resolve continuing problems in subrecipient management. 

This report draws upon three major data sources to answer the research questions posed 

above: (1) a review of internal HUD management systems to gather information about 

monitoring findings with respect to subrecipients, (2) a survey of HUD field office staff to 

gather information about the current quality of subrecipient management, and (3) in-depth 

field research with 11 selected communities noted for the quality of their subrecipient 

management. 

Use of Subrecipients in the CDBG Program 

Reliance on subrecipients appears to be widespread throughout the CDBG program. Some 

grantees rely on them heavily, devoting more than one-half of their dollars to activities 

carried out by subrecipient agencies. This means that subrecipient ability and willingness to 

comply with federal statutes and regulations are crucial to compliance of the program as a 

whole. In fact, as federal officials monitor CDBG grantees to determine whether their 

programs are in compliance, subrecipient management is one of the most actively monitored 

areas and is one in which monitoring “findings” are most likely to be made. 

Between 2000 and 2004, subrecipient management was the second-most monitored area from 

among approximately 30 areas identified in HUD’s management information system. In 

other words, HUD field office staff members focused on subrecipient management as an area 

of prime concern to the program in view of the frequency with which subrecipients are used 

in the program and, consequently, its susceptibility to possible compliance problems. In 

terms of the results of these visits, monitoring of individual grantees turned up findings of 

noncompliance with subrecipient management requirements 35 percent of the time—an 

incidence of problems that ranked fifth among all areas. (By comparison, monitoring for 

grantee compliance with rules covering national objectives resulted in findings 48 percent of 

the time; monitoring for eligible activities, the area third-most-frequently monitored, 

produced findings 25 percent of the time.) 

Because of their monitoring responsibilities, HUD’s field office personnel are among the 

most knowledgeable outside observers of how well subrecipient management systems work. 

Our survey of field office staff asked them to assess aspects of management for a sample of 

CDBG entitlement grantees. (This sample of 206 grantees was drawn to reflect the 

experiences of those grantees receiving larger grants, primarily.) Field offices generally rated 

overall performance highly, including whether grantees “identify problems and take action 

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Managing Subrecipients of CDBG Grantees 

before they become serious”; “take actions to ensure that projects contribute to effective 

community development”; and “keep the program free of serious infractions.”1 

Much less favorably rated were whether grantees change the mix of subrecipients in response 

to changing priorities and subrecipient capabilities. Such a change would be desirable if it 

resulted in a pool of subrecipients whose program activities better reflected local priorities as 

they changed, or improved the grantee’s overall ability to carry out programs. If such 

changes are not made, it could mean either that subrecipients are merely re-funded each year, 

regardless of needs, or that the pool of capable subrecipients is small. Either way, but 

especially in the latter case, problems with noncompliance might be more likely to arise. 

Approaches to Subrecipient Management 

To find out how CDBG management systems operated on the ground, the research team 

visited 11 CDBG grantees with strong reputations among field office staff, HUD 

headquarters staff, and independent observers in national community development 

organizations for operating effective subrecipient management systems. We recorded 

information about the operation and effects of these systems, as well as the challenges they 

faced, for each of the elements of the subrecipient management process. 

We found that there was no one right way to carry out each particular step. For example, 

every grantee had a process for selecting subrecipients. Some of these processes were 

designed as open, competitive applications similar to a conventional Request for Proposal 

(RFP) process. Others continued to fund the same subrecipients repeatedly through a process 

that varied only with respect to how much money would be available and for what activities. 

Differences in grantee approaches to each of the six steps suggest that any HUD-suggested 

management process should be customized to fit the local environment. 

The research for this study suggests two major discriminators between effective and 

ineffective subrecipient management approaches: attention to the capacity of subrecipients to 

comply with program requirements and creation of the right framework of incentives and 

penalties. Subrecipients need to have the knowledge and tools to be able to comply, which is 

why grantees invest so heavily in technical assistance, ranging from provision of guidebooks 

and other program materials to active, hands-on help with financial documentation. 

In addition to being able to comply, subrecipients must be willing to comply. Effective 

grantees have recognized that this willingness reflects more than a desire to avoid penalties, 

as when future funding is based on past performance, or legal sanctions are applied when 

money is misspent. This study found that sanctions alone are not a sufficient motivator of 

adherence to the system. Grantee monitoring budgets are tight, and most subrecipients can 

gauge the likelihood of being “caught” with noncompliant actions. In addition, a system 

based entirely on sanctions requires constant and detailed vigilance by the grantee. Instead, 

this study found that the most effective subrecipient oversight systems combine sanctions 

1 We did not define the terms “effective community development” or “serious infractions,” preferring to let 

field office staff rate grantees according to their own understandings. 

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Managing Subrecipients of CDBG Grantees 

with positive incentives for good performers, such as public recognition. In addition to 

funding, subrecipients are motivated by a number of other incentives, including demonstrated 

benefit to the communities they serve, adherence to norms of good performance embraced by 

fund providers and peers, and ability to leverage non-public funding on the strength of their 

ability to be compliant with demanding federal rules. 

Successful grantees understand this range of subrecipient incentives, disincentives, and 

capacity issues, and they build those into their processes. For example, selection criteria 

might provide bonus points to nonprofits with an exceptional track record of participating in 

the grantee’s subrecipient system; or, the grantee’s annual subrecipient training might include 

modules on fundraising, organizational development, or other topics needed to create strong 

nonprofits. 

Grantee Responses to Costs and Risks 

All subrecipient management systems have to resolve issues of administrative cost, and the 

risk that compliance issues will emerge. Just as there is no one way to carry out each 

subrecipient management step, there are several ways to reduce the costs of systems and the 

risks of noncompliance. For example, some grantees have found that investing in lower-cost 

assessments of subrecipient capacity at the front end can help them avoid higher-cost 

monitoring and invoice review once projects are underway. This is because the subrecipients 

they select have the internal management systems they need to comply with requirements 

relatively easily, and they are therefore able to submit sufficient and appropriate 

documentation of their activities. Other grantees avoid funding more complicated activities, 

like housing rehabilitation, using subrecipients. 

Some grantees handle the risk of low subrecipient capacity to comply by investing heavily in 

technical assistance; one grantee even paid for independent consultants to diagnose 

nonprofits’ personnel, financial management, and governing systems and to recommend a 

work plan for their organizational development. Another, opposite approach is to accept that 

subrecipients may not have, or not want to develop, the capacity to comply with the most 

demanding federal rules. In these circumstances, grantee staff members often wind up 

actually doing some of the more complicated elements of subrecipient activities, like 

preparing bid documents for review. 

Aside from the uncertain capacity of some subrecipients to comply fully with program 

requirements, the most considerable risk to operation of a subrecipient management system 

that safeguards program compliance standards is interference in the impartial application of 

rules for selecting, monitoring, and evaluating the performance of subrecipients. Such 

interference is damaging when it compels agency officials to overlook legislative and 

regulatory requirements, violates principles of sound program management, or leads to 

ineffective or inefficient delivery of community development programs. 

Our research shows, however, that even where elected officials play a less than supportive 

role in the administration of subrecipient management systems, agency staff can devise 

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Managing Subrecipients of CDBG Grantees 

strategies to shield their programs from inappropriate meddling by political decision-makers. 

Some have done this by creating open, transparent systems that go far beyond the statutory 

citizen participation requirements. Open systems include those in which proposal reviews 

are done by citizen bodies, the ranking results are fully public, and in some cases, annual 

performance reviews are also public. This openness makes it difficult to disguise 

inappropriate influence over the funding allocations, which may result in less capable 

organizations being funded. Others have introduced as much competition as possible into the 

allocations process or, at a minimum, established thresholds of project quality, below which 

subrecipients are ineligible for funds award. And some grantees have found that the 

introduction of performance measurement systems has reminded all the players that 

achieving the best community outcomes is paramount, thereby tending to discourage actions 

that would undermine this goal. 

Conclusions 

Grantees depend upon subrecipients to reach deep into the community in order to expand the 

government’s capacity to provide essential programs and services. Subrecipients and 

grantees alike are inherently motivated to improve communities. In places where 

subrecipients are managed well, they are motivated to abide by the myriad of federal 

regulations that govern the CDBG program and to meet the twin challenges of effectiveness 

and accountability. 

The most effective subrecipient oversight systems combine positive incentives for good 

performers with sanctions for those who will not or cannot comply with program 

requirements. The research suggests that the discriminator between effective and ineffective 

subrecipient management approaches is that effective grantees not only embrace the steps 

outlined in the HUD guidance materials (pre-award assessment, subrecipient agreement, 

training and technical assistance, performance tracking, monitoring, and follow-up), they also 

reward adherence. They provide incentives to encourage subrecipients to comply willingly. 

Some of the incentives are obvious and natural, such as abiding by the rules to avoid 

monitoring findings. Others are more complex, such as those that tie funding to performance 

goals and use public reviews of performance and public scrutiny to coax subrecipients to 

perform at their best. 

Effective subrecipient management systems also provide subrecipients with the knowledge 

and tools to comply. Motivating subrecipients to perform is not enough to ensure 

compliance; subrecipients must have the ability to comply, and the rules must be clear to 

them. Some grantees reviewed in this study invested year after year, in training, technology, 

and on-line resources to simplify the process and increase subrecipient capacity to comply 

with program requirements. 

There is no single model for success. Grantees mix and match elements of their subrecipient 

management systems in ways that suit local circumstances; one needn’t address each step of 

the management sequence equally well to be successful, but certain characteristics—such as 

transparency, a relentless desire to innovate and experiment to improve the system, 

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Managing Subrecipients of CDBG Grantees 

committed leadership at the political and agency level, professionalism, and consistency—are 

important elements of successful subrecipient management systems. In sum, effective 

subrecipient management practices are an amalgam of inputs which, together, forge strong 

and creative community development programs. Effective practices, however, are welltooled for local conditions. Grantees must weigh the risks, impacts, and tradeoffs of 

approaches they choose, and they must calibrate their use for local conditions. 

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xiv
Managing Subrecipients of CDBG Grantees 

1. Introduction 

Relationship Among Public and Private Entities 

in Community Development 

Successful community development requires the cooperation of many parties. For example, 

to build affordable housing, for-profit or nonprofit developers, private financial institutions, 

building contractors, government regulatory bodies, and public-sector providers of financial 

subsidies all must work together. To deliver meals to the home-bound elderly, nonprofit 

social service providers often rely on financial support from local government agencies. And 

to boost neighborhood employment, one public agency may invest in business expansion 

while another invests in workforce development. 

Effective community development efforts take full advantage of the financial, technical, and 

political power of government agencies and of the market responsiveness of private-sector 

entities, including their freedom from many of the restrictions that envelop public agencies. 

But partnerships among public agencies and between public agencies and private-sector 

entities can be problematic as well as productive. Both public agencies and private entities 

sometimes fail to pursue community development effectively or to use public resources 

wisely and account for them fully. 

Relationships among public agencies and their private-sector partners are further complicated 

by the reliance of public agencies (and many private-sector partners) on federal funds to 

support community development efforts. The most important source of these funds is the 

Community Development Block Grant (CDBG) program, one of several federal block grant 

programs enacted in the 1970s. Such programs redefined the relationship between the federal 

and state and local governments. Previously, the federal government determined the type of 

projects for which grant funds could be used. Moreover, specific details of each project to be 

funded had to be reviewed and approved by federal staff before the grant funds were made 

available. Under the new approach with respect to CDBG, local governments are provided 

grant funds that may be used for a rather wide variety of projects, with the choice of which to 

carry out determined by the grant recipient. The federal government merely set the 

boundaries within which the choices are made. 

With this new freedom, grant recipients took on new responsibilities. The CDBG statute 

contains several requirements that restrict the nature of the projects that can be funded and, in 

some cases, where and how they have to be carried out. For example, the grant recipient 

could decide to fund a street improvement, but it has to ensure that the specific nature and 

location of the street improvement meets several requirements. The program requires that 

funded projects meet one of three national objectives: principally benefit low- and moderateincome persons; prevent or eliminate slums and blight; or meet other urgent community 

development needs. It also requires that projects be reviewed in advance for adherence to a 

series of crosscutting laws, including, for example, Title VI of the Civil Rights Act of 1964, 

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Managing Subrecipients of CDBG Grantees 

Section 109 of Title 1 of the Housing and Community Development Act of 1974, Section 

504 of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, the National 

Environmental Protection Act, and others. Most construction projects require that the wages 

paid are consistent with certain federal labor standards. Recent federal initiatives to assist 

faith-based projects in receiving funding for programs and activities for which they are 

eligible must also be accommodated. Thus, it is now necessary for units of government to be 

aware of a large number of restrictions and requirements applicable to the CDBG program as 

it makes decisions as to which projects will be carried out with the grant funds. 

Moreover, the federal government imposes certain other general requirements on grant 

recipients (and subgrantees) with respect to the financial management systems and 

procurement practices they employ. The federal government does not approve funded 

projects in advance as it once did. It must give the funds to units of local government and 

follow up to make sure that they use them in accordance with applicable requirements. It 

holds the grant recipient responsible for meeting all the program requirements, but must 

monitor effectively in order to identify cases in which they may not be met. Failure on the 

part of a grantee to meet a restriction or requirement can result in termination of the grant and 

repayment of funds spent incorrectly, leaving the grantee to pay for ineligible costs incurred 

out of local funds. So, the stakes can be high for them. 

The CDBG program also authorizes grant recipients to use public and private nonprofit 

agencies to carry out community development activities. This gives the local government 

flexibility in deciding to fund such an agency to carry out specific activities rather than use 

local government staff to do so. However, it must do so with the realization that it is 

responsible for overseeing how the agency uses the funds to ensure that it meets local 

community development objectives and stays within the many requirements applicable to the 

use of federal funds in general, and CDBG funds in particular. Inserting another level of 

entities using the CDBG funds into the process, and one with which the federal government 

does not have a grant agreement, further complicates the federal role of monitoring the 

program for compliance. 

This report describes ways in which local governments receiving funds through the CDBG 

Entitlement Program have met some of these challenges. The final product of a year-long 

research effort, the report documents how selected CDBG grantees have developed systems 

to enlist the participation of both private- and public-sector partners—so-called 

subrecipients—in community development programs and to hold them accountable for 

compliance with federal requirements. 

Research in the 1990s found that at least half of all entitlement cities and counties delegated 

at least a portion of their programs to other agencies, especially in the area of public 

services.2

 Nonprofit agencies accounted for the bulk of public services spending and about 

one-half of the economic development activities. Given the significant role that subrecipients 

play in the delivery of CDBG programming, this analysis of the effectiveness and 

2 Federal Funds, Local Choices: An Evaluation of the Community Development Block Grant Program, The 

Urban Institute, Center for Public Finance and Housing. May 1995. 

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Managing Subrecipients of CDBG Grantees 

accountability of subrecipient activities is integral to understanding the effectiveness and 

accountability of the CDBG program itself. 

Research Questions 

This report comes shortly after the Department issued extensive guidance and training 

materials on subrecipient management.3 While the recent HUD guidance recommends a 

series of management practices in a technical assistance mode, this report describes the actual 

approaches and incentives being used by grantees to obtain compliance and achieve good 

community development results. The report focuses on the following research questions: 

1. Generally, for which types of grantees and for which types of activities is 

subrecipient use most prevalent? 

2. Do there appear to be different types of administrative arrangements that typify 

subrecipient management practices? What variations are there across the different 

types of subrecipient management procedures? 

3. What makes for successful subrecipient management? Why do some grantees 

and subrecipients appear to be more successful than others? How have grantees 

managed to improve their own subrecipient management practices, or adopt those 

used by other grantees? 

4. What administrative, programmatic, and political factors most shape adoption and 

use of good subrecipient management practices? For example, how much of a 

role do local political leaders play in the process, and what impact does leadership 

(political or otherwise) appear to have on outcomes? 

Analysis Framework 

Once the decision is made to use subrecipients, the process, or processes, of “subrecipient 

management” play out through the lifecycle of a community development project—from 

recruitment and selection of subrecipients, through the implementation of activities, to the 

concluding assessment of program effectiveness. These stages (hereinafter “the management 

sequence”) include the following six basic steps, which served as the analytical framework 

for this report: 

3

 See Managing CDBG: A Guidebook for Grantees on Subrecipient Oversight; Playing by the Rules, A 

Handbook for CDBG Subrecipients on Administrative Systems; and Training CDBG Subrecpients in 

Administrative Systems. 

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Managing Subrecipients of CDBG Grantees 

Step 1: Pre-Award Assessment, including Grantee Selection 

Step 2: Subrecipient Agreements 

Step 3: Orientation, Training, and Technical Assistance 

Step 4: Systems for Tracking Subrecipient Program Progress 

Step 5: Monitoring Strategies and Procedures 

Step 6: Follow-up Procedures 

1. Pre-award assessment includes methods of outreach and advertisement of funds 

availability; assessment of subrecipient capacity and project quality, application 

components, and required documentation of capacity to perform requested services; 

experience and capacity of staff or citizen panel review of applications; and the 

relationship between the recommendations from the review process and subsequent 

funding decisions. 

2. Subrecipient agreements are made between grantees and the subrecipients. Topics 

for negotiation may include the types of products or services required, project 

timelines, allocation of costs to services, cost documentation, documentation of 

benefits to low- and moderate-income persons and other program requirements, the 

treatment of program income, performance measures and benchmarks, and contract 

incentives or penalties. The final product is a written agreement. 

3. Training and technical assistance are provided to subrecipient agencies throughout 

the sequence, including provision of orientation materials, training, and other 

special instruction to new subrecipients or those carrying out particularly large or 

complex projects; and delivery of technical assistance upon request or upon 

identification of issues through monitoring. 

4. Tracking program progress includes reporting against work plan objectives and 

targets; performance assessment and response to performance findings, including 

quality and completeness of measurement; use of benchmarks and comparisons; 

drawing of inferences based on available data; and documentation and 

communication of results. 

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Managing Subrecipients of CDBG Grantees 

5. Monitoring strategies and procedures track the actual provision of subrecipient 

services. Topics investigated here may include internal controls to guard against 

financial mismanagement and conflicts of interest; procedures for assessing risk; 

the scope of monitoring (for example, financial, procurement, project progress, 

program income, determinations of benefit to low- and moderate-income persons, 

and other issues of compliance with agency agreements); inspection of work 

products; and the quality of reporting and documentation. 

6. Follow-up procedures include corrective action to handle detected violations of law 

and regulations, and effective action on the part of agency decision-makers to 

resolve continuing problems in subrecipient management. 

Each of these steps has observable outcomes in terms of the number and character of 

activities that define each one. For example, for any activity or program that has used 

subrecipients, it can be determined whether outreach activities were sufficient to induce 

multiple applications for program funding, and whether the number of applicants exceeded 

funds available, requiring either a reduction in funding levels relative to amounts applied for 

or outright denial of funding to some applicants. 

There are two broad criteria available for assessing whether subrecipient management 

practices are worth recommending to others: (1) their contribution to effective community 

development; and (2) their value in safeguarding the public interest in the legal and financial 

integrity of programs. One critically important research question is how grantees have 

balanced tradeoffs to be made between the risk management goals implied by many of the 

actions taken throughout the subrecipient management sequence, and the need to ensure 

efficient and effective completion of requested services. How do grantees effectively 

safeguard the legal and financial integrity of programs while still supporting the 

accomplishment of community development objectives, resulting in more effective 

programs? 

Each of the steps in the management sequence might lead to this result. For example, public 

agency investments in technical assistance to nonprofit organizations, which often concern 

organizations’ ability to satisfy financial management or other program requirements, could 

also help them improve other aspects of their operations, such as governance. This might 

mean cooperation with the traditional funders of nonprofit capacity building—local 

foundations, community development intermediaries, and other investors in the nonprofit 

sector. In this way, public agency efforts to safeguard the program can help promote more 

effective program delivery. 

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Managing Subrecipients of CDBG Grantees 

Study Methodology 

This report draws upon three major data sources to answer the research questions posed 

above: (1) a review of internal HUD management systems to gather information about 

monitoring findings with respect to subrecipients; (2) a survey of HUD field office staff to 

gather information about the current quality of subrecipient management; and (3) in-depth 

field research with 11 selected communities noted for the quality of their subrecipient 

management. Each of these sources and their application in this study are described below. 

Part of HUD’s responsibilities as the federal agency in charge of the CDBG program is to 

ensure that grantees comply with all federal statutes and regulations. To help fulfill this 

obligation, each field office is required to conduct an annual “risk assessment” in order to 

determine which grantees and program areas should be monitored. Upon completion of the 

monitoring, a monitoring letter describing the result is sent to the grantee. If any findings or 

concerns are identified, they must be described in the letter, along with any corrective actions 

HUD deems necessary. HUD records the monitoring results in its Grants Management 

System. The system contains information on the monitoring efforts by field office staff across 

a range of monitoring areas (for example, program benefit, program progress, rehabilitation, 

and third-party contractors). This database records, for each grantee and area monitored, the 

number of monitoring findings and monitoring concerns, communicated in field office 

monitoring letters. The Grantee Management Program (GMP) allows field offices to record 

key monitoring and risk assessment information into a database that can be viewed in the 

field and at headquarters. 

HUD’s Office of Community Planning and Development (CPD) provided the research team 

with the “Field Office Summary Monitoring Report” for fiscal year 2003 (FY2003) and 

FY2004. These national reports list grantees that were monitored in each of the last 2 years 

and the findings, concerns, and sanctions identified in various program areas, including 

subrecipient monitoring. Our analysis of the GMP, which is reported in Chapter 2, examines 

the relative frequency with which grantees are monitored for subrecipient-related issues and 

the frequency of resulting findings compared to findings recorded in other areas monitored. 

We examine the GMP data in this study because information about field office monitoring 

can suggest the scope of problems that accompany use of subrecipients and the types of 

grantees for which these problems are most likely to occur. 

Secondly, the research team conducted a survey of local HUD field offices to solicit 

information about the use of subrecipients in the administration of CDBG programs and the 

quality of grantees’ subrecipient management. The survey, which can be found in Appendix 

B, asked field office staff for responses to close-ended survey items on the subrecipient 

management practices of each member of a sample of grantees in their regions. The survey 

was distributed in an electronic format via e-mail by CPD field office management on behalf 

of the research team, completed by field office staff, and returned via e-mail. The survey’s 

most critical feature asked respondents to nominate particularly good examples of 

management practices (as well as ineffective examples) from within their jurisdiction. That 

information was used to help identify communities for site visits. 

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Managing Subrecipients of CDBG Grantees 

Finally, and of greatest importance for this report, the team conducted site visits to 11 

grantees with reputations for good subrecipient management (see Table 1.1 for a list of the 11 

communities). Site visits consisted both of reviewing documentary grantee materials—for 

example, applications, subrecipient contracts, annual plans and performance reports, and 

monitoring reports—and a series of semi-scripted interviews both with grantee staff and with 

subrecipient staff. For each site, grantee staff members who were interviewed included the 

director of the department administering CDBG funds, senior program managers for 

programs in which subrecipients are used, and persons responsible for monitoring of 

subrecipient performance, if any. The research team also interviewed a sample of 

subrecipients in each community. Subrecipients were purposively selected for interviews 

based on funding amounts, subrecipient size, subrecipient sector (public and private), 

administrative relationships between public and private subrecipients in the same program, 

and performance (that is, the research team explicitly asked each grantee to identify a few 

subrecipients that had encountered challenges, as such cases offered an important opportunity 

to observe how management systems identify and respond to adverse circumstances). 

Questionnaires used to guide both grantee staff and subrecipient interviews are included in 

Appendix C. 

Study Samples 

Two samples were drawn to support data collection: (1) a sample of grantees for inclusion in 

the field office survey and (2) a sample of grantees for onsite data collection. 

The field office survey asked field staff to assess the subrecipient management practices of a 

sample of grantees. This sample was drawn to reflect a range of sizes based on entitlement 

amounts. Because of the funds potentially at risk in larger population jurisdictions within the 

CDBG program—roughly 80 percent of the money allocated in the program goes to about 20 

percent of grantees—the sample was drawn to produce a bias toward larger population 

jurisdictions. Also, to keep the response burden low and thereby encourage survey response, 

we limited the sample drawn from any area office jurisdiction to five grantees. 

To select the sample, we arrayed the grantees within each area office in descending order of 

their FY2004 entitlement amounts. We then calculated the cumulative amount represented by 

each grantee’s allocation, showing the contribution of each grantee to the total. We chose a 

random number between 1 and the total number of dollars allocated to all grantees in the area 

office jurisdiction. We then chose the jurisdiction that contributed the amount to the 

cumulative total that included the random number. After removing that grantee from the list, 

we calculated a new cumulative total and relative contribution, selected a new random 

number between 1 and the cumulative total, identified the grantee that contributed the 

amount needed to include the new random number, and removed it from the list. We repeated 

this procedure until we had selected five grantees from the jurisdiction. (For example, 

assume that an area office jurisdiction included 10 grantees, totaling $10 million in total 2004 

funds allocated, and that one large grantee contributed $5 million of this total. The first 

random number chosen has a 50/50 chance of being $5 million or below; in other words, the 

largest grantee has a 50-percent chance of being selected on the first pass. Every other 

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Managing Subrecipients of CDBG Grantees 

grantee in the jurisdiction has an equal share of the remaining $5 million or $555, or a 

roughly 6-percent chance of selection.) The resulting national sample contained roughly 18 

percent of the total number of entitlement grantees in the program, and about 48 percent of 

the total funds allocated in FY2004. The survey results are reported in Chapter 2 of this 

report. 

To select sites for onsite research, we worked from a list of grantees recommended through 

the field office survey and other knowledgeable practitioners to draw a sample that met 

several objectives: first, the sites had to meet the “face validity” tests noted in the scope of 

work—specifically, sites that roughly met the regional, grantee size, and city and urban 

county patterns of the overall pool of CDBG grantees. Second, the sites had to reflect the 

diversity of use of subrecipients across types of administrative arrangements, program 

activities, and political and institutional contexts. Third, they had to provide sufficient 

evidence of good practice that documentation of local efforts contributes to the purposes of 

the final report. Lastly, the number of sites had to be between 10 and 12 for budgetary 

reasons. (The first-sampled site served as a pre-test of the instruments, allowing us flexibility 

to modify them later.) 

In making the final determination of sites, we also considered whether the subrecipient 

management systems appeared to have been in place long enough to develop a track record 

of performance, and whether grantees appeared to use good-quality subrecipient management 

practices across a variety of program types and local administrative arrangements. 

Table 1.1. Field Site Grantees 

2005 CDBG Funds Allocated 

Jurisdiction Entitlement to Subrecipient 

Grantee Type Region Amount Activities (1) 

Albany, New York City Northeast $4,271,799 $1,862,216 

Asheville, North Carolina City South $1,465,512 $1,322,500 

Dayton, Ohio City Midwest $7,241,610 $5,540,000 

Duluth, Minnesota City Midwest $3,224,428 $2,501,000 

Fairfax County, Virginia County South $6,905,321 $2,356,995 

Gwinnett County, Georgia County South $4,615,969 $1,003,927 

Los Angeles County, 

California 

County West $34,621,264 $37,550,147 

Memphis, Tennessee City South $9,202,561 $4,401,457 

Palm Beach County, 

Florida County South $7,868,623 $3,771,421 

Phoenix, Arizona City West $19,258,051 $5,289,509 

Westchester County, New 

York County Northeast $6,520,720 $4,418,973 

(1) Note the funds allocated to subrecipients may include program income and other reallocated funds, and thus 

amounts may exceed entitlement amount. 

Source: Compiled by Econometrica, Inc. based on Action Plans and other documents supplied by field site 

grantees for FY04 or 05. 

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Managing Subrecipients of CDBG Grantees 

Report Contents 

In addition to the introduction, this report is divided into the following chapters: 

• Chapter 2, Characteristics of CDBG Subrecipients, describes the characteristics of 

CDBG subrecipient use, management, and capacity. It provides the empirical framing 

for the more analytical and issue-oriented chapters that follow. 

• Chapter 3, Approaches to Subrecipient Management, describes the management 

sequence, with illustrations from the 11 study sites. It also explores how subrecipient 

management systems create incentives for subrecipients to respond to federal 

requirements and help build their capacity to run more effective and accountable 

programs. Chapter 3 identifies both general issues posed in subrecipient management 

and issues and challenges specific to individual steps in the management sequence. 

• Chapter 4, Opportunities and Challenges in Creating Effective Subrecipient 

Management Systems, discusses how elements of the subrecipient management 

system respond to specific costs and risks faced by grantees, including risks of 

political interference in the subrecipient management process. It also discusses some 

of the broader factors that influence choices of management elements. 

• Chapter 5, Conclusion, summarizes major issues facing grantees and program 

administrators regarding the use of CDBG subrecipients; the lessons learned from 

grantees that have developed effective systems for using subrecipients; and examples 

of strategies, impacts, and tradeoffs waged by grantees in the administration of the 

CDBG program. 

Four appendixes are also included: 

A. Field Office Survey Sample 

B. Field Office Survey 

C. Interview Guides for Community Development Directors, Program Mangers, 

and Subrecipients 

D. Exemplary Practices/Materials of Interest. 

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Managing Subrecipients of CDBG Grantees 

2. Characteristics of CDBG Subrecipients

Reliance on subrecipients appears to be widespread throughout the CDBG program. Some 

grantees rely on them heavily, devoting more than one-half of their dollars to activities 

carried out by subrecipient agencies. It follows that subrecipient ability and willingness to 

comply with federal statutes and regulations are critical to the accountability of the overall 

program. However, subrecipient agencies, especially nonprofit organizations, do not always 

have the management systems, staff capacity, or program experience needed to comply fully 

with these requirements. Accordingly, many grantees establish management systems to help 

subrecipients carry out their responsibilities and to take appropriate action when they do not. 

Federal officials monitor CDBG grantees to determine whether these systems are effective. 

In fact, this area is one of the most actively monitored in the program, and the one in which 

monitoring “findings” are most likely to occur. 

Definitions 

In this chapter, two definitions of subrecipients are used: a “regulatory” definition and a 

“research” definition that varies across different studies. 

Regulatory Definition 

The program regulations at §570.500(c) define a subrecipient as follows: 

“Subrecipient means a public or private nonprofit agency, authority or organization, 

or a for-profit entity authorized under 570.201(o), receiving CDBG funds from the 

recipient or another subrecipient to undertake activities eligible for such assistance 

under subpart C of this part. The term excludes an entity receiving CDBG funds from 

the recipient under the authority of 570.240, unless the grantee explicitly designates it 

as a subrecipient. The term includes a public agency designated by a unit of general 

local government to receive a loan guarantee under subpart M of this part, but does 

not include contractors providing supplies, equipment, construction, or services 

subject to the procurement requirements in 24 CFR 85.36 or 84.40, as applicable.” 

The regulatory definition developed by HUD for the CDBG program generally applies to 

organizations outside the grantee’s government with whom the grant recipient contracts to 

conduct CDBG activities. However, such organizations that are selected by the recipient to 

carry out a CDBG-funded activity through the procurement process are considered to be 

contractors and are not subrecipients. Subrecipients are usually public or private nonprofits 

that the recipient elects to use to provide services and support needed to carry out the 

objectives identified in its annual plan. 

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Managing Subrecipients of CDBG Grantees 

Although not included in the regulatory definition, 24CPR570.50(b) provides that units of 

general local government that participate with a county as part of an urban county in the 

CDBG program are subject to the same requirements as though they are subrecipients. For 

example, the regulations require the county to enter into the same basic written agreements 

that apply to subrecipients with any included unit of government that receives CDBG funds 

from the county. 

Technically, nonprofit developers who acquire, renovate, or construct housing are not 

subrecipients, although these entities do have to comply with federal requirements pertaining 

to such matters as financial management and national objectives, as well as additional 

provisions specific to construction projects, such as historic preservation rules and labor 

standards. 

Research Definition 

Many grantees, including some of those we visited for this research, consider any third-party 

program delivery organization as a subrecipient for management purposes, even though they 

may not be considered as such by the regulations. Such entities would include housing 

development organizations, independent governmental bodies (such as housing or 

redevelopment authorities), and other city departments (such as Public Works or Code 

Enforcement) that administer CDBG program funds, but which are separate from the agency 

or department charged with overseeing the CDBG program for the grantee. We term these 

entities “subgrantees.” Previous research has used the term “subrecipient” to refer both to 

subrecipients defined according to regulation and to subgrantees, sometimes without marking 

the distinction. 

Treatment of the Term for Purposes of this Study 

Because the grantees we visited did not use the term consistently, we use the term 

“subrecipient” in this research to refer to both subrecipients and subgrantees. In fact, HUD 

recommends that its guidance on managing subrecipients apply to subgrantees where the 

grantee determines it is appropriate. (However, in choosing which entities to interview 

onsite, we did not consider programs carried out by city or county agencies that were part of 

the same unit of local government as subrecipients.) Where distinguishing between the two is 

important for clarity, we will so note this. 

CDBG Program Reliance on Subrecipients 

To examine patterns of subrecipient use in the CDBG program, we draw on two sources, 

primarily. The first is an evaluation of the CDBG program conducted in the early 1990s by 

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Managing Subrecipients of CDBG Grantees 

the Urban Institute’s Center for Public Finance and Housing.4 It is the only known study of 

the use of subrecipients and subgrantees in the program nationwide. That study included field 

research in 61 cities, more than 1,000 mail and telephone surveys, and extensive analysis of 

HUD budget and expenditure data. The second is our own survey of HUD field office staff to 

obtain their assessments of grantee subrecipient management performance and solicit their 

views on which grantees within their jurisdictions displayed promising practices, and the 

frequency of use of subrecipients by CDBG grantees.5 

The federal government does not prescribe administrative arrangements that grantees must 

use to carry out their programs, except that a “lead agency” within a unit of general local 

government (as distinct from a specialized authority or commission) must receive the funds 

and allocate them to implementing agencies. These lead agencies are responsible for ensuring 

compliance with all program requirements. 

Unsurprisingly, grantees have devised many different types of arrangements to carry out their 

programs. Entitlement cities use two basic program models. In one model, a small 

coordinating department or office is the lead agency recipient of funds, but it does not deliver 

any of the funded programs. Instead, funds are allocated to other city agencies, such as the 

housing or public works departments, to fund activities carried out by agency staff or their 

subrecipients. In the other model, a city agency receives the funding and carries out 

programs. This is most often the case when cities establish departments of housing and 

community development, community and economic development, or other similarly named 

departments. These agencies can decide to carry out programs entirely with city staff or use 

subrecipients to carry out a portion of the programs. 

The Urban Institute study found that cities commonly adopt a hybrid management structure, 

in which some or all of the program delivery responsibility is delegated to entities other than 

the lead agency. It found that more than half of “lead” agencies delegate at least a portion of 

program management to other entities; this is particularly common in public services, with 

over half of lead entities (54.8 percent) delegating all services spending to other entities. 

Urban counties work much the same way, except that many counties include both 

incorporated units of general local government within them, as well as unincorporated areas 

for which county agencies are responsible. Urban counties award CDBG funds to these units 

of general local government in two basic ways. The first is to award funds to constituent 

cities by a formula, as if they were mini-entitlement jurisdictions. These cities can then 

devise and carry out community development activities. The second is to require cities to 

apply to counties for funding, with no assurance that their applications will be successful. 

Under either arrangement, funded cities are considered subrecipients to the county. 

Moreover, these subrecipient cities might choose to use their own subrecipient agencies to 

4 Federal Funds, Local Choices: An Evaluation of the Community Development Block Grant Program, The 

Urban Institute, Center for Public Finance and Housing. May 1995. 5 We also reviewed HUD’s CDBG reporting system—IDIS—and found that it does not identify which CDBG 

activities were carried out by subrecipients. In July 2005, changes were made to IDIS that will make this 

possible by requiring grantees to identify activities being carried out by nonprofit subrecipients, for-profit 

entities, or other public agencies, and whether the organization is faith-based. 

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Managing Subrecipients of CDBG Grantees 

carry out programs, creating in effect “sub-subrecipients.” Examples of both were observed 

in our study. 

There is no doubt that subrecipients play a significant role in local CDBG programs. The 

Urban Institute’s 1995 study found that at least half of all entitlement cities and counties 

delegated some portion of their programs to other agencies. (In dollar terms, the Urban 

Institute found that subrecipients accounted for 28 percent of CDBG expenditures; nonprofits 

accounted for the largest part of these expenditures at 17 percent of all funds.) In the survey 

of field office staff carried out for this report, respondents reported that more than 60 percent 

of grantees allot at least 25 percent of their funds to subrecipients and that one-third of 

grantees allot 50 percent of their funds or more.6 

The sites selected for our field investigations make extensive use of subrecipients and other 

subgrantees. In fact, some sites spend the majority of their funds through subrecipients. Five 

of the 11 grantees visited onsite devoted more than one-half of their available funds to 

activities carried out by public or nonprofit subrecipients (see Table 2.1). The average for the 

11 sites was 48 percent. 

Table 2.1. Spending on Subrecipient Activities by Field Site Grantees 

Grantee 

Funds Available 

Funds Allocated to Percent of Funds to 

2005 CDBG Subrecipient Subrecipient 

Entitlement Amount (1) Activities Activities 

Asheville $1,465,512 $1,725,170 $1,322,500 76.7% 

Duluth $3,224,428 $3,333,928 $2,501,000 75.0% 

Los Angeles 

County $34,621,264 $56,752,466 $37,550,147 66.2% 

Dayton $7,241,610 $8,499,200 $5,540,000 65.2% 

Westchester 

County $6,520,720 $6,887,000 $4,418,973 64.2% 

Palm Beach 

County $7,868,623 $8,700,000 $3,771,421 43.4% 

Albany $4,271,799 $5,000,000 $1,862,216 37.2% 

Fairfax County $6,905,321 $7,457,000 $2,356,995 31.6% 

Phoenix $19,258,051 $20,300,000 $5,289,509 26.1% 

Memphis $9,202,561 $18,958,368 $4,401,457 23.2% 

Gwinnett 

County $4,615,969 $5,078,130 $1,003,927 19.8% 

(1) The funds available for subrecipients include the funding for nonprofits, municipalities, or other public 

agencies as identified by interviewers from the most recent 2004 or 2005 action plan or approved budget 

provided by the grantee. These amounts may include program income and unexpended funds from the prior year 

and are thus larger than the entitlement amount. 

Source: Compiled by Econometrica, Inc., based on Action Plans and other documents supplied by field site 

grantees. 

6

 These figures are based on valid responses from 169 of 206 sampled grantees, a response rate of 82 percent. 

Page 14 
Managing Subrecipients of CDBG Grantees 

Reliance specifically on nonprofit subrecipients, which turns out to be the area of highest risk 

in subrecipient management (as discussed below), ranges widely across our small sample, 

from 5.9 percent in Phoenix to 74.6 percent in Asheville. Two of the smaller grantees, Duluth 

and Asheville, were proportionately the largest funders of nonprofits in our study. They 

distributed almost half to 75 percent of the funds in their annual plans to nonprofits. Two of 

the largest grantees, Los Angeles County and Phoenix, distributed less than 10 percent of 

their funds to nonprofits (see Table 2.2). 

Table 2.2. Types of Subrecipients Funded by Field Site 

Grantees 

Percent of Funds Available To: 

Grantee 

Percent of 

CDBG Funds 

to All 

Subrecipients 

(1) Nonprofits 

Other Public 

Agencies 

Municipalities 

(2) 

Albany 37.2% 27.1% 10.1% 0.0% 

Asheville 76.7% 74.6% 2.0% 0.0% 

Dayton 65.2% 11.0% 54.2% 0.0% 

Duluth 75.0% 48.6% 26.4% 0.0% 

Fairfax 

County 

31.6% 29.1% 1.7% 0.9% 

Gwinnett 

County 

19.8% 17.8% 2.0% 0.0% 

Los Angeles 

County 

66.2% 7.2% 33.9% 25.0% 

Memphis 23.2% 15.3% 7.9% 0.0% 

Palm Beach 

County 

43.4% 23.3% 3.3% 16.7% 

Phoenix 26.1% 5.9% 20.2% 0.0% 

Westchester 

County 

64.2% 12.2% 1.5% 50.5% 

(1)The funds for subrecipients include the funding for nonprofits, municipalities, or 

other public agencies as identified by interviewers from the most recent 2004 or 2005 

action plan or approved budget provided by the grantee. 

(2) The extent to which municipalities form part of an urban county can vary 

substantially. For the counties included above, this variation is clearly evident. For 

example, Westchester County and Los Angeles County each have over 40 

municipalities, while Gwinnett County has about 15 and Fairfax County has only 4. 

Source: Compiled by Econometrica, Inc., based on Action Plans and other 

documents supplied by field site grantees. 

Some study sites used other government organizations, such as housing authorities, regional 

authorities, or other agencies within the unit of general local government, to help them carry 

out their programs. Most often, they treated these other organizations, for management 

purposes, just as they would any other subrecipient; that is, their status as public agencies did 

not mean separate treatment throughout the subrecipient management process. Their overall 

funding can be a very significant part of the overall distribution of funds. Larger grantees 

Page 15 
Managing Subrecipients of CDBG Grantees 

visited, such as Los Angeles County, provided more than twice as much funding to other 

public agencies as to nonprofits. In all, 3 of the 11 sites provided substantially more funds to 

other public agencies than to nonprofits. 

Comparative Advantages and Disadvantages of Subrecipient Use 

Why do CDBG grantees use subrecipients to such an extent? Cities use public agency 

subrecipients because of their specialization; for example, only the public works department 

has the materials and expertise needed to improve streets. Counties use municipal 

government subrecipients because they have been granted the authority to carry out programs 

for incorporated areas within counties. Both cities and counties use nonprofit subrecipients 

for a variety of reasons, which are worth exploring in depth because they bear on the unique 

assets and liabilities that this class of subrecipients brings to community development, and 

the corresponding opportunities and challenges they present for subrecipient management. 

Previous research has explored the various ways in which private nonprofits can help 

advance public purposes, including through their:7 

• Ability to engage community members (residents, business owners, clergy, and 

others) who might not otherwise participate in community development activities— 

for example, because of advisory group or board ties to these constituencies. 

• Mastery of program technologies—for example, community health programs, 

community lending—that are not otherwise available within the lead agency. 

• Ability to tailor programs to the specific needs and capacity of communities, based on 

superior understanding of their characteristics—for example, with immigrant 

communities, youth at risk, manufacturing firm owners and employees. 

• Superior ability to leverage contributions from other parties—for example, private 

contributions and foundation grants. 

• Flexibility to initiate and discontinue programs without erecting, then dismantling, 

government infrastructure to deliver them. 

• Provision of programs and services that local government may not be authorized to 

provide and that may avoid cumbersome local requirements which increase costs and 

slow service delivery. 

These advantages were often observed in our study sites. Subrecipients provided scores of 

specially tailored services and programs, such as micro loans for new business startups, job 

7

 This body of work pertains to the literature on contracting by public agencies. Dating to the late 1970s and 

1980s, the literature primarily explored the circumstances in which private contracting was to be preferred to 

the direct provision of public services. For a relatively recent review, see Privatization of Public Services, a 

background paper by Demetra Smith Nightingale and Nancy Pindus, The Urban Institute, 1997. 

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Managing Subrecipients of CDBG Grantees 

training for people who were homeless and unemployed, transitional housing, housing 

rehabilitation, career counseling, minor home repairs, credit counseling, congregate meals, 

and many more. Subrecipients leveraged the contributions of others through heavy reliance 

on volunteers to expand their reach and technical ability. In one large urban county, a 

subrecipient reported that it used approximately 1,000 volunteers a year to deliver needed 

services. Others reported donations of computers, software, and other expensive systems, the 

costs of which might otherwise be borne by the local government, or whose benefits might 

never be realized. 

Based on areas where their involvement is concentrated, nonprofits seem to have 

comparative advantages in the delivery of particular kinds of activities. Earlier Urban 

Institute research, for example, showed that while overall subrecipient expenditures 

accounted for 28 percent of all CDBG dollars, they accounted for 55 percent of public 

services spending. In our own survey, field staff observed that for 60 percent of grantees, 

subrecipient activities accounted for the majority of public services funding. Substantially 

fewer grantees used subrecipients for the majority of their housing activities (39 percent of 

grantees) or economic development activities (30 percent of grantees). 

This same pattern generally held for those grantees visited onsite. Nonprofit subrecipients 

tended more often than not to be used to deliver public services activities. Public services 

activities accounted for approximately 40 percent of all nonprofit funding, the remainder 

being economic development, housing, or public improvements. Public services were 

generally the highest share for all grantees visited, except for Fairfax, Albany, Asheville, and 

Los Angeles, where housing was higher. 

We explored CDBG response to the current Administration’s efforts to increase the use of 

nonprofit faith-based entities, many of which are already players in the delivery of local 

programs. Not much appeared to have changed recently in this regard. Most of the 11 

grantees with which we met reported that there had been little change in the extent to which 

they are used in the CDBG program. Approximately 43 percent of the field offices we 

surveyed said that they did not know whether grantees had taken action to increase the role of 

faith-based organizations in the CDBG program; 28 percent said grantees had taken action; 

and 29 percent said that, to their knowledge, grantees had not taken action. Ninety-six 

percent of the field offices also said they were unaware of any particular challenges their 

grantees were experiencing in managing faith-based subrecipients to carry out CDBG 

activities. 

Although nonprofit agencies bring considerable advantages to the delivery of community 

development programs, they bring disadvantages as well. The Urban Institute report singled 

out nonprofit subrecipient ability to comply with program requirements as a serious concern 

among city and county program officials. More recently, a June 2004 report by the HUD 

Office of Inspector General (OIG) questioned whether management controls are sufficient to 

provide reasonable assurance that grantees and subgrantees with “capacity” participate in 

programs funded by the Office of Community Planning and Development. As the OIG 

defined it, capacity consists of the organizational resources needed to successfully implement 

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Managing Subrecipients of CDBG Grantees 

the grant activities in a timely manner; experience in carrying out activities similar to those 

provided for in the grant; and systems to properly account for the grant funds. 

The Inspector General’s report had two main findings:8

 1) CPD’s management controls do 

not provide adequate protection against the funding of grantees and subgrantees lacking 

capacity; and 2) CPD needs to improve its monitoring function to ensure it accurately 

identifies the highest risk grantees and has the resources to perform the appropriate level of 

monitoring. With regard to the sufficiency of CPD’s management controls, the audit noted 

that while CPD has controls in place to minimize the risk that grantees and subgrantees 

lacking capacity receive CPD program funding, unverified assumptions, incomplete and 

outdated guidance, and limited onsite monitoring undermine these controls. It also noted that 

CPD cannot demonstrate prior to funding that grantees have sufficient capacity or that 

grantees are fully evaluating the capacity of their subgrantees. The audit recommended that 

CPD needs to provide guidance for grantees to use to evaluate the capacity of their 

subgrantees. 

While the Inspector General’s report covered all CPD programs, the impact of funding 

nonprofits without capacity was illustrated with an example (among others) from the CDBG 

program, in which a local economic development corporation and a grantee, a county 

government, each failed to provide adequate documentation for more than $400,000 in 

CDBG loans. The local development corporation claimed to be unaware that it needed to 

maintain supporting documentation for 4 years, and the County failed to adequately monitor 

the administrator to ensure that Block Grant Program loans were used for eligible purposes 

and serviced properly. 

The second finding, regarding improving management controls over monitoring, found that 

CPD based its monitoring goals and grantee risk analyses on unverified assumptions. The 

report stated that while CPD’s risk assessment provides a basis for allocating limited 

resources, CPD has never evaluated the aggregate risk associated with its programs or made 

a decision as to what level of risk is acceptable, and that CPD has not tested its grantee risk 

analysis process to ensure that it accurately identifies the highest risk grantees. The audit 

suggested that CPD should compare the significance of monitoring findings and concerns to 

grantees’ risk assessment scores to determine whether a correlation exists. The report 

concluded that without such an analysis, CPD cannot state that its process effectively targets 

its limited resources to the highest risk grantees, and further, CPD lacks assurance that it has 

the resources to perform the appropriate level of monitoring. 

The audit report also noted that Congress has not appropriated technical assistance funds for 

the CDBG program since FY1999, and that the lack of technical assistance funding prevents 

CDBG from developing the types of resources that other CPD programs have for increasing 

capacity. 

Our survey of field offices identified some of these capacity concerns, although the problem 

of applicant capacity appears to be concentrated in a minority of jurisdictions. The survey 

8

 Audit of Management Controls over Grantee and Subgrantee Capacity Community Planning and 

Development, Washington, DC; Regional Inspector General for Audit, D. Michael Beard, June 18, 2004. 

Page 18 
Managing Subrecipients of CDBG Grantees 

asked field staff to indicate whether a grantee “had access to a pool of public and nonprofit 

subrecipients that was ‘large enough and capable enough,’ to carry out community 

development programs effectively.” Staff reported that, for two-thirds of the jurisdictions 

sampled (65 percent), this pool was sufficiently large and capable. In fact, in most of the 

sites we visited, a shortage of capable subrecipients seemed hardly the problem. Rather, 

there often were so many as to make choices among multiple claimants for funds very 

difficult to make. (However, this competition can be beneficial in helping administrators run 

problem-free programs, as discussed more fully in Chapter 4.) 

Federal Efforts to Ensure Compliance 

with Program Requirements 

As the Inspector General’s report stresses, it is the job of HUD field staff to oversee grantee 

use of subrecipients and the management systems they put in place to ensure that, among 

other things, they have the capacity to carry out their programs, comply with program 

requirements, and account for their use of program funds. Staff members do this by 

monitoring subrecipient management systems and providing technical help to grantees when 

these systems are deficient in some way. 

Monitoring is the review of information that indicates how a grantee has used (or is using) 

grant funds to determine whether the use of funds complies with applicable statutes and 

regulations. This review most frequently takes place through the scrutiny of reports 

submitted by the grantee covering the commitment and expenditure of grant funds. But 

HUD staff members also conduct periodic performance reviews onsite by visiting grantees’ 

offices and sometimes the actual site where funded activities have been carried out. 

Whenever such reviews reveal that the grantee (or a subrecipient) has used grant funds in a 

manner that does not comply with a specific statue or regulation, HUD refers to the infraction 

as a “finding” and takes remedial action. If monitoring reveals that the grantee appears to be 

moving in the direction of noncompliance, HUD identifies this as a “concern” and notifies 

the grantee accordingly. 

Information about field office monitoring can suggest the scope of problems that accompany 

use of subrecipients and the types of grantees for which those problems are most likely to 

occur. The Grantee Management Program (GMP) is the system used by the Office of 

Community Planning and Development (CPD) for reporting grantee monitoring information. 

It covers about 30 monitoring areas, including subrecipient management, national objective 

compliance, financial management, rehabilitation, allowable costs, and many others. The 

database records any findings for each area monitored based on the official letters sent to 

grantees after the conclusion of each monitoring visit. Our analysis of the GMP provides a 

window into the monitoring performed on grantees nationally between the years 2000 and 

2004, including the relative frequency with which grantees are monitored for subrecipientrelated issues, and an indication of how subrecipient findings or concerns vary by type and 

size of grantee. Because each monitoring visit can cover multiple monitoring areas, we refer 

to each visit and area monitored as a “monitoring event.” 

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Managing Subrecipients of CDBG Grantees 

These data show that subrecipient management is one of the areas most frequently monitored 

by HUD field staff, and that findings in this area are comparatively common (though not as 

prevalent as in some other areas of program management). Over the 5-year period from 2000 

through 2004, a field office monitoring visit covering subrecipient management resulted in a 

finding about one-third of the time, less than for national objectives, environmental, or 

financial management, but higher than for all other monitoring categories. Almost 15 percent 

of the nearly 2,000 events in which monitoring resulted in findings were due to problems in 

subrecipient management, second only to compliance with national objectives (25 percent) 

(see Table 2.3). 

Table 2.3. Number of Monitoring Events and Findings by Area 

Monitored, 2000–2004 

Area Monitored 

Number of 

Monitoring 

Events (1) 

Number of 

Monitoring 

Findings 

Percent of 

Monitoring Events 

Resulting in 

Findings 

National Objective Compliance 916 437 47.7% 

Environment 237 101 42.6% 

Financial Management 592 247 41.7% 

Relocation 105 40 38.1% 

Subrecipients 824 286 34.7% 

Procurement 325 102 31.4% 

Allowable Cost 361 101 28.0% 

Eligibility 807 200 24.8% 

Economic Development 252 61 24.2% 

Section 108 (Unique Issues) 108 26 24.1% 

Rehabilitation/Lead Based Paint 476 98 20.6% 

Citizen Participation 249 50 20.1% 

Audits Management 145 29 20.0% 

Timeliness 370 70 18.9% 

Labor Standards 124 23 18.6% 

Program Income 288 53 18.4% 

Overall Benefit 314 31 9.8% 

Fair Housing 368 26 7.1% 

Total (2) 7,703 2,062 26.8% 

Notes: (1) Each visit by a field office monitor to review grantee compliance is considered a 

monitoring event. Grantees usually are monitored for multiple areas in any given year. 

(2) Table entries exclude areas monitored if fewer than 100 monitoring events were recorded 

over the period. Total includes all areas monitored, including those not shown in the table. 

Source: Compiled by Econometrica, Inc., from data generated by HUD’s Grantee Monitoring 

Program (GMP) Database. 

Data from the same source also suggest (but the relationship is not strong) that larger 

grantees are more likely to have problems with subrecipient management. This is probably 

because they usually have more subrecipients to manage than do small grantees. (Certainly 

this was true in the group of grantees visited onsite for this research.) Data over 3 years 

(2002, 2003, and 2004) reveal that field offices seem to monitor larger grantees for 

subrecipient management more frequently than they do smaller grantees, and that these 

monitoring events are more likely to turn up findings. The same is true for urban counties, 

Page 20 
Managing Subrecipients of CDBG Grantees 

probably because of their more complicated administrative relationships, in which 

subrecipient municipalities use their own sub-subrecipients to deliver programs. 

Where Are Subrecipient Management Problems Most Concentrated? 

The Department’s field office staff members are the most well-informed outside observers of 

grantee subrecipient management systems: each year, about 15 percent of entitlement 

grantees are monitored for subrecipient compliance with federal requirements. To tap that 

expertise, we surveyed field office staff to find out how well they believed grantees carried 

out each aspect of subrecipient management. 

We first asked about four core indicators of overall subrecipient management system 

performance—the outcomes HUD and grantees should expect from a well-functioning 

system. These include whether a grantee: (1) identifies problems and takes action before they 

become serious; (2) takes action to ensure that projects carried out by subrecipients 

contribute effectively to community needs and priorities; (3) keeps the program free of 

serious infractions; and (4) changes the mix of subrecipients in step with the changes in 

community development needs (see Figure 2.1). 

Page 21 
29 

0 

10 

20 

30 

40 

50 

60 

Managing Subrecipients of CDBG Grantees 

 Figure 2.1. Grantee Performance on Indicators of Subrecipient Management 

Identifies Problems Takes Action 

50 

2 

9 

47 42 70 45 

40 

4 10 

Very Well Somew hat 

Well 

57 

Percentage 35 

P e r c entag e 

30 

25 

20 

15 

10 

5 

0 

Not Very Well Not Well Very Well Somew hat Not Very Not Well 

Well Well 

N = 167. N = 166. 

Changes Mix 

3 

26 

51 

20 

0 

10 

20 

30 

40 

50 

60 

Very Well Somew hat 

Well 

Not Very 

Well 

Not Well 

P e rc en tage 

N = 164. 

Keeps Infraction-Free 

60 

2 

10 

54 

34 

50 

40 

30 

20 

10 

0 

Percentage 

Very Well Somew hat Not Very Not Well

Well Well

N = 167. 

Source: Econometrica, Inc., survey of field office staff. 

Field offices generally rated overall performance highly, including problem identification 

and resolution, effective subrecipient programs, and running a program free from serious 

infractions. Much less favorably rated were grantee changes in the mix of subrecipients in 

response to changing priorities and subrecipient capabilities. In Chapters 3 and 4 of this 

report, we explore some of the ramifications of this last point for the stability of the 

subrecipient pool. Some are positive, some negative. 

In our analysis of specific elements of the subrecipient management process—the way in 

which these overall outcomes are achieved—we focused on specific areas of vulnerability: 

Which elements of the process are least likely to be done well? Our survey specified eight 

subrecipient management components and asked field office staff to rate each. Did a grantee 

carry them out “very well,” “somewhat well,” “not very well,” or “not at all well?” Taking 

only the “not very well” and “not at all well” responses as a measure of vulnerability to 

problems, management components were assigned to the categories summarized in Table 

2.4. (A more complete description of each component is provided in Table 2.5.) Ratings in 

specific areas include: 

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Managing Subrecipients of CDBG Grantees 

Table 2.4. Vulnerability of Subrecipient Management Components 

Vulnerability Subrecipient Management Component 

Low Quality of agreements; Reasonableness of standards 

Medium 

Procedures tailored to size and complexity of subrecipients: Monitoring of 

financial management; Monitoring of program income; Collection and use of 

performance data 

High Capacity building; Sanctioning for poor performance 

Source: Based on field office survey results reported in Table 2.5. 

The more detailed results are shown in Table 2.5. Components are ranked in order of 

increasing vulnerability as indicated by the percentage of time grantees were thought to 

perform “not very well” or “not at all well.” 

Table 2.5. Field Office Ratings of Grantee Performance on Subrecipient 

Management Components 

Subrecipient Management Component 

Not Very Well 

Somewhat or Not At All 

Very Well Well Well 

Agreements clearly state subrecipient responsibilities 49 42 9 

Reasonableness of standards for record-keeping and 41 46 13 financial management 

Procedures tailored to size and complexity of 19 64 17 subrecipients 

Monitors subrecipient financial management, record- 27 54 18 keeping and performance 

Monitors subrecipient documentation and use of 29 53 18

program income 

Collection and use of appropriate performance data 25 55 19 from subrecipients 

Provides capacity-building funding and/or targets 15 56 29 technical assistance to troubled subrecipients 

Sanctions subrecipients for sub-par performance 17 54 29 

Percent of Grantees Rated: 

(N = 167 Grantees) 

Source: Econometrica survey of HUD field office staff. 

HUD Efforts to Improve Subrecipient Management 

Over the years, HUD has worked to improve the quality of grantee subrecipient management. 

As the program grew during the 1980s, so did the use of subrecipients. Surveys by HUD’s 

OIG of grantees’ use of CDBG funds found that grantees were failing to properly manage the 

spending of subrecipients. Around the beginning of the 1990s, the OIG declared that 

grantees’ use of subrecipients constituted a Material Weakness in the program. As a result, 

HUD commissioned a review of grantee subrecipient management practices and preparation 

Page 23 
Managing Subrecipients of CDBG Grantees 

of a set of guidebooks to improve this aspect of program management. Following their 

publication in 1993, HUD conducted a nationwide training program to acquaint CDBG 

grantees with guidebook content and initiated closer monitoring of subrecipient management 

practices. Over time, changes in the CDBG statute rendered the guidebooks increasingly 

obsolete. Earlier this year, HUD reissued revised guidebooks to all grantees. 

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Managing Subrecipients of CDBG Grantees 

3. Approaches to Subrecipient Management 

Introduction 

In 2005, HUD issued an updated guidebook for CDBG grantees on the management of 

subrecipients (Managing CDBG: A Guidebook for Grantees on Subrecipient Oversight, 

dated March 2005). The purpose of this HUD guidebook is to assist grantees in 

implementing and overseeing effective subrecipient programs. The guidebook describes the 

following basic elements of a system for overseeing subrecipients: 

Step 1: Pre-Award Assessment, including Grantee Selection 

Step 2: Subrecipient Agreements 

Step 3: Orientation, Training, and Technical Assistance 

Step 4: Systems for Tracking Subrecipient Program Progress 

Step 5: Monitoring Strategies and Procedures 

Step 6: Follow-up Procedures 

The Managing CDBG guidebook provides detailed advice for grantees about each of these 

steps. The Econometrica research team used the HUD guidance as a framework for the onsite 

assessment of the systems and specific tactics used by the 11 selected grantees to 

successfully manage their subrecipients. The research team wanted to find out what did and 

did not work from the viewpoint of both the grantees and their subrecipients. The site visits 

also sought to collect good examples of approaches used in each of the subrecipient 

management steps outlined above. 

This study confirms that the tasks outlined in the HUD guidebook are indeed the essential 

steps used by effective grantees in overseeing the subrecipient process. Each grantee 

included each of these general steps within its subrecipient management system, although 

there was no consensus on one “right way” to address any particular step. For example, every 

grantee had a process for selecting subrecipients. Some were designed as open, competitive 

applications similar to a conventional RFP process. Others funded the same subrecipients 

Page 25 
Managing Subrecipients of CDBG Grantees 

repeatedly through a process that mirrored an annual entitlement. These differences point out 

the importance of customizing implementation of the HUD-suggested process to local 

circumstances. Each of the 11 successful grantees assessed local needs and conditions and 

developed specific approaches to particular subrecipient management tasks. 

The Econometrica team considered a successful subrecipient management system as 

producing two outcomes: (1) the services or products provided by the grantee’s chosen 

subrecipients were considered effective in meeting community needs; and (2) the activities 

funded by the grantee with CDBG funds were compliant and well documented. Nationwide, 

many CDBG grantees already carry out most of the tasks suggested by HUD for subrecipient 

oversight, but even so, a significant portion of these systems are unable to both deliver 

services successfully and ensure compliance with CDBG rules. In other words, simply 

carrying out each of the steps in the HUD-defined subrecipient process is not enough to 

ensure success. 

Our research suggests that the discriminator between effective and ineffective subrecipient 

management approaches is the degree to which both grantee and subrecipient staff have the 

right incentives to observe system requirements and supply the data needed to track 

compliance and results. In other words, it is essential that grantees incorporate the six steps 

in their subrecipient management process, but they must also ensure that the system rewards 

adherence to the tasks set out at each step. 

These incentives must be properly structured for both grantee and subrecipient staff. Some 

of the incentives (and disincentives) for grantee staff are obvious, such as avoidance of HUD 

monitoring findings. If HUD monitors find that an activity is ineligible or insufficiently 

documented, they can require that the grantee repay the activity’s cost using its own dollars. 

Well-designed grantee subrecipient oversight processes will help avoid this result. In 

addition, grantee staff will adhere closely to the subrecipient process if they believe it will 

produce better community outcomes. However, other factors can sometimes counteract these 

incentives, such as inappropriate pressure from elected officials, lack of funding for 

compliance tasks, or simple inertia. 

Incentives and disincentives for subrecipients themselves may be more varied and complex 

than for grantee staff. Some grantees hinge future subrecipient funding on the subrecipient’s 

past performance, meaning that subrecipients that fail to comply fully with subrecipient 

procedures can lose funds (and face additional sanctions). But sanctions alone may not be 

sufficient motivators of compliance, as subrecipients may gauge the likelihood of being 

“caught” with noncompliant actions as being quite low. Moreover, a system based entirely on 

sanctions is expensive, requiring constant and detailed vigilance. Instead, this study found 

that the most effective subrecipient oversight systems combine sanctions with positive 

incentives for good performers, such as public recognition or increased funding for 

outstanding performance. 

In addition to funding, subrecipients are motivated by a desire to benefit the communities 

they serve, and they sometimes see that subrecipient requirements promote that outcome. 

Most subrecipients also belong to a cadre of fellow nonprofits: recognition as a good 

Page 26 
Managing Subrecipients of CDBG Grantees 

performer among the group reportedly conveys important reputational benefits. This can be 

especially helpful when applying for other nonpublic funding. 

The study also found that subrecipients must not only be motivated to comply, they must 

have the ability to do so. It is not sufficient to lay out expectations and create rewards for 

compliance. Effective systems also provide subrecipients with the knowledge and tools they 

need to be able to comply. So, capacity building is a major attribute of most effective 

subrecipient systems. 

Successful grantees, like those in the Econometrica study, understand these subrecipient 

incentives and capacity issues and build them into their processes. For example, selection 

systems have included bonus points for an exceptional track record of compliance with 

subrecipient management systems; and annual subrecipient trainings have included modules 

on fundraising, organizational development, or other topics needed to create strong 

nonprofits. 

The remainder of this chapter highlights each of the six steps outlined in HUD’s guidance on 

subrecipient management. It analyzes the systems employed by the 11 grantees visited by the 

evaluators in terms of building capacity and providing incentives for grantee staff and 

subrecipients. It also describes any especially good practices noted at specific sites for 

particular subrecipient oversight tasks. 

Step 1: Pre-Award Assessment 

This step in the subrecipient oversight process involves selecting subrecipients to carry out 

CDBG-funded activities. Grantees are not required to follow a competitive process in 

selecting subrecipients (unlike those pertaining to contractors). Subrecipients may be selected 

using any reasonable criteria established by the grantee. The HUD guidebook describes five 

typical approaches to selecting subrecipients, including: 

• Formal application or Request for Proposal (RFP) process: Under this approach the 

grantee publishes a notice of fund availability (or RFP) requesting applications and 

specifying selection criteria. In general, this process is run similarly to a competitive 

selection. 

• Simplified or limited application: This approach is similar to the more formal process 

outlined above, except that the grantee simplifies or streamlines the application 

requirements. Upon receiving these more limited applications, the grantee performs a 

basic screening process that enables it to work with selected nonprofits to complete a 

more detailed application. 

• Grantee survey of qualified organizations with direct solicitation: Under this 

approach, the grantee identifies a pool of qualified applicants and then directly 

requests that these organizations submit an application or undertake an activity. 

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Managing Subrecipients of CDBG Grantees 

• Response to unsolicited applications: Using this process, the grantee allows 

nonprofits and other subrecipients to approach it directly about potential projects. The 

grantee reviews proposed activities and compares them to community need and 

available funding. 

• Reviewing the performance of current subrecipients: This model involves continuing 

to re-fund organizations that are currently working with the grantee. In this instance, 

HUD still recommends an assessment of the subrecipient’s performance. 

In reality, many grantees employ a combination of these approaches. For example, a grantee 

might use an RFP to select nonprofits working on housing issues, but do simple performance 

reviews and renewals for existing social service providers. Grantees shape their systems in 

response to the mix of projects they carry out and their local management philosophies. 

Of any of the six steps, the pre-award step displayed the widest variation among the 11 study 

grantees. All used some form of a pre-award assessment as part of their processes, although 

not all used it for the same purpose or in the same way. In some cases, evaluations of the 

proposed projects and subrecipient capabilities aimed to ensure that only the best possible 

projects were funded. In others, pre-assessment aimed primarily to provide feedback to 

applicants on ineligible or unwanted activities, to help develop a strong pool of proposals and 

help new subrecipients improve their funding chances. For example, Westchester County 

staff provided informal, but important, feedback to city subrecipients at the beginning of each 

grant cycle. The County’s program administrator and staff actually accompanied the mayor 

or city representatives in a County van to preview potential projects and provide feedback on 

their strengths and weaknesses before applications were even submitted. This helped cities 

prioritize their projects and submit applications with greater funding chances. Table 3.1 

summarizes the subrecipient selection approach by grantee and type. 

Page 28 
Managing Subrecipients of CDBG Grantees 

Table 3.1. Subrecipient Selection Approach by Grantee and Type 

Grantee Selection Process Description 

Palm Beach 

County 

Formal application Two-stage application, where the grantee scores the initial 

application for threshold criteria, and then the screened 

applicant is given the chance to clarify application 

deficiencies prior to scoring applications for award. 

Dayton Modified formal application Uses a Citizen and Neighborhood Advisory Board to select 

awards every two years. City departments must compete 

as well as nonprofits, although they also receive funds 

through a noncompetitive allocation process. Awards are 

geographically divided among areas. 

Gwinnett County Formal application and 

response to unsolicited 

applications 

Staff members make outreach to nonprofits and allow 

applications any time, although there is also a specified 

application window. Staff rate and rank proposals. 

Westchester 

County 

Formal application County staff members work with local communities to 

identify sites and eligible projects. Staff members make the 

final decision on funding projects. Uses a 3-year 

application cycle. 

Los Angeles 

County 

Reviews performance of 

current subrecipients and 

responds to unsolicited 

applications 

Participating cities receive a formula-derived amount 

based on the county’s annual entitlement, and may create 

their own processes for selecting subrecipients. In the 

unincorporated areas, the County administering agency 

assesses subrecipient capability and makes a 

recommendation to fund prior to the County Supervisors’ 

approval of funding. 

Albany Reviewing the performance 

of current subrecipients 

The city is working to reduce its overall number of 

subrecipients and so currently works with its existing 

organizations. 

Fairfax County Formal application Uses a formal application process with multiple 

opportunities for outreach prior to submission. 

Memphis Formal application Applicants submit a formal proposal but can access 

resources to help with their applications. 

Duluth Formal application and 

mandatory pre-application 

Uses a mandatory pre-application to help screen potential 

projects, then rates and ranks the final submitted projects. 

Asheville Formal application Annual NOFA published to which public agencies and 

departments respond. Applications are received, reviewed, 

and scored by city staff. City Council subcommittee 

reviews scoring, interviews applicants, and makes 

recommendations to full Council. 

Phoenix Formal application City departments that receive CDBG funds may create 

their own process for selecting subrecipients, but 

management of subrecipients comes back to lead 

department. Lead department issues annual RFP for 

nonprofit public service and public facilities’ providers. 

Applications are reviewed by staff; 11-member committee 

made up of 5 citizens and 6 members chosen from 2 city 

boards scores the proposals. Applications scored above a 

threshold are presented to the committee and 

recommendations are sent to City Council. 

Most grantees use some form of competitive approach to funding decisions. This appears to 

have four advantages: a diversity of applications, submissions from new organizations, 

reductions of monitoring and technical assistance needs after selection, and an approach 

perceived as free from the appearance of political favoritism. 

First, the subrecipient selection model appears to influence the variety, and perhaps quality, 

of subrecipient proposals. One large grantee has a fully open and competitive process in 

which any nonprofit, regardless of size and capacity, can apply for funding. This grantee 

Page 29 
Managing Subrecipients of CDBG Grantees 

offers assistance to nonprofits in understanding the CDBG program through several tools— 

such as a CD-Rom, staff technical assistance, and a video. Both grantee staff and a 

committee of citizens review proposals. Nonprofits whose proposals exceed a minimum 

threshold score are invited to make a short presentation to the committee. After selection 

decisions are made, a list of selected funding recipients and those who were not funded is 

published. Through this open process, the grantee receives 100 applications annually and 

winnows them down to the 25 best. The grantee notes that this process is generally free from 

inappropriate political influence and results in a transparent process that helps to select 

projects that meet community needs and are likely to succeed. In fact, this grantee surveyed 

its nonprofits and found that there were no differences in perception of “fairness” between 

organizations that were funded and those that were not. 

Second, some grantees made strong efforts to work with entities new to their CDBG 

programs. One grantee clearly welcomed newcomers, setting aside an amount of its grant 

each year for “new starts.” This grantee reported that it would meet with any interested party 

to discuss how its interests might fit with those of the CDBG program and local community 

development goals. It further reported that it would accept a proposal for funding submitted 

at any time during the year, holding it for further consideration in the next competition. 

Another grantee visited invested considerable effort to post information about the CDBG 

program and its own community development program on its Web site. Entities unfamiliar 

with either are directed to the site. 

Other study grantees used a selection process in which the same nonprofits were re-funded 

each year, sometimes because much of the review and decision-making rested with elected 

officials. Some grantees, however, avoided a competitive process as a program improvement 

strategy, a response to earlier processes that funded too many unqualified subrecipients. One 

grantee that wound up with “too many” subrecipients as a result of extensive funding of new 

groups devoted 2 years to a concerted effort to cut back on the number funded. It did this by 

negotiating directly with a smaller number of highly-capable applicants. Another of the 

grantees visited, Gwinnett County, contracted with an independent organization to operate its 

CDBG program. This agency preferred to limit participation to experienced and capable 

subrecipients, in part due to a desire to avoid compliance problems. For one grantee, the 

choice of which entities would participate in the program was determined to a large degree 

by the governing political board. Accordingly, grantee staff spent a great deal of effort in 

reviewing the nature and capacity of any of the organizations proposed for funding by the 

board, in an attempt to preempt the award of CDBG funds to any that were likely to be poor 

performers and thus create problems after a contract was awarded. 

Third, the process for pre-award assessment by the grantee sometimes influences the 

monitoring workload. For example, in one large grantee with a non-competitive selection 

process, staff members were driven to do rigorous and in-depth monitoring and oversight to 

maintain compliance standards. As a result, some subrecipients complained that too much of 

their time was spent assembling the documentation required for each monthly or quarterly 

invoice. 

Page 30 
Managing Subrecipients of CDBG Grantees 

Fourth, local political involvement in the selection of subrecipients is a factor in each 

grantee’s subrecipient management system, if only because formal approval of CDBG grant 

awards by the governing body is required. But among the 11 grantees seen during the field 

work, there appeared to be a wide variation in how much influence grantees’ governing 

boards exerted. In all cases, CDBG administering staff worked hard to assess and improve 

the capacity of subrecipients being considered for participation, even where low-capacity 

entities were selected for funding because of inappropriate interference by elected officials. 

It is important to note that several of the grantees in the study sought to minimize risk by 

limiting the types of activities available for subrecipient implementation. For example, one 

grantee with a prior history of problems with economic development activities had 

determined that the required compliance documentation was so complex that it did not permit 

applications relating to this activity. The philosophy of another grantee, Gwinnett County, 

was to fund subrecipients with capital projects (such as facilities improvements or purchase 

of vehicles) rather than those requesting operating support, believing that this targeting 

helped to screen out less capable organizations. Westchester County also preferred to fund its 

subrecipients’ capital expenses over administrative expenses, and plainly told its 

subrecipients to “ask for the project,” not the administrative costs. When operating and 

administrative expenses are funded, subrecipients know that they are unlikely to be funded 

again in the next grant cycle for that activity. 

The county’s preference for funding capital over operations is easily illustrated in the 

projects awarded to one city subrecipient during a recent 3-year grant cycle. The subrecipient 

submitted 21 applications during the 3-year period. Eleven projects were funded for a total of 

$1.6 million. Funded projects included five infrastructure projects (sidewalks), two public 

facilities (parks, spray and play), two van purchases for public service activities, and two 

operating support grants for public service activities. According to the subrecipient, projects 

seeking administrative support are much less likely to be funded than capital projects. From 

the grantees’ perspective, it is easy to see that the degree of monitoring, documentation, and 

risk is far less, for example, for the purchase of a van to transport clients to a medical facility, 

than it is to provide salary support for the facility’s employees. Declining resources and the 

competing needs of an urban county’s aging capital stock also weigh-in to the decisionmaking, as does the county’s ability to diminish the construction risks through extensive 

technical involvement in the pre-construction phase of capital projects. 

In summary, all the grantees visited engaged in a pre-award assessment of the applicants (and 

the activities proposed for funding). The extent to which they engaged in outreach to those 

not already participating varied dramatically, from exuding a “welcome to all” attitude to 

outsiders to a conscious decision to keep the door closed, at least for the near future. 

Step 2: Subrecipient Agreements 

HUD requires that grantees sign a written contract between the grantee and the subrecipient, 

known as the subrecipient agreement. The CDBG regulations specify the minimum content. 

There are two primary purposes served by the agreement. First, it contains a scope of work 

Page 31 
Managing Subrecipients of CDBG Grantees 

that clearly specifies tasks to be undertaken and identifies applicable CDBG requirements 

and penalties for non-compliance. Second, the agreement often establishes benchmarks or 

measures of subrecipient performance. For example, the agreement might stipulate that 200 

households are to be counseled annually, and that 60 percent of those counseled should go on 

to become homebuyers. Thus, these agreement clauses establish performance and outcome 

targets that the grantee and subrecipient can then track. 

Survey results presented in Chapter 2 of this report indicated that, in the opinion of HUD 

staff, subrecipient agreements are the least problematic of the steps in the management 

process. Onsite reviews of the 11 selected grantees confirmed this HUD staff assessment. 

All the site visit grantees paid careful attention to making program expectations and 

requirements clear in their agreements, containing all the elements required in the applicable 

HUD regulations. Asheville, in particular, took great care in crafting detailed scopes of work 

and customized reporting requirements suited to the unique circumstances of each 

subrecipient project. 

One way that grantees seek to use the agreement to minimize the risk of noncompliance is to 

fund line items that are particularly easy to track. For example, it can be very time 

consuming and difficult for a nonprofit to use time sheets to allocate staff costs to the various 

activities they carry out. So, some grantees have chosen to fund only items, such as rent, that 

require less documentation. It should be noted, however, that if this approach is employed, 

grantees need to be very careful to pay for only that portion of common costs (such as rent, 

utilities, office expenses) attributable to the CDBG-eligible activity, rather than to the 

operations of the nonprofit as a whole. 

Negotiation of the subrecipient agreements also provided grantees with an opportunity to 

clarify how subrecipient performance was to be measured, especially where outputs and 

outcomes are included in the community’s overall performance measurement process. 

Subrecipients interviewed during site visits all seemed to understand the need for such 

performance measures. (Some reported that they had learned how to develop outcome 

measurements through previous United Way experience.) Often, finding just the right 

measure proved difficult. For example, one subrecipient that operated a youth mentoring 

program questioned the grantee’s request for student grades as a measure of performance. 

The subrecipient viewed these as both burdensome to collect and inappropriate given the 

services being provided. A health clinic operator questioned the same grantee’s desire to use 

number of patients served as a performance measure, preferring instead to use the number of 

patient visits. The subrecipient often treated patients with chronic illnesses who required 

frequent visits, and feared that using patient counts would create a bias toward serving 

healthier persons. 

In summary, one way to minimize the risk of noncompliance and encourage a subrecipient to 

contribute effectively to the grantee’s community development efforts, is to clearly state 

what the subrecipient must do in the contract between the parties. We found that all the 

grantees visited were providing the foundation for this. Each also claimed that it was 

requiring the subrecipients to perform in accordance with their agreements or to face, at least, 

the likelihood of not being refunded. 

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Step 3: Orientation, Training, and Technical Assistance 

Training and technical assistance are essential parts of any subrecipient process. Without 

such outreach and learning opportunities, new subrecipients would be unable to become 

funded, and existing organizations would not refine and improve their performance. 

According to the HUD guide, grantees typically provide one or more of three types of 

outreach: 

• Orientation: Orientation sessions usually address program goals and often are 

designed to help ensure that subrecipients understand the basic requirements of 

participation in the CDBG program. The training may be one-on-one or may be in a 

group session. Some grantees offer alternative training tools, such as guidebooks, 

Web-based learning, videos, or CD-Roms. Orientation sessions often are provided at 

two points in time, one at the time of application to ensure that potential applicants 

understand what the grantee requires and another after subrecipients have been 

selected, focusing on the process for implementing and overseeing their CDBG 

funding. 

• Training: Typically, training is performed in a classroom or more formalized 

situation. Some grantees provide their subrecipients with training not only on how to 

manage their CDBG funds under the grantee’s subrecipient oversight system, but also 

on key technical topics. This study found that such training typically revolves around 

activity-based topics, such as effective rehabilitation processes for housing recipients, 

or on other key federal requirements, such as relocation, Davis Bacon, financial 

accountability, or fair housing. Some grantees take this approach even farther and 

offer training and outreach on topics related to the continued health of the 

subrecipient, such as grant writing. 

• Technical Assistance (TA): Under this outreach technique, the grantee works 

individually with a particular subrecipient to provide help in addressing a particular 

concern or issue. For example, a grantee might bring in a financial management 

expert to assist a subrecipient whose monitoring findings have demonstrated a lack of 

accounting capacity. 

As with other steps in the subrecipient process, training and outreach are unique to the 

particular grantee. If a grantee works primarily with a limited number of successful, 

established nonprofits, it might offer only periodic training, covering changes to the CDBG 

regulations, or technical assistance on specific issues uncovered during monitoring. High 

turnover in subrecipient populations and an influx of new, inexperienced, subrecipients might 

impel a grantee to offer all three types of outreach on a regular and recurrent basis. 

Each of the 11 grantees visited incorporates training into its subrecipient management 

approach. Many of the grantees hold pre-application workshops to inform potential 

applicants of the process for receiving funds. In some jurisdictions, this task is accomplished 

by sharing guidebooks or Web/CD-Rom based materials. Each also holds an annual 

orientation or training session for subrecipients that received new awards. Most stated that 

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Managing Subrecipients of CDBG Grantees 

they require attendance, some even using the meeting to present and execute the contract, 

providing a clear incentive for key staff to attend. 

The actual content of material presented at these pre-application and orientation sessions 

varies substantially. Most grantees use pre-application or orientation sessions to apprise 

subrecipients of any new requirements or changes in emphasis, or to clarify requirements that 

subrecipients found difficult to understand or comply with. Clearly, any organization new to 

the CDBG program would find such pre-award training and technical assistance worthwhile. 

Of the subrecipients interviewed at the 11 field sites, most indicated that they found such 

sessions to be worth attending. Some (usually the newer ones) stated that they learned quite a 

bit there. Such sessions also provided the opportunity for nonprofit organizations to get to 

know each other better and to network with one another. 

Some of the grantees provide training that goes beyond the application process and awarding 

of funds. For example, Fairfax County found that their smaller subrecipients lacked the skills 

they needed to maintain and expand their work. To level the playing field between these 

groups and their older, more established colleagues, the county hired a consultant to do 

baseline capacity assessments and then conduct workshops on issues such as strategic 

planning, information technology, or fundraising. The grantee reassessed the same 

organizations 2 years later, and convened best practices conferences so that all its 

subrecipients could share techniques. 

Los Angeles County relies heavily on its Web site as a way for a large, various, and far-flung 

cadre of subrecipients to get the technical assistance they need. The county has devoted 

considerable staff resources to develop materials that can be used by many entities that 

cannot be reached on a one-on-one basis, although numerous training sessions are held to 

update subrecipients on program requirements and address capacity issues. The county’s online financial training is a good example of a comprehensive approach that is tailored to the 

subrecipients needs by the subrecipient. Although the example is not easily explained here 

(its utility lies in the depth of resources, guidance, and training materials, which are neatly 

organized for the reader and just a “click” away), some of the screen shots appear in 

Appendix D. 

Many of the subrecipients interviewed at the 11 field sites expressed great appreciation for 

the one-on-one assistance that grantee staff provided in response to a specific application. In 

several cases, grantee staff provided such assistance onsite, sometimes in response to a 

formal monitoring issue, sometimes to build a subrecipient’s capacity to handle new tasks. 

For almost all the grantees visited, the provision of hands-on technical assistance was an 

integral part of their ongoing relationships with their subrecipients. Palm Beach County, for 

example, funded an emerging nonprofit that filled a service need in a troubled municipality. 

Staff visited the nonprofit early in the contract period and spent significant time helping the 

organization establish an adequate accounting system. 

Westchester County has taken technical assistance in a different direction by providing key 

technical services directly to particular projects. For example, the county provides design 

services for physical improvements through a team of in-house landscape architects. These 

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Managing Subrecipients of CDBG Grantees 

services—which are provided primarily to other governments within the county—help to 

develop the scope of work and deliver completed bid packages for the member community to 

issue. Other grantee communities may address similar tasks through consultants, or they may 

encourage municipalities and nonprofits to use their own staff or seek the help of outside 

consultants. 

Clearly, this part of the management sequence plays an important role in building the 

capacity of subrecipients. There are other ways to build capacity for an organization needing 

it, such as connecting the needy organization with another known to have good capabilities in 

the subject matter (so-called peer-to-peer training). But it is difficult to get both parties to 

agree to participate in such a sharing experience. A grantee may also elect to provide CDBG 

funds to a nonprofit to be used exclusively to build its capacity (such as paying for 

subrecipient staff to attend training conducted by another entity with expertise in a particular 

area), but we did not encounter any such instances as part of the field work, and it is likely 

that grantees find this a difficult thing to manage at arm’s length. It appears that provision of 

training and technical assistance directly by grantee staff is the preferred method at this time. 

Step 4: Systems and Procedures for Tracking Subrecipient 

Progress and Outcomes 

As a part of an effective subrecipient system, grantees must track the progress of subrecipient 

activities. This is done through periodic reporting as well as tracking of financial draws and 

other information. Some grantees have automated this process, although many still receive 

paper reports. The Managing CDBG guide provides examples of how grantees can automate 

systems. 

This step also relates to the procedures used to track the results of subrecipient activities. 

This is done to ensure that milestones are met, but also to assess whether the subrecipient 

reached its intended goals. There are a number of incentives that grantees can build into their 

systems to reward strong performers. 

The grantees visited relied to a great extent on the receipt and review of periodic 

performance reports submitted by their subrecipients. Some of them also carefully reviewed 

payment vouchers as they were received from their subrecipients. In the latter case, the 

grantee usually required a fairly high level of supporting documentation to accompany the 

vouchers, thus making it possible to get a better sense of what was happening with the 

funded activity. 

Earlier research by the Urban Institute, referred to in the last chapter, suggested that financial 

management and accounting had been problem areas for subrecipients. This study suggests 

that enhanced computerization may have enabled subrecipients to comply with federal 

financial requirements more easily. For example, one grantee staff member reported that 

most of its subrecipients now have the accounting software to allow it to comply readily with 

financial management and other requirements, a view corroborated in our interviews with 

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Managing Subrecipients of CDBG Grantees 

subrecipients. Much less common, however, are client tracking systems that would allow 

easier compliance with beneficiary reporting requirements. 

One large grantee, Los Angeles County, is pushing the CDBG program (and its 

subrecipients) to use more automated systems. Applications, invoices, quarterly reports, 

guidelines, contracts, day-to-day communication, and even some training sessions are 

handled electronically. (Subrecipients are permitted to do the training on-line, provided they 

pass a test upon completion.) This grantee takes the training very seriously, and subrecipients 

are allowed to proceed in the contract and award process only after they successfully 

complete the training. As in other jurisdictions that are trying to conduct more and more 

CDBG business electronically, the transition has presented some challenges. Both the grantee 

and subrecipients are struggling to achieve a comfortable balance between the paperless and 

paper-driven world without being overly redundant. 

In order to reward good reporting and encourage effective programs, some grantees have 

adopted “pay for performance,” in which subrecipients receive funds proportionate to 

progress. One grantee allows subrecipients to draw down up to 75 percent of the agreement 

costs, but additional amounts are released on a pro rata basis as the subrecipient reaches its 

goals. Subrecipients that do not meet their targets receive less than the full award amount. 

This system clearly signals the importance of both timely report submission and progress 

toward meeting contract goals, although some (but not all) subrecipients felt that the system 

encouraged them to serve easier–to-reach populations. 

Several of the grantees in this study adopted strong performance measurement systems in 

order to capture data about progress and provide feedback to subrecipients and to their 

communities. For example, one grantee implemented an on-line system to allow 

subrecipients to enter information about goals and progress toward those goals. The system 

also tracks whether reports have been submitted, so that these can be checked before invoices 

are processed. Even with less well-developed or less automated systems, grantees can 

encourage subrecipients to produce timely, accurate reports simply by elevating the 

importance of the performance reporting function. 

Performance reporting gives subrecipients an incentive to accept responsibility for supplying 

the grantee with timely, accurate information. One grantee publishes a report summarizing 

monitoring findings and performance data for all subrecipients, and then holds a public 

meeting at the beginning of the funding allocation process to review it. A difficult situation 

unfolded when performance-report information that pointed out an inaccuracy had not been 

previewed by a subrecipient. The subrecipient reported losing funding for that activity as a 

result. Grantee staff members have since taken steps to improve the process, and both 

grantees and subrecipients would probably agree that the importance of timely and accurate 

performance reporting has been elevated. 

In summary, the successful grantees in this study use the reporting process not only as a tool 

to ensure status and compliance but also as a way of ensuring and measuring performance. 

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Managing Subrecipients of CDBG Grantees 

Step 5: Monitoring Strategies and Procedures 

Under the CDBG regulations, grantees are responsible for episodic subrecipient monitoring, 

which may consist of onsite reviews of files and activities or desk reviews of reports. 

Monitoring aims to ensure that subrecipients have complied with subrecipient agreements 

and CDBG rules, delivered agreed-upon products and services, and achieved the results or 

outcomes intended. Most CDBG grantees do monitor their subrecipients for general program 

compliance, but in practice it appears that fewer grantees nationwide focus on assessing the 

outcomes of subrecipient activities. 

The 11 grantees all stated that they monitored at least some of their subrecipients each year 

onsite. Several claimed that they monitored all of their subrecipients annually. Upon closer 

examination, however, it is clear that the monitoring that takes place usually does not cover 

all the bases for each subrecipient. 

Where grantees had construction specialists on staff, they usually made a practice of visiting 

projects at various stages of construction. Some were deeply involved in overseeing critical 

construction planning and contractor selection stages, hoping to avoid future problems with 

timing or quality of work. Most grantees had at least one person who was responsible for 

overseeing the financial systems used by their subrecipients. The person would often 

participate in the onsite monitoring, sometimes alone and sometimes as a member of a team 

of grantee monitors. 

Some grantees had staff whose primary responsibility was to monitor subrecipients. In such 

cases, however, the monitoring they performed was not limited to formal, onsite reviews. 

They carefully reviewed the periodic performance reports submitted by the subrecipients and 

spent considerable time in discussions with them by phone, by e-mail, or in some cases 

during informal onsite visits. It appeared from the interviews of subrecipients as part of the 

field work that such monitoring staff provided a great deal of technical assistance and helped 

greatly in upgrading their capacity to comply. 

Some of the grantees visited set aside a particular time of their program year for monitoring 

visits. For instance, Fairfax County staff visit subrecipients at least twice a year to perform 

financial and program monitoring. A special effort is made to visit new subrecipients during 

the first three months of the contact period to identify small problems early on. Other 

grantees performed the visits at various time during the year. This seemed to be a function of 

how tightly the grantees administered their subrecipients’ contract periods. For those that 

used a shorter contract period (for example, 12 or 18 months), it probably made sense to 

stage an onsite visit at a time when some work of substance should have occurred or was 

completed. 

Those grantees that did not monitor all their subrecipients each year generally engaged in 

some sort of risk assessment to determine which ones to visit. For example, in Asheville, the 

city used a risk assessment process that considered seven factors to determine whether a 

subrecipient is a high, moderate, or low risk. The factors included: new subrecipient; new or 

expanding activities; multiple activities; past compliance problems; performance problems 

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Managing Subrecipients of CDBG Grantees 

(for example, slow-moving activities); staff turnover in key positions; and activities 

involving complex compliance issues, such as rental housing or economic development 

projects. Based on a review of these factors, city staff developed an annual monitoring plan. 

Staff viewed these monitoring visits as an opportunity to provide technical assistance as well, 

claiming that considerable individualized assistance was provided to subrecipients during 

these visits. Risk assessment was used, in other locations, in an informal way, to determine 

the subject areas to review during a given monitoring. 

For all the grantees visited, onsite monitoring was an important element in their attempts to 

identify weak areas of performance and provide technical assistance, thereby building the 

capacity of subrecipients to perform vital community development tasks. 

Step 6: Follow-Up Procedures 

This step is related to ensuring that the results of monitoring visits and other assessments are 

shared and that further guidance is provided. The HUD guide establishes four criteria for 

effective follow-up: 

• Follow-up: Subrecipients must understand the necessity of following their 

agreements and complying with the federal rules. Grantees need to ensure that 

subrecipients are aware that sanctions will be imposed if the rules are not followed. 

Gwinnett County, for example, noticed that a subrecipient had failed to include the 

required labor standards language in advertising a construction procurement and 

required the subrecipient to re-bid the project. (Note that had grantee staff not 

monitored procurement language and caught this violation prior to construction, the 

appropriate sanction would have been far more severe—the disallowal of project 

costs.) 

• Standards: Grantees need to ensure that the standards for good performance are clear 

and consistently applied. The grantee should neither change its expectations after an 

agreement has been signed nor hold different subrecipients to different standards. The 

difficulty of following through on grantee promises can not be underestimated. 

Reducing a subrecipient’s grant for nonperformance, or requiring ineligible 

expenditures to be repaid, may be viewed harshly by the subrecipient. But strong 

program administrators who have the support of elected and other high-level officials, 

as was the case in Los Angeles and Duluth, make it possible for program staff to 

follow through on tough decisions and send a strong message to the subrecipient 

community that compliance standards contained in the subrecipient agreements will 

be enforced, and that project monitoring is seriously regarded. 

• Regular feedback: Grantees should not just wait until the end of the monitoring cycle 

to provide feedback to subrecipients. Grantees should share information periodically, 

as reports are reviewed or information is received. Palm Beach and Phoenix are good 

examples of communities that provide timely reviews and regular feedback to their 

subrecipients. They reportedly review each payment voucher and monthly report 

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Managing Subrecipients of CDBG Grantees 

shortly after receipt. They then contact the subrecipient and ask questions or express 

concerns whenever the review so merits. 

• Timeliness: Finally, grantees need to ensure that reviews (both desk and onsite) are 

timely and complete. It is ineffective to threaten consequences but not impose those 

sanctions until months or years after noncompliance has occurred. In Los Angeles, 

despite the large number of subrecipients, monitoring schedules were firmly adhered 

to. Staff communicated regularly with subrecipients, creating an awareness of what 

the monitoring protocol involved and when it would occur over the course of the 

subrecipient’s grant. As a result, subrecipients seemed knowledgeable about what was 

expected of them, and what the timing and potential outcome from monitoring could 

be. Staff follow-through after findings was precise, timely, and carefully documented. 

Findings were also communicated to both the subrecipient and the management of the 

community development agency. 

All the grantees that participated in the onsite reviews incorporated some form of feedback 

for their subrecipients. In some cases, such as the threatened loss of funding, feedback was 

negative. In other cases, feedback was used to “sharpen the saw”—to strengthen the 

community development process and to refine activities and procedures for future funding 

cycles. For example, during a monitoring visit, one subrecipient providing construction 

training to minority jobseekers urged the grantee to more aggressively monitor other program 

participants for compliance with Section 3 requirements.9 The group argued that more 

vigorous enforcement of this requirement could expand employment opportunities for its 

trainees. The community development director responded by writing all housing contractors, 

reminding them of Section 3 requirements and warning that this would be a focus in future 

monitoring efforts. Onsite reviews provide grantees an opportunity to educate the 

subrecipient about program requirements, and also give the grantee a chance to learn more 

about the subrecipient’s capacity. Both Memphis and Fairfax recognized the importance of 

this and made a point of visiting new subrecipients early in their grant activities. 

It is also important to note that some of the grantees in this study not only provided feedback 

to subrecipients, but also sought feedback in return. Some grantees conducted evaluations of 

their training and technical assistance, and some actively solicited feedback by encouraging 

e-mail and phone contact with program managers. Some, like Los Angeles, even conducted 

annual customer service surveys of their subrecipients. This information is used to improve 

the quality of the services the grantee provides. 

9

 Section 3 of the HUD Act of 1968 requires that employment and other economic opportunities created by 

federal financial assistance for housing and community development programs should, if possible, be directed 

toward low- and very-low-income persons, particularly those who are recipients of government assistance for 

housing. 

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Managing Subrecipients of CDBG Grantees 

Conclusion 

In our research we observed that to manage subrecipients effectively, grantees must have a 

complete oversight system and they must be consistent—but this alone is not enough. 

Grantees must also support subrecipient capacity and provide incentives and education for 

subrecipients to perform well. This chapter has examined the various ways grantees have 

taken on each of the subrecipient management steps recommended by HUD. The research 

found that successful grantees have adapted these steps to their own local circumstances— 

there is no one right way to manage subrecipients. Common to all systems, however, is the 

recognition that a system relying entirely on sanctions is expensive, requiring constant 

vigilance. Better to design selection systems, subrecipient agreements, and other steps so 

that they reward active cooperation at each step. At several stages—subrecipient agreement 

and monitoring especially—performance measures that focus both subrecipients and grantees 

on achieving good performance have proven particularly valuable. In fact, at various steps, 

opportunities for exchange between grantees and subrecipients have helped both improve the 

way they carry out programs. 

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Managing Subrecipients of CDBG Grantees 

4. Opportunities and Challenges in Creating 

Effective Subrecipient Management Systems 

In Chapter 3, we reviewed subrecipient management systems in terms of the willingness and 

ability of subrecipients to comply with federal program requirements. We concluded that 

effective systems are marked by two features: they appeal to a range of subrecipient 

motivations, not just the desire to avoid sanctions for noncompliance; and they help 

subrecipients build capacity to carry out effective programs. And at each stage of the 

management sequence, grantees have found valuable ways to carry out its basic steps. 

Grantees have not created subrecipient management systems from whole cloth; they have 

assembled their systems over time, piece by piece. Staff members have done this by 

borrowing some good practices from other jurisdictions and inventing others to meet local 

needs. In other words, they have often consciously adopted elements of subrecipient 

management systems to handle the costs and risks they face in using subrecipients to carry 

out their programs. 

This chapter discusses how grantees have responded to the costs they incur and risks they 

face. There are two major types of risk: shortfalls in capacity of subrecipients to comply with 

federal requirements; and inappropriate interference by elected officials in the impartial 

administration of local rules for program management and decision-making. The first two 

sections of this chapter examine grantee responses to these two types of risk. The third and 

last section discusses some of the factors that influence the effective operation of 

subrecipient management systems. 

Grantee Responses to Costs and Risks 

To examine the subrecipient management process, we first attempted to construct models 

that illustrated the links among the various aspects of the subrecipient management systems. 

Are decisions made at the funding allocation stage, for example, linked to decisions about 

how grantees would be monitored? Does pay-for-performance mean that grantees have to 

monitor their subrecipients in a particular way? Are there profiles or models of how 

elements are related to one another, allowing us to classify grantees for further analysis? 

The answer to these questions appears to be no. Grantees appear to mix and match elements 

of subrecipient management systems to suit local circumstances. Of course, agency staff 

members consider how decisions about some parts of their systems affect other parts. And 

many of their decisions seem to follow explicit strategies to reduce the costs and risks they 

face as managers. In this part, we discuss responses to administrative costs and the risks of 

shortfalls in capacity of subrecipients to comply with federal requirements. 

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Managing Subrecipients of CDBG Grantees 

Reducing Administrative Costs 

Subrecipient management can be expensive. Palm Beach County spends a lot of its CDBG 

funds for program administration, at least in part because of the costs of its subrecipient 

management efforts. They expected to spend about 20 percent of total CDBG resources for 

program administration and indirect costs (up to their statutory limitation) for the year 

2003/2004. They also expected to spend another 8.4 percent on “project implementation,” 

which appears to contain some costs for subrecipient supervision. 

Our review of grantee experience uncovered three basic ways of reducing program costs: (1) 

investing in lower-cost efforts at the front end of the sequence to avoid later and higher-cost 

monitoring and invoice review activities; (2) shifting costs onto other entities; and (3) 

reducing overall costs and risks. 

Investing strategically in priority program elements. Phoenix invests at the front end. Staff 

members charged with day-to-day management of subrecipients consist of only 3 persons for 

more than 200 active projects (not all of which are drawing funding each month, which 

would require review of reports). Senior program staff report that solid front-end work—at 

the outreach, technical assistance, and contracting stages—reduces downstream mistakes and 

therefore the investment needed in extensive program reviews. (In other words, reducing 

risks reduces costs.) 

EXAMPLE 1: Elements of each stage in the management process can be viewed as capacity-building 

opportunities. In Phoenix, technical assistance is built into the monitoring process; for example, monitoring 

letters after visits are completed will extend advice to subrecipient staff even if there are no formal findings. In 

the opinion of staff, the monitoring process is expected to be helpful to the subrecipient, including comments on 

practices that are not, strictly speaking, required by the program or the city. As an example, a written 

procurement manual is not required of subrecipients, but after one monitoring visit, the monitor wrote to 

suggest that the organization adopt one, even though there were no specific findings tied to the lack of one. 

Some grantees are explicit about the choices they have made to emphasize one or other part 

of the process: 

• In Los Angeles County, some practices, like the financial risk assessment undertaken 

prior to award, and the extensive monitoring protocol that employs a large number of 

certified accountants to conduct financial reviews, may compensate for other aspects 

of the management sequence that are weaker. 

• Palm Beach County runs a “front-end-loaded” program that appears to concentrate a 

great deal of time and resources on interaction with subrecipients at the pre-selection 

and selection stages. The County also invests heavily in the post-award oversight 

stages. It requires detailed records to accompany requests for reimbursement, and it 

enforces the requirement that the subrecipient submit monthly reports containing 

specific performance information. It states that it has withheld reimbursement when 

either of these requirements has not been met in a satisfactory manner. 

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Managing Subrecipients of CDBG Grantees 

• Asheville places great weight on negotiating an agreement that is as detailed and 

outcomes-focused as possible. 

• Dayton places great weight on the invoicing function, which is among the most 

detailed of any community visited. Although the city does onsite monitoring, the bulk 

of the compliance function really takes place through invoice approval. 

• Because Albany is now working diligently to reduce substantially the number of 

nonprofit agencies it funds, it makes little to no effort for outreach but targets staff 

efforts heavily toward assessing which subrecipients are worthy to be refunded. 

EXAMPLE 2: The HUD field office recommended the City of Asheville as a study site largely because of the 

clarity of the agency’s statements of work in its subrecipient agreements. Staff acknowledged that, previously, 

they had just taken what the applicant had stated in the application. Now, they negotiate the specific details of 

each subrecipient’s statement of work and add detail to the agreement where necessary to make clear what is 

expected. This process still begins with the subrecipients, who submit their proposed statements of work for 

review by the city. The city evaluates the statement of work and proposed accomplishments of each 

subrecipient and provides a response. Eventually, a mutual agreement is made as to the statement of work and 

required accomplishments, which is then formalized into the written agreement (which is otherwise largely a 

“boilerplate” document of legalities.) Staff indicated that through this process the city has been putting a larger 

focus on making sure that the subrecipient agreements also contain “outcome” measures and not just “output” 

numbers. Asheville customizes the report format for each subrecipient to align the items required to be reported 

with the key items contained in the statement of work. Beginning this year, the city now also requires the 

subrecipient to report on progress toward meeting specified outcomes. 

Shifting Administrative Burdens 

Duluth shifts administrative burdens onto other parts of the system. In Duluth, management 

resources are spread fairly evenly throughout the sequence, but the pre-award assessment and 

the community’s involvement in the selection of subrecipients are noteworthy. City staff 

members lead the effort, but many of the business meetings are conducted by the Community 

Development Advisory Committee (CDAC). The CDAC is staffed by community volunteers 

appointed by the Mayor and meets about a dozen times a year, including four times between 

the time the applications go out in June and August. It is a hard-working, time-consuming 

committee. In Fairfax, the process for setting funding priorities, reviewing applications, and 

recommending funding relies heavily on community and staff experts and volunteers, who 

participate in a highly structured and effective review process that emphasizes the funding of 

programs over organizations. 

EXAMPLE 3: In Phoenix, three persons are assigned to oversee all active subrecipients, which typically 

number about 250, including the projects that are carried out by other agencies of the city government. When 

CDBG funds are provided to another city agency for a particular project, Neighborhood Services Department 

(NSD) (the city agency that administers the CDBG program) prepares an interagency agreement, which is 

signed by officials of the agency and NSD. An NSD program monitor is assigned to oversee any such agency 

project, and that person works with the respective agency staff at the front end to ensure that agency staff 

members understand the particular requirements of using CDBG funds. The NSD representative attends 

meetings held by the agency concerning the CDBG-funded project, to keep up on the status of the project. 

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Managing Subrecipients of CDBG Grantees 

Reducing Overall Risk 

There are three primary risk minimization strategies that can apply to any of the individual 

program management steps. These strategies are to: (1) avoid use of subrecipients to carry 

out high-risk activities, (2) invest in the capacity of subrecipients to carry out programs, and 

(3) substitute agency staff for subrecipient staff to carry out critical program compliance 

tasks. These might be described as avoidance, capacity-building, and hand-holding strategies. 

Avoidance of high-risk subrecipient use. One obvious strategy is to avoid relying on 

subrecipients in the first place, particularly in areas where compliance with requirements may 

be more difficult. Palm Beach County, for example, appears to carry out as many of its 

CDBG-funded activities as it possibly can with its own staff, resorting to the use of 

subrecipients only for those it feels it cannot handle on its own. The county runs its own 

housing rehabilitation program and only reluctantly allows its constituent jurisdictions to do 

so. Memphis Housing and Community Development (HCD) does not undertake economic 

development at all with CDBG funds. That is because HCD was cited by an Inspector 

General’s report for not following the “necessary and appropriate” requirements that were in 

place in the mid-1990s when the city did fund such projects. 

In an interesting twist on this strategy, Gwinnett County leaders decided to accord priority to 

funding requests for capital projects such as building renovations. This decision was taken in 

response to a community development need, and not with a view to limiting subrecipient 

compliance risk. However, by restricting the amount of funding that goes to social services 

and other activities often carried out by small nonprofit agencies (which may not have the 

administrative systems or experience to comply with program requirements readily), the 

emphasis on capital projects may effectively screen out applications from these weaker 

groups. 

What are the tradeoffs involved in opting for approaches that respond to potential 

subrecipient capacity (and subsequent compliance) problems by coaching or steering 

subrecipients into particular activities? They increase the chances that subrecipients will get 

funding, produce a successful result, and operate a problem-free program; but possibly at the 

cost of supporting projects that are not high-priority community needs. In effect, this could 

be thought of as bypassing capacity-building in favor of capacity assessment. 

Another way of reducing risk tied to lack of capacity is to work to reduce the overall number 

of organizations that enter the system. In Albany—because the city previously had been 

funding virtually all the eligible nonprofits in the city and now is working diligently to 

reduce substantially the number that get funded—there is little to no effort being made for 

outreach or pre-award assessment. The city targets its staff efforts toward assessing which 

subrecipients are worthy to be re-funded. The most impressive aspect of the Dayton “story” 

is the city’s restructuring of its subrecipient activities, going from more than 50 subrecipients 

in the mid-1990s (many with small awards) to about 12 to 15 with much higher funding 

levels and much more strategic focus of their activities. This shift has also allowed Dayton to 

reduce the number of projects to a more manageable number in relation to the CDBG 

monitoring staff. 

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Substitution of agency capacity. One model observed in the growing suburban county of 

Gwinnett, GA, transfers the burden of community development management to an 

experienced third-party contractor. In this model, programmatic and regulatory expertise is 

concentrated in a capable, dependable, stable, private for-profit entity that is highly 

motivated and highly qualified to manage all subrecipient activities. This contrasts with the 

model that invests heavily in government staff and technology, building institutional capacity 

to manage programs and subrecipients alike. 

Westchester County provides a great deal of “real time” or “on the job” technical assistance. 

In fact, the county provides extensive project management assistance for subrecipients (for 

example, bid packages and design work for construction projects as well as project 

identification). Acknowledging that many of the 40 municipal subrecipients do not have the 

capacity to provide the level of technical expertise required, and that the expertise is readily 

available at the county level, makes things work smoothly between municipality and county. 

Investments in subrecipient capacity. In 2001-2002, Fairfax County made a commitment to 

improve nonprofit capacity. (We really did not see anything like this elsewhere.) The county 

had observed that large, older nonprofits were far better prepared to compete for 

Consolidated Funding Pool resources than were small, start-up nonprofits. Agency staff said 

they hoped to “level the playing field” so that small nonprofits could be more successful. To 

do this, they hired a consultant to provide baseline capacity assessments, technical assistance, 

and training to 50 nonprofits. Six workshops on strategic planning, information technology, 

and fundraising were held, and a re-assessment of the 50 organizations was conducted in 

2003-2004. (None of the training was geared toward compliance.) For the past several years, 

Phoenix has made it a practice to set aside some CDBG funds each year for “start-up” 

organizations, aimed at helping a few new entities get into the game. 

Efforts to create e-government systems are an important cross-cutting strategy intended to 

build capacity among subrecipients to comply with program requirements and reduce 

administrative burden for agency staff. Among the sites visited, Los Angeles County and 

Fairfax County have devoted considerable effort to electronic forms of application, 

communication, technical assistance, and reporting. Los Angeles does a great job of 

providing access to resources to help subrecipients succeed (see the example below). A vast 

array of self-help information is available on the agency’s secure Web site, which is geared 

to its subrecipient “partners.” This push to go “all electronic” has presented challenges, 

though. Some subrecipients reported being overwhelmed with all the bulletins and reminders 

they receive from the county, in which it is difficult to distinguish between the more and less 

important items. Fairfax County has created “WebR,” a Web-based reporting system to 

simplify and automate the collection and dissemination of performance information, which 

allows the county to electronically track whether subrecipient performance goals have been 

met and whether required reports have been submitted before invoices are processed. 

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EXAMPLE 4: In Los Angeles County, applications, invoices, quarterly reports, guidelines, contracts, day-today communication, and even training sessions are handled electronically. Subrecipients are permitted to do the 

training on-line, provided they pass a test upon completion. They are allowed to proceed in the contract and 

award process only after they successfully complete the training. Like other jurisdictions that are trying to 

conduct more and more CDBG business electronically, the transition has presented some challenges. Both the 

county and its subrecipients are struggling to achieve a comfortable balance between the paperless and paperdriven world without being overly redundant. The county’s determination to automate has left subrecipients 

little choice but to keep up. 

Elected Officials, Program Allocations, and Performance 

The uneven capacity of subrecipients to comply fully with program requirements is the most 

serious risk to a program’s compliance with federal requirements. A close second is exertion 

of inappropriate influence by elected officials over selection, monitoring, and performance 

evaluation of subrecipients. Elected officials are the legitimate representatives of the 

citizenry: their articulation of community needs is an important part of community 

development decision-making, and in most jurisdictions, they are the source of final approval 

of all funding decisions. 

Most of the time, the decisions made by elected officials are in full compliance with program 

standards, as indicated by the review of monitoring findings in Chapter 2. But in extreme 

cases, these decisions may violate legislative and regulatory requirements, ignore principles 

of sound program management, or lead to ineffective or inefficient delivery of community 

development programs. Interference by elected officials in an otherwise impartial 

application of already-adopted rules, such as procedures for ranking of funding proposals or 

identifying instances of subrecipient noncompliance and taking appropriate action, heightens 

the risk that program standards will not be met. 

Our research shows that even where elected officials exercise considerable influence over the 

selection of program activities and choice of subrecipients to carry them out, agency staff can 

operate exemplary subrecipient management systems. With that said, agency staff must 

sometimes work very hard to shield their programs from inappropriate meddling by elected 

officials. Some of the management procedures designed to handle other tasks—for example, 

the creation of performance measurement systems—may also have considerable value in 

protecting the impartial application of program rules. In the discussion that follows, we first 

note some of the variation in elected officials’ influence over the allocation of CDBG funds 

to subrecipients. We then note some of the explicit and implicit defenses erected by grantees 

to preserve compliance with front-end program standards (at funding allocation) and at the 

back end (in the review of subrecipient performance). 

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The Role of Elected Officials in Funding Allocations 

One of the most important roles played by elected officials in local government is to decide 

how money will be spent. Elected executives prepare and present budgets reflecting 

administrative spending priorities and oversee systems for making grant awards and 

monitoring results. Elected legislators approve final budgets, appropriate funds, and review 

and approve grant awards and contracts (usually only those above a certain size). 

Grantees make different choices about the way in which these functions are handled when it 

comes to their federal CDBG funds. From the earliest days of the program, many 

communities placed great weight on citizen advisory groups, charged with reviewing funding 

proposals, recommending the better ones for funding, and sometimes, reviewing the results 

of the activities they fund. In other communities, these groups may play only a limited role, 

or there may be no such group at all. To anticipate the discussion to follow, where these 

groups play an active role they can help ensure that staff and elected officials observe 

established rules for making program decisions, including rules that safeguard program 

compliance. 

For their part, elected officials may pay considerable deference to the decisions reached by 

these bodies, if they exist, or may simply consider their judgments along with a number of 

other factors as they reach final funding decisions. Again to anticipate, where elected 

officials play the most active role, there is increased risk that program rules will not be 

followed, however valuable the involvement of elected officials in community development 

may be. 

Our group of field sites can be classified into four categories, reflecting the activism of 

citizen advisory groups, boards, or commissions in the CDBG funding and program 

management process and the activism of elected officials in these same matters. This 

classification is presented in Table 4.1. 

Table 4.1. Classification of Field Sites 

Role of Citizens in Role of Elected Officials in Funding Allocation 

Funding Allocation Limited Active 

Limited 

Group A 

Westchester County, Gwinnett 

County 

Group B 

Los Angeles County, Asheville 

Active 

Group C 

Fairfax County, Phoenix, Memphis, 

Dayton 

Group D 

Palm Beach County, Albany, 

Duluth 

A group of five grantees appear to have settled on funding allocation systems in which 

elected officials play an active role, at least in some years. There is a range of activism within 

the group, from year-to-year swings in their degree of involvement to near-complete control 

in every year over which subrecipients would be funded, at what levels, and to carry out 

which activities. This group of five includes Los Angeles County, Asheville, Palm Beach, 

Albany, and Duluth. 

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Among the six other grantees, the involvement of elected officials is more limited. Staff in 

Westchester, Gwinnett, Fairfax, Phoenix, Memphis, and Dayton reported that the final slate 

of subrecipients recommended for funding at the end of the outreach, review, and selection 

process is almost never changed by elected officials, nor do they play a significant role up to 

that point. (In Dayton, only the portion of funds allocated to private, nonprofit organizations 

is handled in this manner; the larger portion, which is allocated among city agencies through 

a noncompetitive process, is handled differently.) 

These 11 grantees differ in their use of citizen bodies to help in funding allocation (and 

sometimes other) tasks. Seven grantees make active use of this mechanism; four grantees 

much less so. Table 4.1 above classifies grantees into four groups according to how active or 

limited the roles of elected officials and citizen groups are in the funding allocation process. 

(As noted at various points in the text below, activism may not be limited to funding 

allocations; it sometimes extends to performance reviews of funded projects, as well.) 

Group A (Westchester and Gwinnett Counties) consists of grantees with limited elected 

official involvement and limited citizen involvement, resulting in a staff-driven process. 

Neither citizens nor elected officials are completely excluded, but application reviews and 

initial rating and ranking are done entirely by staff, and these rankings almost always 

determine the funding allocations. 

Group B (Los Angeles County and Asheville) consists of grantees in which elected officials 

appear to play much more active roles, but citizens are less active. 

Group C (Fairfax County, Phoenix, Memphis and Dayton) consists of grantees with limited 

elected official involvement and active citizen involvement. This group might be thought of 

as embracing a conception of “good government” often encountered in the public 

management literature. (In fact, Fairfax County and Phoenix both have well-established 

reputations for strong public management, as reflected by the awards conferred by various 

national organizations with an interest in this area.) 

In Group C, Fairfax County has a particularly elaborate process for selection of subrecipients 

for funding in which a policy committee sets priorities and a selection advisory committee 

decides which proposals will be accepted. The selection committee is made up entirely of 

Fairfax County citizens, who review and rate all proposals based on the criteria set by the 

policy committee. In Dayton, technical reviews are first conducted by a staff team, which 

screens for eligibility, zoning, application completeness, and so on. Eligible applications are 

sent to a community and neighborhood advisory board for ranking, scoring, and public 

hearings in which applicants can testify before final funding recommendations are made. 

In Group D (Albany, Duluth, and Palm Beach), both elected officials and citizens are active. 

The distinction between groups B and D is important. Those with active citizen advisory 

groups allow staff to take advantage of the transparency that a public application review 

process creates to shield programs from inappropriate interference by elected officials in 

established procedures for decision-making. It is difficult for elected officials to ignore the 

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very public funding recommendations of citizens and staff. The grantees without active 

citizen bodies (Los Angeles and Asheville) have no such advantage: their staff members bear 

considerably more risk that decisions will be made without regard to established rules. 

It should be emphasized that both groups have demonstrated success in keeping their 

programs problem-free. In other words, even in systems where elected officials play a strong 

role in program allocations, exemplary subrecipient management systems are possible. In 

Los Angeles County, an aggressive screening and compliance system keeps the program 

operating smoothly. For example, some nonprofit subrecipients in Los Angeles County 

indicated that their funding was due in part to their special relationships with public officials. 

In some situations, these subrecipients might be shielded from staff efforts to hold them 

accountable; however, that but seems not to be the case in Los Angeles County. Program 

staff members in Los Angeles County clearly enjoy the respect and support of the county 

supervisors, because they have developed good systems, applied rules consistently, and 

followed through on policies and procedures without regard for what might otherwise be 

seen as political favoritism or expediency. 

Value of Competition for Funds 

Under some circumstances, the allocation of community development funding can be thought 

of as a three-cornered fight, in which agency staff, elected officials, and the subrecipients 

themselves aim to influence the outcomes of the selection process. In our study sites, staff 

members were primarily interested in ensuring compliance with program standards through 

neutral application of rules for rating project applications and ranking them for subsequent 

funding decisions. In some places, staff members are caught between subrecipients exerting 

the strongest possible claims on funding and elected officials aiming to steer awards to 

favored organizations. 

One way for staff to defend their impartial decisions is to introduce as much competition into 

the system as possible, forcing applicants to demonstrate capacity, develop feasible projects, 

and respond to city community development priorities or fall short of the standards set by 

their competitors. 

For example, Memphis staff initiated a competitive process for funding special-needs 

subrecipients with CDBG and other Office of Community Planning and Development (CPD) 

program funds to end a system in which local officials lobbied for funds. By running the 

process, the agency avoided day-to-day pressure from council members who represented 

groups seeking funds for projects by opening competition to all organizations. Similarly, in 

Dayton, a new competitive selection removed a sense of entitlement among neighborhood 

groups and improved subrecipient attention to performance. 

Los Angeles County offers a natural experiment on the value of competitive systems over 

entitlement to funding. Both the nonprofit subrecipients and the county reported that the 

overall management system contributes substantially to their ability to produce and 

demonstrate successful outcomes while complying with applicable regulations and 

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Managing Subrecipients of CDBG Grantees 

requirements. Municipal subrecipients were of a somewhat different opinion, tending to be 

far more critical. Some of this difference in opinion is at least partially due to the fact that 

participating cities are essentially guaranteed their pro rata share of CDBG funds each year, 

provided there are no major compliance or performance problems identified through the 

county’s monitoring and reporting systems. 

One related strategy for keeping the awards process impartial is to use “thresholds” to filter 

the applicant pool. Los Angeles County established minimum requirements for entities to 

qualify as eligible subrecipients. Staff members conduct a review of subrecipient financial 

management systems before considering an applicant for funding. Therefore, entities that do 

not meet the requirements do not even enter the pool of potential subrecipients, regardless of 

what political support they might have. Other jurisdictions, like Duluth, Palm Beach County, 

and Phoenix, employ a two-stage process for reviewing applications, in which an early 

review ensures that an application can meet basic requirements before more time and effort 

are put into its consideration. 

Mechanisms of Transparency and Their Value 

Transparency can be an important device for maintaining compliance with program 

standards. Staff members in two communities were particularly emphatic on this point: 

Phoenix (where elected officials play a limited role) and Duluth (where elected officials are 

more active). 

In Phoenix, a citizen community development review committee assigns anonymous ratings 

to proposals. Those below a cutoff score are given no further consideration, and all other 

applicants are then given the opportunity to appear before the committee and make a short 

presentation to support their proposals. They can focus the presentation on specific points (or 

questions) that are raised as part of the initial review by the committee. In our interviews, 

Phoenix program staff emphasized the transparency of the process: the public presentations, 

citizen participation in reviews, and published lists of winners and losers, among others. (The 

winning subrecipients were pretty clear about the process and its relevance to their own 

application, review, and selection.) 

Phoenix staff noted that transparency and perceived lack of bias in the funding process shortcircuited the lobbying that might otherwise be carried out by nonprofits among their political 

supporters to spring loose CDBG funds. Staff noted that they no longer get city council 

pressure to select certain subrecipients. In fact, a survey of applicants to obtain their views of 

the process found no differences in perception of fairness between funded and non-funded 

applicants. And as part of staff efforts to maintain the non-political character of the system, 

they tend relationships with failed applicants. For example, after a decision to deny funds to 

an application, they debrief the organization’s staff, provide some advice, and give some 

positive feedback (even if the review was not all that positive). 

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Managing Subrecipients of CDBG Grantees 

EXAMPLE 5: The “green sheet” is a summary of the ranking and funding recommendations each application 

has received, including its priority relative to the comprehensive plan, its score as evaluated by the CD 

Committee, and the funding recommendations made by the Community Development manager, the CD 

Committee, and finally the City Council. It provides, for all to see, the score each application receives and, 

ultimately, the level of funding decided. It plainly summarizes the overall program funding priorities, amounts 

requested within each priority area, and the amounts ultimately budgeted. What is remarkable here is not only 

the layered process for evaluating applications and the evaluation criteria, but that a large effort is made by city 

staff to keep the community informed about the rigors of the process. 

In Duluth, transparency extends to the “back end” of the subrecipient management process— 

the review of subrecipient performance on CDBG-funded projects. This public scrutiny of 

subrecipient performance pushes the community to examine and justify its funding decisions 

against the backdrop of subrecipient performance. It also creates a rather educated 

subrecipient community—educated in terms of knowing what other subrecipients are doing, 

how much they are funded, and how well they are performing. Low performers will 

presumably lose funding eventually, because political favoritism cannot stand up to this level 

of public scrutiny for very long. Indeed, due to the public nature of the monitoring report and 

funding recommendations, every subrecipient in the city was well aware that one underperforming subrecipient was pulling political favors to maintain its relatively robust funding. 

EXAMPLE 6: Duluth holds a “Monitoring Public Hearing” each year to review subrecipient performance. The 

hearing takes place at the onset of the new funding cycle and prior to the submission of new applications. A 

report prepared by city staff, called the “CDBG Monitoring Report,” forms the basis for the hearing. 

Subrecipient performance is described in great detail, and any monitoring findings or questions are reported as 

well. Subrecipients are required to be present at the hearing and to be available to answer any questions about 

their program activities. 

Value of Performance Management and Outcomes Orientation 

The same three grantees that have invested most heavily in transparency also seem to have 

taken performance management most seriously. Fairfax County, Phoenix, and Duluth have 

tried hard to write good performance indicators into their grant agreements, track 

subrecipient progress against the indicators, assess the results at the end of each grant period, 

and, if necessary, sanction poor performers. 

Senior agency staff members in Phoenix justify their emphasis on strong subrecipient 

management by the need to achieve good community outcomes. To achieve these outcomes, 

strong partners are needed (because the city cannot change neighborhoods through its own 

efforts alone), as is a focus on whether or not communities are, in fact, getting better. This 

focus on community outcomes has led the city to target funds to designated revitalization 

areas (a strong aspect of the Palm Beach program, as well). 

The city’s subrecipient management system is intended to further both of these purposes by 

selecting capable subrecipients and helping them grow more so, and by building performance 

measures into subrecipient agreements. Staff members argue that performance standards for 

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Managing Subrecipients of CDBG Grantees 

subrecipients also help shield the process from inappropriate interference by elected officials 

by: 

• Helping alter perceptions of nonprofits as incapable of high-quality work (and 

therefore good only for the delivery of political benefits). 

• Communicating performance information to the broader community, whose primary 

interest is to see as much progress as possible made against neighborhood problems. 

• Reinforcing the ethos of high standards established in the competitive application 

process. 

• Engaging private-sector funders in community development, who become interested 

parties in the performance of the system. 

Staff members in other jurisdictions were not as explicit about the value of performance 

management systems, although elements of these could be observed. Duluth’s public reviews 

of subrecipient performance have been noted above. Staff there stressed the connection 

between front-end participation by citizens in the funding process and back-end emphasis on 

performance outcomes. According to the CD Program Manager, “there is community 

consensus to use subrecipients because they do a better job of getting direct impact and 

getting out in the community.” 

In Duluth, pay for performance was introduced in 2004 in an effort to improve subrecipient 

performance. The city wrote a provision into the subrecipient agreements that allows 

subrecipients to draw reimbursements for program costs up to only 75 percent of the 

agreement. The remaining 25 percent can be drawn, on a pro rata basis, but only after the 

CD agency has documented that the subrecipient has fulfilled its annual contract goals. 

Funding is reduced for subrecipients who fail to meet their performance goals. Palm Beach 

County limits the amount that many subrecipients may bill the County each month to a perperson-actually-served level specified in the agreement. 

EXAMPLE 7: In Duluth, a powerful punch has been added to the subrecipient agreement. Written plainly into 

Exhibit A of the subrecipient agreement, the subrecipient is informed that it may draw reimbursements for 

program costs up to only 75 percent of the agreement. The remaining 25 percent may be drawn only on a pro 

rata basis, after the CD agency has documented that the subrecipient has fulfilled its annual contract goals. 

Subrecipients must be on track to meet their performance and spending goals by the end of the third quarter of 

their agreement, or lose funding in the last quarter. Essentially, the city retains a portion of each contract until 

the subrecipient meets its goals or the contract expires. For example, in one subrecipient’s job creation program, 

the goal was to train and then “create” 15 jobs, but they created only 11. They lost $3,000 from their grant of 

$49,000. 

Other communities have also introduced elements of performance measurement that are 

worth consideration by others. Fairfax has implemented an Internet-based reporting system 

called “WebR.” Grantees complete an outcomes worksheet online based on their contract, 

which saves time and inconvenience compared to the paper process of the past. In Memphis, 

performance measures are included for projects where appropriate, and the funding agency 

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Managing Subrecipients of CDBG Grantees 

requires subrecipients to submit a written explanation if the specific number of persons 

assisted is less than 80 percent of the objectives. 

Not all grantees have pursued performance measurement with equal enthusiasm. 

Performance responsibilities noted in one site’s CDBG Program Manual consist mainly of 

cautionary advice about the need to expend funds as quickly as possible. Another site claims 

that it will not award another grant to an entity that fails to perform in accordance with its 

subrecipient agreement; but from interviews with subrecipients, it appears that the 

performance level required in the agreement is set relatively low so that it does not challenge 

the entity much. In another site, goals couched in terms of “estimated accomplishments” and 

performance measures appear not to be used to tighten up activities that do not go through a 

rigorous application review. In yet another site, elected official interest in retaining certain 

groups as grantees and the lack of alternatives to currently funded subrecipients may prevent 

staff from effectively sanctioning nonperformance. 

EXAMPLE 8: Several grantees formally solicit feedback on the management process from subrecipient 

entities, which reinforces agency commitment to operating a good subrecipient management system. Los 

Angeles County requests comments at training sessions or technical assistance visits, encourages contact with 

program managers, and even conducts annual customer service surveys of subrecipients. The county’s Annual 

Customer Service Survey of Partner Agencies solicits evaluations of the quality of service provided to its 

agencies. Phoenix also surveys its customers. 

Factors That Influence Effective Operation of Subrecipient 

Management Systems 

Good subrecipient management systems do not arise from nowhere, and they are not 

sustained without continued reinvestment. Our review of the experience of field sites points 

to the importance of agency leadership committed to good performance, a culture of active 

engagement among agency staff and subrecipients, and elements of the local environment 

that are supportive of good government and nonprofit capacity. Initially, major system 

reforms came in reaction to the publicized failure of previous arrangements (including HUD 

findings) and local budget crises, but administrators have not ended their attempts to 

improve: an ethos of continuing performance improvements appears to drive the evolution of 

each of these systems. 

Importance of Committed Leadership 

Behind every good subrecipient management practice is an agency leader committed to 

making it work. In Memphis, a new executive director turned around a troubled housing and 

community development department and housing authority. In Albany, a new director 

created a more streamlined and effective program by initiating a politically difficult reduction 

in the number of subrecipients funded. 

Leadership is exercised in more mundane ways, as well. Westchester has a 3-year funding 

cycle; but because many capital projects cannot wait that long, both subrecipients and local 

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Managing Subrecipients of CDBG Grantees 

administrators accept the necessity of reprogramming to other capital projects that will arise 

by the time the funds are available. Staff members in Los Angeles County and Duluth have 

worked excruciatingly hard to improve their systems. 

In Duluth, subrecipients accept that senior management has adopted new strategies to 

improve subrecipient performance, and that city staff are resolved to follow through on these 

strategies and apply them fairly. Subrecipients also recognize staff willingness to correct 

their course when problems arise. Subrecipients agreed that the city is trying to improve the 

program, and that the process for input and reform works. In Palm Beach County, the 

executive director led a system that had proven effective for the better part of a decade. But a 

few years back, county leaders opted to target funds to needy areas within the county, 

requiring many adjustments to program procedures. 

Value of Trust and Good Relationships 

Successful managers work hard to engage subrecipients as partners in the delivery of 

community development programs, which means creating a culture of communication, trust, 

and mutual support. (With that said, some systems appear to rely more heavily on the threat 

of sanction than others, especially those that are most vulnerable to inappropriate political 

interference in subrecipient management.) 

For example, in Phoenix, site visits by agency staff are not a prominent feature of the 

system—there were only nine in FY2004—but city staff do participate in subrecipient 

activities, such as client award recognitions and groundbreakings, and are willing to engage 

with subrecipient staff whenever needed. In Gwinnett, we found a considerable willingness 

on the part of subrecipients to comply with whatever the county required, partly attributable 

to the contract administrator’s active engagement with them. Subrecipients we visited at 

almost every site spoke highly of the grantee’s CDBG administration staff. They seemed 

both to appreciate the assistance they offer and to respect their professionalism as well. 

Related to a point made in the first part of this section, a level of mutual engagement in the 

system also helps reduce the costs and risks involved in system operation by increasing 

subrecipient willingness to identify possible issues and comply faithfully with program 

requirements. In Fairfax, agency staff visit subrecipients at least twice a year for financial 

and program monitoring, and more frequent contact between the contract monitors and 

community organizations is common. The goal is to address small problems early on, before 

they become large ones. 

This culture of engagement is abetted by open funding allocation systems. In Duluth, 

subrecipients were familiar with the priorities and acknowledged the participatory system 

that produced them. Even when individual subrecipients were feeling pinched for funds, they 

expressed faith in the system and its administrators. 

It appears that communities that are not too large geographically can expect their CD staff to 

keep better aware of the entire community and its nonprofits. From discussions with 

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Managing Subrecipients of CDBG Grantees 

Albany’s CD director and staff (and with those in the city of Asheville), it seemed that they 

were more fully in tune with happenings throughout the entire community. Even the 

nonprofits in such communities appeared to know one another better and had established 

effective networking arrangements. 

Admittedly, although the “just down the street” informality of city and subrecipient 

relationships can be beneficial in many ways, such as when negotiating statements of work 

and clearing up issues during monitoring visits, it may also limit strict enforcement of 

performance expectations and financial penalties. However, independent audit and frequent 

reporting requirements, along with funding activities on a reimbursement basis with invoices 

subject to review, help to ensure that funds are spent legally. 

“Environmental” Supports 

Just as some political features of local systems threaten to undermine the integrity of 

subrecipient management systems, there are elements of the broader context that can be 

supportive of well-functioning systems. Some systems have embraced professionalism and 

performance across the board, which becomes reflected in the operation of subrecipient 

management systems. 

For example, the city of Phoenix has a strong reputation for being well run. Staff members 

say that the city is a fairly “open” system and not turf-conscious; people are willing to share 

models across agencies and cooperate in ways that lead to better outcomes. They say the 

nonprofits do this too and are willing to share models without being overly jealous of their 

competitive advantage. 

Memphis has adopted organizational changes to establish a separate department that reviews 

all subrecipient projects for compliance with federal requirements. Staff from the department 

review projects internally to try to identify problems before they result in findings or 

concerns. 

Grantee embrace of management excellence in overall culture as well as specific practices 

can be supported by investments made by others within the same systems. In both Phoenix 

and Duluth, staff pointed to organizational development investments made by the Local 

Initiatives Support Corporation as a direct support to nonprofit capacity and similar funding 

available from local foundations. In Duluth and Asheville, staff pointed to the United Way’s 

efforts to encourage local nonprofits to adopt performance measurement as a further support 

to the city’s own management goals. 

Incentives for System Creation and Evolution 

Creation and growth of strong subrecipient management systems seem to be motivated by 

previous run-ins with HUD over the quality of local management, increasing scarcity of 

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funding that creates a premium on wise use of available funds, and the expenditure of locally 

appropriated dollars, which heightens taxpayer scrutiny. 

In Memphis, one key administrative event that triggered major organizational changes 

occurred after HUD designated the Memphis Housing Authority as “troubled.” Shortly 

afterwards, HUD expressed concern that the city’s Housing and Community Development 

Department was not drawing down funds as rapidly as needed to meet HUD’s minimum 

regulatory requirements. These challenges spurred the city to explore new ways to operate 

more efficiently, resulting in the functional consolidation of the Memphis Housing Authority 

and the Housing and Community Development Department. 

In Duluth, Fairfax, Phoenix, and several other jurisdictions, resource scarcity caused HUD 

grantees to tighten their grip on subrecipient performance and to attempt to create a culture in 

which funding is tied to performance. In Fairfax, the rise of a systematic, public, and 

performance-oriented funding process was attributed to an especially enlightened county 

management, which saw an opportunity to make major structural changes in the allocation of 

community development resources during a budget crisis in the late 1990s. In Phoenix and in 

Fairfax, the use of large amounts of locally appropriated funding has a lot to do with the 

amount of attention paid to the subrecipient management system and the care and 

professionalism with which subrecipient management responsibilities are carried out. 

Nearly all the systems we reviewed were built by degrees. It would appear that a wellfunctioning system not only carries out the core tasks of subrecipient management well, but 

also encourages innovation as a matter of course. The range of improvements made to 

systems in the past several years alone is impressive: 

• Duluth introduced pay for performance, a pre-application to ensure that subrecipients 

get end-of-year staff guidance earlier in the process, and a new end-of-year 

monitoring report on subrecipient performance as the focal point for a public hearing. 

• Memphis developed a new competitive funding process and created a separate 

compliance division to house specialized expertise in HUD regulations, which 

supports the overall operation of the agency and allows other staff to focus on making 

and managing grants. 

• Albany has reduced the number of subrecipients it funds to a more manageable level, 

streamlined the agreements to make them more relevant to the work to be performed, 

and reduced the frequency and content of reports required. 

• The city of Asheville has improved its subrecipient management process over the 

years, most notably in increased reporting requirements, review of all invoices for 

payment on a reimbursement basis, and conducting risk assessments for monitoring 

activities. 

• Dayton has reduced the number of subrecipients from 50 to about 12 to 15, allowing 

much larger average funding levels and a more strategic focus of activities. 

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Managing Subrecipients of CDBG Grantees 

• Palm Beach County has developed an approach to strengthen its geographic targeting 

of CDBG in its participating municipalities by providing “entitlement” funds to them 

only if they will use the funds in areas that meet specific needs criteria. 

These examples of continuing improvement strongly suggest that no subrecipient 

management system can be considered fully built; good ones evolve as grantees continue to 

experiment with new approaches and adjust to new realities. 

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Managing Subrecipients of CDBG Grantees 

5. Conclusion 

Based primarily on a review and analysis of exemplary management practices in 11 cities 

and counties across the country, this report has explored examples of successful subrecipient 

management practices and their elements. It has described and analyzed steps of the 

management sequence from two vantage points: the willingness and ability of subrecipients 

to comply effectively with federal requirements, and the opportunities and challenges of 

creating effective subrecipient management systems. 

Effective subrecipient management systems are something of a conundrum. At some level 

they look alike: they all use, at a general level, the six steps (or basic elements) of the HUDrecommended system for overseeing recipients. Looking at them more closely, however, we 

did not find two in our group that are very similar. How do we define the characteristics of 

successful subrecipient management practices, and what sets them apart from those that are 

less so? Is it possible to distinguish those that are likely to succeed from those that are more 

likely to fail? What are the elements that demand our attention? What is useful for other 

grantees and subrecipients to know? 

This chapter summarizes what we have learned and what we believe program officials would 

find useful. It summarizes major issues facing grantees and program administrators regarding 

the use of CDBG subrecipients and the lessons learned from grantees that have developed 

effective systems for using subrecipients. We identify what appear to be successful systems 

that other grantees might want to replicate. 

As an important part of the CDBG program delivery machinery, grantees depend on 

subrecipients to reach deep into the community to expand the government’s capacity to 

provide essential programs and services. Subrecipients and grantees alike are inherently 

motivated to improve communities. What motivates them to abide by the myriad of federal 

regulations that govern the CDBG program, and how does each of them meet the twin 

challenge of effectiveness and accountability? This research not only identified the systems 

that grantees have devised to manage subrecipients effectively, it also looked at the 

incentives that were built into the systems to gain compliance, and the choices and tradeoffs 

that grantees made in adopting various management approaches. 

The most effective subrecipient oversight systems combine positive incentives for good 

performers with sanctions for those who will not or cannot comply with program 

requirements. Our research suggests that the discriminator between effective and ineffective 

approaches to subrecipient management is that effective grantees not only embrace the steps 

outlined in the HUD guidance materials (pre-award assessment, subrecipient agreement, 

training and technical assistance, performance tracking, monitoring, and follow-up), they also 

reward adherence. They establish incentives to encourage subrecipients to comply willingly 

and to perform well. Public recognition for contributions to the community is one such 

incentive. Others are more complex, such as those that tie funding to performance goals and 

use public reviews of performance and public scrutiny to coax subrecipients to perform at 

their best. 

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Managing Subrecipients of CDBG Grantees 

Effective subrecipient management systems also provide subrecipients with the knowledge 

and tools to comply. Motivating subrecipients to perform is not enough to ensure 

compliance; subrecipients must have the ability to comply, and the rules must be clear to 

them. Some grantees reviewed in this study have chosen to invest year after year in training, 

technology, and on-line resources to simplify the process and increase subrecipient capacity 

to comply with program requirements. 

Characteristics of Effective Subrecipient Management Practices 

The following summary highlights the features of effective subrecipient management 

systems, based on our findings for the 11 sites we studied for this project. While not a 

checklist or litmus test for successful management practice, the list distills the important 

findings. 

• Grantees mix and match elements of their subrecipient management systems in ways 

that suit local circumstances. There is no single model for success. 

• Grantees emphasize one or more elements of their systems as a way to reduce costs 

and risks. It is not necessary to address each step of the management sequence 

equally well to be successful. 

• Grantees use three basic approaches to reducing program costs: (1) investing in 

lower-cost efforts at the front end of the sequence to avoid higher-cost monitoring 

and invoice review activities; (2) shifting costs to other entities; and (3) reducing 

overall costs and risks. 

• Grantees use three primary strategies to minimize risk: (1) avoidance of subrecipient 

use in high-risk activities; (2) investment in the capacity of subrecipients to carry out 

programs; and (3) substitution of agency staff for subrecipient staff to carry out 

activities critical to program compliance. 

• The most considerable risk to operation of a subrecipient management system that 

safeguards program integrity is the injection of inappropriate political influence over 

the selection, monitoring, and performance evaluation of subrecipients. Grantees have 

devised strategies at the front end in the funding allocation process and at the back 

end in the review of subrecipient performance to promote effective programs. These 

practices include, for example, reliance on a citizens’ process to review and rank 

subrecipient applications and introducing competition into the system to force 

subrecipients to meet published funding criteria or risk falling short of the standards 

set by their competitors. 

• Transparency is an important device for maintaining program compliance standards. 

Transparency can short-circuit the lobbying that might otherwise be carried out by 

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Managing Subrecipients of CDBG Grantees 

nonprofits among their political supporters. It can also push the community to 

examine and justify its funding decisions against the backdrop of subrecipient 

performance. 

• Performance measurement systems can help limit opportunities for inappropriate 

political involvement in the grant-making process by helping to alter the perception of 

nonprofits as incapable of high-quality work. They also provide staff with concrete 

information on which to base their funding recommendations (although not all 

grantees pursue performance measurement with equal enthusiasm). 

• Good subrecipient management systems are sustained by continued reinvestment, 

committed leadership, and a willingness to make corrections when problems arise and 

new strategies fall short of expectations. 

• Well-functioning systems, like well-run governments, embrace professionalism and 

performance across the board, learn from past mistakes, and continue to innovate and 

experiment with new approaches to adjust to new realities. 

Examples of specific strategies, impacts, and tradeoffs used by the 11 grantees in this study 

are summarized in Table 5.1. 

In summary, effective subrecipient management practices are an amalgam of inputs which, 

together, forge strong and creative community development programs. Effective practices, 

however, are well-tooled for local conditions. Grantees must weigh the risks, impacts, and 

tradeoffs of approaches they choose—and calibrate their use for local conditions. 

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Managing Subrecipients of CDBG Grantees 

Table 5.1. Examples of Strategies, Impact, and Tradeoffs Waged by Grantees 

Strategy Impact Tradeoff 

Creating a culture of openness and 

community participation 

Invites public scrutiny of resource 

allocation. 

Creates more opportunities for the 

mingling of ideas and community 

development actors. 

Promotes opportunities for 

partnership among subrecipients, 

thus strengthening the nonprofit 

base. 

Brings community residents closer to 

program administrators. 

Stimulates peer review. 

Creates opportunities for new 

programming and creative solutions. 

Creates a medium for efficiencies, 

cost-saving technologies, and 

voluntary contributions to flourish. 

Grantee may find it harder to 

set priorities. 

Process becomes more 

elaborate, more politically 

charged. 

More nighttime meetings. 

Establishing multi-year funding Reduces administrative burden on 

the local government and 

subrecipient applicants. 

Reduces uncertainty about funding 

for public services subrecipients and 

allows subrecipients more time to 

devote to programming. 

Subrecipients seeking to 

undertake capital projects may 

have a tougher time estimating 

costs. 

Capital projects may need 

funding sooner than the budget 

cycle permits (capital projects 

may not be able to wait for 2 to 

3 years). 

More difficult to fund projects 

that respond to newly 

developed problems. 

Mandatory pre-application Gets subrecipients focused earlier. 

Creates opportunity for grantee to 

troubleshoot proposals early in the 

process. 

Allows the grantee to communicate 

its funding priorities and establish a 

dialogue with applicants about what it 

would clearly prefer; increases the 

likelihood that stronger, worthy 

project applications will be submitted. 

Lengthens the process. 

Experienced subrecipients may 

resent the extra work. 

Requires grantee to develop an 

effective outreach effort, or 

subrecipients may miss the 

pre-application and get closed 

out of funding for the year. 

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Table 5.1. Examples of Strategies, Impact, and Tradeoffs Waged by Grantees 

(continued) 

Strategy Impact Tradeoff 

Pushing technology (for example, 

paperless applications, electronic 

communications and reporting, online training) 

Saves a good deal of paper, postage, 

and transportation. 

Large sunk costs for new 

technology and new electronic 

financial and reporting systems 

can draw resources away from 

other pressing program needs. 

Paper trail, verification of 

receipt, and supporting 

documentation may become 

less precise (for example, 

important notices, like 

environmental approvals, may 

go unread, or may not be 

“delivered,” causing 

unnecessary delays or 

disruptions in business). 

Initial positive reaction of 

subrecipients may give way to 

frustration if electronic systems 

haven’t been adequately 

“debugged.” 

Subrecipients may have a hard 

time keeping up with increased 

volumes of electronic mail (for 

example, it may be hard to 

discern important notices from 

day-to-day bulletins). 

Screening grant applications for 

subrecipient capacity 

Weeds out “mom and pop” 

operations that lack capacity to meet 

some program requirements. 

Helps avoid likely performance 

problems after funding is provided. 

Allows the grantee to provide 

technical assistance to build capacity 

at early stages (prior to or shortly 

after funding). 

May miss opportunities to 

cultivate promising 

subrecipients. 

May shortchange communities 

that could benefit from 

services. 

Funding subrecipient capital costs 

over operating costs to minimize 

program risk 

Reduces grantee monitoring burden. 

Reduces subrecipient reporting 

burden. 

Priority needs may go 

unfunded when the application 

process is distorted (applicants 

may tailor applications to funds 

available rather than what is 

most needed). 

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Table 5.1. Examples of Strategies, Impact, and Tradeoffs Waged by Grantees 

(continued) 

Strategy Impact Tradeoff 

Performance-based-funding penalty 

clauses in subrecipient agreements 

Elevates importance of performance 

goals. 

Increases compliance and 

achievement of performance goals. 

Subrecipients do not like it 

when their funds are reduced; 

creates bad feelings between 

grantee and subrecipients. 

Subrecipients may begin to 

lower their goals or shy away 

from challenging programs or 

clients to ensure program 

success. 

Contracting out program 

management 

De-politicizes the process. 

May lower administrative costs, 

leaving more funding for programs. 

Grantee gives up control of 

funding decisions. 

Contractor’s first priority may 

be to keep the program 

problem free. 

May avoid funding challenging 

projects. 

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APPENDIXES 

Appendix A—Field Office Survey Sample 

Appendix B—Field Office Survey 

Appendix C—Interview Guides for Community 

Development Directors, Program Manager, 

and Subrecipients 

Appendix D—Exemplary Practices/Materials of Interest 

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Appendix A—Field Office Survey Sample

Appendix A—Field Office Survey Sample 

The Field Office Survey sample is intended to generate a list of communities for Field Office review. 

Staff will be asked to rate each grantee selected on a series of indicators pertaining to subrecipient 

management. These ratings can be found in Appendix B. 

Because of the funds potentially at risk in larger jurisdictions within the CDBG program—roughly 80 

percent of the money allocated in the program goes to about 20 percent of grantees—the sample has been 

drawn to produce a bias toward larger jurisdictions. One critical constraint is to keep the number of 

grantees selected in each field office to a relative few to keep response burden low and thereby encourage 

survey response. Therefore, we have limited the sample drawn from any area office jurisdiction to five 

grantees. 

To select the sample, we arrayed the grantees within each area office in descending order of their fiscal 

year 2004 entitlement amount. We then calculated the cumulative amount represented by each grantee’s 

allocation, showing the contribution of each grantee to the total. We chose a random number between 1 

and the total number of dollars allocated to all grantees in the area office jurisdiction. We then chose the 

jurisdiction that contributed the amount to the cumulative total that included the random number. After 

removing that grantee from the list, we calculated a new cumulative total and relative contribution, 

selected a new random number between 1 and the cumulative total, identified the grantee that contributed 

the amount needed to include the new random number, and removed it from the list. We repeated this 

procedure until we selected five grantees from the jurisdiction. 

For example, assume that an area office jurisdiction contained 10 grantees, totaling $10 million in total 

2004 funds allocated, and that one large grantee contributed $5 million of this total. The first random 

number chosen has a 50/50 chance of being $5 million or below; in other words, the largest grantee has a 

50 percent chance of being selected on the first pass. If every other grantee in the jurisdiction has an equal 

share of the remaining $5 million, or $555, there is a roughly 6 percent chance of selection. 

The resulting national sample contains roughly 18 percent of the total number of entitlement grantees in 

the program, and about 48 percent of the total funds allocated in 2004. 

A-1 
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Appendix A—Field Office Survey Sample

Field Office Survey Sample 

Area Office City Amount 

ALBUQUERQUE ALBUQUERQUE 5,249,000 

FARMINGTON 520,000 

LAS CRUCES 1,189,000 

RIO RANCHO 346,000 

SANTA FE 689,000 

Total 7,993,000 

ANCHORAGE ANCHORAGE 2,285,000 

FAIRBANKS 305,000 

Total 2,590,000 

ATLANTA AUGUSTA 2,755,000 

COBB COUNTY 3,921,000 

COLUMBUS-MUSCOGEE 2,189,000 

DE KALB COUNTY 6,893,000 

SAVANNAH 3,323,000 

Total 19,081,000 

BALTIMORE ANNAPOLIS 414,000 

ANNE ARUNDEL COUNTY 2,577,000 

BALTIMORE 28,469,000 

BALTIMORE COUNTY 5,094,000 

HOWARD COUNTY 1,409,000 

Total 37,963,000 

BIRMINGHAM AUBURN 860,000 

BIRMINGHAM 8,017,000 

HUNTSVILLE 1,559,000 

MOBILE 3,433,000 

MONTGOMERY 2,548,000 

Total 16,417,000 

BOSTON BROCKTON 1,723,000 

FALL RIVER 3,603,000 

PORTLAND 2,567,000 

PROVIDENCE 6,792,000 

SPRINGFIELD 5,007,000 

Total 19,692,000 

BUFFALO AUBURN 1,296,000 

BINGHAMTON 2,825,000 

BUFFALO 19,551,000 

GLENS FALLS 678,000 

TROY 2,494,000 

Total 26,844,000 

CARIBBEAN AGUADILLA MUNICIPIO 2,249,000 

CAGUAS MUNICIPIO 4,097,000 

CAYEY MUNICIPIO 1,581,000 

SAN JUAN MUNICIPIO 12,558,000 

TOA ALTA MUNICIPIO 1,847,000 

Total 22,332,000 

CHICAGO BERWYN 1,596,000 

CHICAGO 100,852,000 

COOK COUNTY 12,693,000 

A-2 
Managing Subrecipients of CDBG Grantees 

Appendix A—Field Office Survey Sample

Field Office Survey Sample (continued) 

Area Office City Amount 

EVANSTON 2,395,000 

OAK PARK 2,327,000 

Total 119,863,000 

COLUMBIA CHARLESTON COUNTY 2,438,000 

COLUMBIA 1,543,000 

GREENVILLE COUNTY 2,860,000 

RICHLAND COUNTY 1,647,000 

SOUTH CAROLINA STA PROG 27,827,996 

Total 36,315,996 

COLUMBUS AKRON 8,226,000 

CLEVELAND 29,027,000 

EAST CLEVELAND 1,339,000 

STARK COUNTY 1,729,000 

TOLEDO 9,459,000 

Total 49,780,000 

DENVER BOULDER 1,141,000 

COLORADO SPRINGS 3,101,000 

DENVER 11,025,000 

GRAND FORKS 504,000 

LAYTON 409,000 

Total 16,180,000 

DETROIT EAST LANSING 727,000 

FLINT 5,216,000 

MACOMB COUNTY 1,984,000 

PONTIAC 1,900,000 

WAYNE COUNTY 6,543,000 

Total 16,370,000 

FT WORTH BRAZORIA COUNTY 2,329,000 

DALLAS 21,645,439 

HARRIS COUNTY 12,729,000 

HOUSTON 36,210,000 

MESQUITE 1,120,758 

Total 74,034,197 

GREENSBORO CHARLOTTE 5,599,000 

DURHAM 2,304,000 

GREENSBORO 2,296,000 

RALEIGH 2,813,000 

SALISBURY 397,000 

Total 13,409,000 

HARTFORD BRISTOL 714,000 

HARTFORD 4,672,000 

NEW BRITAIN 2,266,000 

STRATFORD 796,000 

WATERBURY 2,713,000 

Total 11,161,000 

HONOLULU HAWAII COUNTY 2,797,603 

HONOLULU 11,856,000 

KAUAI COUNTY 936,202 

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Managing Subrecipients of CDBG Grantees 

Appendix A—Field Office Survey Sample

Field Office Survey Sample (continued) 

Area Office City Amount 

MAUI COUNTY 2,404,518 

Total 17,994,323 

INDIANAPOLIS HAMMOND 2,774,000 

INDIANAPOLIS 11,328,000 

LAFAYETTE 782,000 

NEW ALBANY 866,000 

SOUTH BEND 3,379,000 

Total 19,129,000 

JACKSON BILOXI 580,000 

GULFPORT 928,000 

HATTIESBURG 748,000 

JACKSON 2,981,665 

PASCAGOULA 376,000 

Total 5,613,665 

JACKSONVILLE HILLSBOROUGH COUNTY 7,074,000 

MANATEE COUNTY 1,814,000 

MELBOURNE 677,000 

ORANGE COUNTY 7,330,000 

TAMPA 4,505,000 

Total 21,400,000 

KANSAS CITY JOHNSON COUNTY 1,427,000 

KANSAS CITY 13,610,000 

TOPEKA 2,388,000 

WICHITA 3,464,000 

Total 20,889,000 

KNOXVILLE KNOX COUNTY 1,203,000 

KNOXVILLE 2,262,000 

MEMPHIS 9,742,000 

NASHVILLE-DAVIDSON 5,954,000 

SHELBY COUNTY 1,366,000 

Total 20,527,000 

LITTLE ROCK FAYETTEVILLE 761,000 

FORT SMITH 1,007,000 

LITTLE ROCK 2,023,000 

PINE BLUFF 894,000 

SPRINGDALE 595,000 

Total 5,280,000 

LOS ANGELES BALDWIN PARK 1,797,671 

LOS ANGELES 87,424,859 

LOS ANGELES COUNTY 36,553,521 

MORENO VALLEY 2,082,000 

UPLAND 855,000 

Total 128,713,051 

LOUISVILLE ASHLAND 842,000 

COVINGTON 2,018,000 

HENDERSON 306,000 

LEXINGTON-FAYETTE 2,505,000 

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Managing Subrecipients of CDBG Grantees 

Appendix A—Field Office Survey Sample

Field Office Survey Sample (continued) 

Area Office City Amount 

LOUISVILLE 14,333,000 

Total 20,004,000 

MILWAUKEE DANE COUNTY 1,317,000 

EAU CLAIRE 771,000 

FOND DU LAC 670,000 

KENOSHA 1,287,000 

MILWAUKEE 20,716,000 

Total 24,761,000 

MPLS ST PAUL ANOKA COUNTY 1,359,000 

BLOOMINGTON 501,000 

DULUTH 3,402,000 

MINNEAPOLIS 16,313,000 

ST PAUL 9,526,000 

Total 31,101,000 

NEW ORLEANS BATON ROUGE 5,096,000 

KENNER 827,000 

LAFAYETTE-LAFAYETTE 1,976,000 

MONROE 1,063,000 

NEW ORLEANS 18,071,000 

Total 27,033,000 

NEW YORK NASSAU COUNTY 18,477,000 

NEW YORK CITY 218,835,000 

ORANGE COUNTY 1,970,000 

POUGHKEEPSIE 1,244,000 

SUFFOLK COUNTY 4,474,000 

WESTCHESTER COUNTY 6,887,000 

Total 251,887,000 

NEWARK BAYONNE 2,255,000 

BERGEN COUNTY 12,648,000 

CLIFTON 1,705,000 

HUDSON COUNTY 4,402,000 

UNION COUNTY 6,316,000 

Total 27,326,000 

OKLAHOMA CITY ENID 678,000 

LAWTON 1,056,000 

MIDWEST CITY 586,000 

OKLAHOMA CITY 6,355,000 

TULSA 4,512,000 

Total 13,187,000 

OMAHA AMES 589,000 

DES MOINES 5,108,000 

DUBUQUE 1,481,000 

LINCOLN 2,131,000 

OMAHA 6,115,000 

Total 15,424,000 

PHILADELPHIA CHESTER COUNTY 3,319,000 

DELAWARE COUNTY 4,937,000 

LANCASTER COUNTY 4,057,000 

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Managing Subrecipients of CDBG Grantees 

Appendix A—Field Office Survey Sample

Field Office Survey Sample (continued) 

Area Office City Amount 

PHILADELPHIA 63,067,000 

SCRANTON 4,140,000 

Total 79,520,000 

PITTSBURGH BEAVER COUNTY 4,672,000 

HUNTINGTON 2,546,000 

PITTSBURGH 20,290,000 

WASHINGTON COUNTY 5,228,000 

WESTMORELAND COUNTY 5,282,000 

Total 38,018,000 

PORTLAND BOISE 1,562,000 

GRESHAM 1,067,000 

PORTLAND 12,105,000 

SPRINGFIELD 739,000 

VANCOUVER 1,606,000 

Total 17,079,000 

RICHMOND DANVILLE 1,258,000 

HENRICO COUNTY 1,760,000 

NEWPORT NEWS 1,961,000 

NORFOLK 6,249,000 

RICHMOND 6,008,120 

Total 17,236,120 

SAN ANTONIO AUSTIN 8,967,000 

BEXAR COUNTY 2,067,000 

HARLINGEN 1,149,000 

LAREDO 4,336,000 

SAN BENITO 609,000 

Total 17,128,000 

SAN FRANCISCO LAS VEGAS 6,122,000 

PHOENIX 20,324,000 

PIMA COUNTY 3,033,000 

TUCSON 7,456,000 

VACAVILLE 686,000 

Total 37,621,000 

SEATTLE AUBURN 482,000 

BELLINGHAM 1,022,000 

KITSAP COUNTY 1,402,000 

PIERCE COUNTY 3,555,000 

SEATTLE 14,803,000 

Total 21,264,000 

SOUTH FLORIDA BROWARD COUNTY 5,543,000 

FT LAUDERDALE 2,357,000 

MIAMI 9,928,000 

MIAMI BEACH 2,118,000 

MIAMI-DADE COUNTY 23,677,000 

Total 43,623,000 

ST. LOUIS COLUMBIA 1,010,000 

JEFFERSON CITY 381,000 

JEFFERSON COUNTY 1,379,000 

A-6 
Managing Subrecipients of CDBG Grantees 

Appendix A—Field Office Survey Sample

Field Office Survey Sample (continued) 

Area Office City Amount 

ST LOUIS 24,898,000 

ST LOUIS COUNTY 6,480,000 

Total 34,148,000 

WASHINGTON DC ALEXANDRIA 1,499,000 

PRINCE GEORGES COUNTY 7,445,000 

MONTGOMERY COUNTY 6,221,000 

PRINCE WILLIAM COUNTY 2,238,000 

WASHINGTON 22,463,000 

Total 39,866,000 

A-7 
Managing Subrecipients of CDBG Grantees 

Appendix B—Field Office Survey

Appendix B—Field Office Survey 

CDBG Subrecipient Management Study

Field Office Survey 

Field Office Information:

Name of Field Office:

Name of Staff Person to contact if needed for clarification: 

Name:

Telephone No.:

Introduction: 

HUD’s Office of Policy Development and Research is funding a study aimed at evaluating the 

effectiveness of the management of CDBG subrecipients by grantees. For purposes of this study 

“management” includes all aspects of subrecipient oversight: pre-award assessment, crafting subrecipient 

agreements, orientation, training, technical assistance, monitoring strategies, system/procedures for 

tracking progress, follow-up procedures and performance reviews/audits. As part of this effort, we are 

seeking to learn more about how grantees go about this aspect of managing their grant funds. The study 

will enable us to identify best practices and improve the technical assistance that HUD can offer to 

grantees on this issue. 

The survey is divided into two parts. The first part asks you to nominate grantees (within your field 

office’s jurisdiction) that have particularly effective, or ineffective, management practices. Those 

nominated will be considered as candidates for further onsite research. All names will remain confidential 

The second part asks for an assessment of the subrecipient management practices of selected grantees. 

These grantees were randomly chosen from among entitlement jurisdictions with a bias towards larger 

grantees. No more than five grantees have been selected for this portion of the survey. This part may be 

completed by more than one person. 

B-1 
Managing Subrecipients of CDBG Grantees 

Appendix B—Field Office Survey

Part 1: Grantees with Particularly Effective or Ineffective Practices 

This section asks you to identify any grantees within your field office’s jurisdiction that you would 

recommend to us as having particularly effective or ineffective practices. 

1. Which, if any, of your CDBG grantees are particularly effective in their management of 

subrecipients? Which aspect of their management do you believe to be superior? You may name up 

to two grantees below. 

Part A. Grantee Name:

Identify superior subrecipient management approach(es): 

Indicate activity area(s) from activity legend:10

Part B. Grantee Name:

Identify superior subrecipient management approach(es): 

Indicate activity area(s) from activity legend: 

2. Which, if any, of your CDBG grantees are seriously deficient in their management of subrecipients? 

Which aspect of their management do you believe to be deficient? (You may name up to two 

candidates below.) 

Part A. Grantee Name:

Identify subrecipient management problem(s): 

Indicate activity area(s) from activity legend: 

Part B. Grantee Name:

Identify subrecipient management problem(s): 

Indicate activity area(s) from activity legend: 

For any grantee that you listed in Questions 1 or 2 above, place an asterisk by the name if the grantee 

hires an outside firm to manage its CDBG program. 

3. What proportion of the CDBG monitoring findings/concerns your office has made as part of 

monitoring or audits over the past several years involve the use of subrecipients? (An estimate is 

acceptable) 

1 High (Over 75%) 3 Medium-Low (25-

50%) 

2 Medium High (50- 4 Low (Under 25%) 

75%) 

4. Are you aware of any particular challenges any of your grantees are experiencing in managing faith 

based subrecipients to carry out CDBG activities? (If yes, please elaborate in comments section 

below) 

1 Yes 2 No 

5. Are you aware of any successes your grantees have had in utilizing faith-based subrecipients? (If yes, 

please elaborate in comments section below.) 

10 Activity Type Legend: 

H: Housing 

ED: Economic Development 

PS: Public Services 

CNR: Comprehensive Neighborhood Revitalization – a mixture of activities carried out by community 

development organizations. 

B-2 
Managing Subrecipients of CDBG Grantees 

Appendix B—Field Office Survey

1 Yes 2 No 

Additional Comments: 

(Please use the space below to provide additional comments on any of the questions above.) 

CDBG Subrecipient Management Study Field Office Survey 

Part 2: Questions about Selected Grantees 

Field Office Information:

Name of Field Office:

Name of Staff Person to contact if needed for clarification: 

Name:

Telephone No.:

We have developed a sample set of grantees to examine in greater detail to assist us in this effort. We 

would like for you to review the following grantees in the sample set which fall under your field office’s 

purview. The number of grantees we are requesting that you review is at most five grantees. Please 

answer the questions below about each of these grantees based on your knowledge of their current 

performance. Please complete a separate “Part 2” questionnaire for each of the sampled grantees (see 

attached sample list). 

Grantee Name : 

1. What proportion of the CDBG spending in an average year would you estimate is allocated to 

subrecipients? 

1 (Over 75%) 3 (25-50%) 

2 (50-75%) 4 (Under 25%) 

2. Indicate below if subrecipients are used to deliver more than 50 percent of the funding in the 

Housing, Economic Development, and Public Services activity areas: 

Housing 

Economic Development 

Public Services 

Yes No 

Yes No 

Yes No 

3. Please indicate whether you agree or disagree with the following statement: generally speaking, the 

pool of potential public and nonprofit subrecipients (in this grantee’s jurisdiction) is large enough, 

and capable enough, to carry out community development programs effectively. 

 Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree 

4. The following are some indicators of effective performance in managing programs and activities 

delivered by subrecipients. Indicate how well you believe the grantee fits the description for each. 

Where performance is different across different types of programs (for example, economic 

development or social services) please weight your answer toward programs with higher levels of 

funding. 

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Appendix B—Field Office Survey

Identifies problems with subrecipient activities before they become serious and takes appropriate 

action to correct the problems. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Takes actions to ensure that the projects carried out by subrecipients contribute effectively to the 

community’s needs and priorities. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Keeps the portion of the program carried out by subrecipients free from serious infractions of program 

rules and applicable laws. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Changes the mix of subrecipients in response to changes in community development needs, 

subrecipient capabilities and performance, or city program delivery policies. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

5. The following are some characteristics of specific practices used by grantees to manage subrecipients. 

Please indicate how well you believe the grantee fits the description for each characteristic: 

Conducts effective outreach to encourage participation by a range of subrecipient agencies. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Selects subrecipients based on risk analysis of their capacity to carry out programs effectively. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Tailors subrecipient selection procedures to match project size and complexity. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Tailors subrecipient selection procedures to match applicant size. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Uses a competitive process to select subrecipients. 

1 Yes 2 No 3 Don’t Know 

Executes agreements that clearly stipulate subrecipient responsibilities. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Imposes reasonable record-keeping and financial management standards. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Effectively monitors subrecipient financial management, record keeping and performance. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Effectively monitors subrecipient documentation and use of program income 

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Appendix B—Field Office Survey

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Makes timely payments to, or supplies needed authorizations to contractors. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Provides capacity-building funding and/or targets technical assistance to troubled subrecipients. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Collects appropriate and high-quality accomplishments information from subrecipients. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

Sanctions subrecipients for sub-par performance. 

1 Very Well 2 Somewhat Well 3 Not Very Well 4 Not at All Well 

6. To your knowledge has this grantee taken action to increase the role of faith-based organizations in its 

CDBG program as a result of recent administrative emphasis?

 1 Yes 2 No 3 Don’t Know 

Additional Comments: 

(Please use the space below to provide additional comments on any of the questions above.) 

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Managing Subrecipients of CDBG Grantees 

Appendix C—Interview Guides

Appendix C—Interview Guides for Community 

Development Directors, Program Managers, and 

Subrecipients

This guide will be used to interview the Community Development Director or senior Program Managers. 

GRANTEE: 

RESPONDENT: 

A brief introduction will be provided along the following lines: We are conducting a study for the US 

Department of Housing and Urban Development to describe a range of effective management practices 

used by CDBG grantees in managing their subrecipients and to highlight certain practices that might be 

helpful to policymakers and practitioners around the country. As part of our study, we selected a number 

of grantees that have earned a reputation for effectively managing their subrecipients. The grantee may 

have demonstrated a particularly effective management practice or set of practices that makes the 

grantee more successful than others in using subrecipients to carry out its CD program. We have 

identified the grantees through a survey of CPD field office staff, conversations with leaders in the 

community development field, and an examination of IDIS and GMP data. 

 Over the next two days we hope to document the practices or activities you use to manage your 

subrecipients. We hope to interview a number of subrecipients as well. We aim to gather enough 

information to paint a detailed picture of your practices. It is our goal to share this information in a 

format that will allow policymakers and practitioners alike to benefit from your experience and ideas. 

Thank you for agreeing to speak with us today. Your opinions and experiences are important for our 

study. The information you provide will be summarized in our research reports but we will not identify 

you personally in any of our reports. We want to assure you that the information you provide will not be 

attributable to you or any individual respondent we meet with during our visit. I have a set of topics that I 

would like to discuss today, but please feel free to raise any other issues that you think are important. 

Background 

1. Confirm basic information about CDBG program. (Background information will be supplied in 

advance and confirmed by Interviewer) 

2. City/county’s annual CDBG grant for FY 04-05 is __________________. 

3. The agency/department within the city/county that has overall responsibility for managing the 

CDBG grant is ________________. 

4. Obtain a copy of the approved, FY 04-05 CDBG budget and the FY05-06 Proposed CDBG 

budget if it is available. 

5. How many subrecipients currently operate portions of your CD program? 

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Appendix C—Interview Guides

6. What services/programs are these organizations/agencies providing? 

7. Would it be possible to obtain a few examples of executed copies of your subrecipient 

agreements?

Outreach, Selection and Capacity Evaluation 

1. How do you determine which activities will be delegated to subrecipients? 

2. What does your agency do to attract new subrecipients? (Advertise, outreach, etc.) 

3. How do you select subrecipients? Is there a formal process for reviewing and selecting 

subrecipients?

4. What does your agency do to select the most qualified subrecipients? 

5. Does your agency evaluate the capacity of subrecipients? How is this done? What do you do 

when there is more than one qualified subrecipient for an activity? 

6. How do you know whether the subrecipient has the capacity to carry out the proposed activities? 

Do you establish capacity thresholds to qualify subrecipients? 

7. What does your agency do to ensure the successful outcome of the subrecipient’s CD program? 

Management Practice (General) 

1. Can you describe any significant problems your city/county encountered 

in managing its CDBG subrecipients which resulted in a monitoring finding or which 

seriously impacted the outcome of your CD program during the last ten years? 

2. Did you develop any new approaches to managing your subrecipients to address these problems? 

(Describe) 

3. How has this worked for you? Has the problem reoccurred? 

4. Was it difficult to implement the new management strategy? 

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Appendix C—Interview Guides

5. What did it “take”, in terms of staffing and other resources to develop and implement the new 

practice? 

6. Who was involved in the decision to change the management practice? (Was it initiated at the 

staff level, director level, elected official level, other?) 

Management Practice (Specific) 

Follow “A.” if we have learned about a specific practice, if not use ”B.” to lead into questions 1, 2, 

3 and 4. 

A. Through conversations with CPD Field offices and others in the CD arena, we learned of certain 

practices that you are using to better manage your subrecipients. We learned that in your city/county (-xmanagement practice) is used to ensure the best possible CD outcomes are achieved. 

1. Can you explain how this (practice) works? 

2. Can you illustrate the practice with some examples? We are particularly interested in finding out 

what it takes to implement such a strategy. We’d like to take back concrete examples of how it is 

implemented and the impacts of its use. (For example., any written supporting documents such as 

instructions to subrecipients, reporting formats, training materials, meeting agenda, 

communication protocols, staffing flowcharts, etc.) 

3. How difficult would it be to transfer this practice to another large/small grantee? What problems 

would you envision? Do you think there would be value in sharing your approach(es) with other 

grantees? 

4. If you were going to implement these practices for the first time, knowing what you know now, 

would you do anything differently? Would you improve upon what you do now in any way? 

B. Through conversations with CPD Field Offices and others in the CD arena, your city/county was 

identified as being an effective manager of CDBG subrecipients. What do you think your city/county is 

doing in the management of its subrecipients that sets you apart from other CD grantees and how does 

this impact upon your successful delivery of CD programs? (Go to 1, 2, 3 and 4). 

Are you currently facing any problems with subrecipients that you wish there were solutions for? 

Training and Technical Assistance 

1. What activities are undertaken to “cultivate” (educate, train, inform, increase capacity, acquaint 

and orient) subrecipients? 

2. Would you describe these activities (to “cultivate” subrecipients) as a high, medium, or low 

priority of your agency? 

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Appendix C—Interview Guides

3. Can you estimate how much money is spent on training and educating subrecipients, 

distinguishing between money spent on educating/outreach to applicants and money spent on 

educating/training the actual subrecipient? 

4. Are new subrecipients provided any training or other special instruction? Are old ones trained 

again each year? 

5. Are subrecipients that are carrying out particularly large or complex projects provided any special 

training or targeted assistance by the grantee? Is training provided in response to needs 

identified during monitoring? Upon subrecipient’s request? 

Performance Assessment, Negotiation and Agreements 

1. Can you describe the activities your agency undertakes to evaluate the subrecipient’s performance 

and when these activities occur over the grant period? 

2. Is information on the subrecipient’s prior performance used in a meaningful way during the 

negotiation and development of new subrecipient agreements? 

3. Can you describe your approach to establishing the formal subrecipient agreement that binds the 

subrecipient to the grantee? How important is the subrecipient agreement in the management of 

the subrecipient? Who “drives” the development of the agreement? (Attorney’s, program staff, 

the subrecipient, the grantee?) Are the subrecipient agreements used as an active management 

tool during the course of the grant’s administration? 

4. Does the subrecipient agreement clearly identify products, timetables, regulations, cost 

documentation, documentation of public benefit and other statutory requirements, treatment of 

program income, etc.? 

5. Is the subrecipient’s “pay” contingent upon its performance and is this aggressively monitored 

and enforced? 

Self –Assessment / Management Oversight 

1. What aspects of your management practice do you feel contribute most to the overall 

accomplishment of community development objectives and ultimately to more effective delivery 

of subrecipient programs? 

2. Many “management activities” are required or recommended in the administration of the CD 

program. Are there particular management functions which you are required to perform but which 

you feel are not productive, either in terms of promoting the subrecipient’s productivity or your 

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Appendix C—Interview Guides

own? What would you eliminate from your required or recommended, 

administrative/management load?

PROGRAM MONITOR INTERVIEW GUIDE 

This form should be used to interview public agency staff responsible for overseeing various elements of 

subrecipient management systems. For those who are responsible for only one element or aspect of the 

system, ask the questions as they pertain to only that aspect. The Subrecipient Management System Form 

should be used to consolidate information about a system as a whole. 

Each respondent will be informed at the beginning of the interview that the information they provide will 

be summarized in our research reports but that we will not identify them personally in any of our reports. 

GRANTEE: 

RESPONDENT: 

1. Please describe the various elements of the subrecipient management system. 

2. How are applicants selected to carry out activities? Describe the elements of the selection 

process, as well as application requirements and related documentation. How do you assess 

subrecipient capacity to carry out program(s)? On what basis do you make funding decisions? 

Are there other funders of this activity, typically, and if so, how does this process compare to 

those used by other funders of this activity? 

3. What information or training do you give concerning federal and other requirements of the 

program; for example, on meeting national objectives, qualifying eligible activities, documenting 

expenditures and beneficiary information, and adhering to environmental, labor, procurement, 

and other requirements. Are there areas in which you believe your training on these issues could 

be better? 

4. Specifically, what performance measures, if any, are included in your agreements with 

subrecipients? Are there penalties or incentives for meeting, or not meeting, them? As a result of 

these requirements, have you sanctioned subrecipients in any way? Has it triggered corrective 

action, or technical assistance in concrete instances? What affect do you believe these measures 

have had on your, and subrecipient, ability to carry out programs? 

5. What kinds of reports do you require? What documents and information are you expected to 

record / retain? 

6. What kind of training or technical assistance do you provide, either out of this office, another part 

of city government, or by consultants or other parties funded by local government? So far as you 

know, in terms of content, timing, and quality, how does this training/TA compare to that 

provided by other funders of this activity? 

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Appendix C—Interview Guides

7. From your perspective as a manager, do you believe that the CDA’s requirements and subsequent 

efforts to document / enforce them are reasonable in light of the need to protect the financial and 

legal integrity of this program? Are there areas in which they might be strengthened to better 

defend the public interest? Or relaxed as being unnecessary or overly burdensome to at least 

some of your grantees (which ones)? 

8. From your perspective as a manager, do you believe the CDA’s requirements and subsequent 

efforts in any way help organizations better carry out this activity (aside from making sure they 

comply with all applicable laws and regulations)? Are there areas in which your efforts might 

help subrecipients accomplish their goals more effectively? 

SUBRECIPIENT INTERVIEW GUIDE 

This interview guide will be used to collect information on the subrecipient management sequence as 

viewed by the subrecipients themselves. Respondents will be informed at the beginning of the interview 

that the information they provide will be summarized in our research reports but that we will not identify 

them personally in any of our reports. 

GRANTEE:

SUBRECIPIENT: 

TYPE OF ACTIVITY CONDUCTED: 

FUNDING AMOUNT IN FY 2004: 

1. What is the mission of your organization? How does this activity contribute to that mission? 

How well does the mission of the CDA / other public agency funder of this activity match up 

to your own? 

2. Please describe the funded activity. Discuss its level of difficulty, relationship to previous work, 

level of funding in relation to expected outputs, sources of other funding? 

3. How were you selected to carry out this activity? Describe the elements of the selection process, 

as well as application requirements and related documentation? So far as you know, how did 

the CDA assess your capacity to carry out this program? On what basis did they make their 

funding decision? In your view, was the application process reasonable and fair? If there are 

other funders, how did this process compare to those used by other funders of this activity, if 

any? 

4. What information or training were you given concerning the federal and other requirements of the 

program; for example, on meeting national objectives, qualifying eligible activities, 

documenting expenditures and beneficiary information, and adhering to environmental, labor, 

procurement, and other requirements. Do you believe the information you received was 

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Appendix C—Interview Guides

adequate? How could it have been better? Did you learn anything that might be of value in 

your other, non-CDA-funded work? 

5. Specifically, what performance measures, if any, were included in your agreement? Do you 

agree with the CDA that these measures were the right ones? Do they accurately capture 

your accomplishments? Are there penalties or incentives for meeting, or not meeting, them? 

As a result of these requirements, have you done anything differently than you might have in 

the past, or in non-CDA-funded work? Has this been beneficial, or detrimental, to your 

ability to carry out programs? How did the performance measures used by the CDA compare 

to those used by other funders of this activity, if any? 

6. What kinds of reports are you obliged to file? What documents and information are you expected 

to record / retain? As a result of the CDA’s requirements and monitoring, have you put 

procedures in place or introduced other management changes that you believe will aid your 

ability to carry out programs? Are there changes that you believe inhibit your ability to carry 

out programs? How do the CDA’s requirements compare to those imposed by other funders 

of this activity? 

7. What kind of training or technical assistance have you received from the CDA, or funded by the 

CDA, since the beginning of your grant-funded activities? In terms of content, timing, and 

quality, how does this training/TA compare to that you may have received in the past, or 

concurrently, from other local supporters? From other funders of this activity? 

8. From your perspective as a subrecipient, do you believe that the CDA’s requirements and 

subsequent efforts to document / enforce them are reasonable in light of the need to protect 

the financial and legal integrity of this program? Are there areas in which they might be 

strengthened to better defend the public interest? Or relaxed as being unnecessary or overly 

burdensome? 

9. From your perspective as a subrecipient, do you believe the CDA’s requirements and subsequent 

efforts have helped you accomplish your organization’s mission, or better carry out this 

activity (aside from making sure that you comply with all applicable laws and regulations)? 

Are there areas in which the CDA’s management efforts could help you accomplish your 

goals more effectively? 

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Appendix D—Materials of Interest

Appendix D—Exemplary Practices/Materials of 

Interest 

This appendix provides examples and contacts for several exemplary management practices. 

Although it is not practical to reproduce many of the examples referenced in the report (for 

example, funding packets or contents of a Web site), contact information and directions for 

obtaining direct Internet access, along with some illustrative materials are provided below. 

1. The “Green Sheet,” Duluth’s project ranking and funding evaluation 

form. 

The Green Sheet that follows is used by program administrators to track the “scores” a 

project receives as it moves through the critical junctures of the funding allocation 

process. The Green Sheet provides the public with a clear record of how the project was 

perceived at critical review points, and enhances the transparency of the grant approval 

process. For additional information about this project ranking and funding evaluation 

form, contact Keith Hamre, as follows: 

Keith Hamre 

Community Development Manager 

Office of Planning and Development 

407 Duluth City Hall 

Duluth, MN 55802 

Telephone: 218-730-5480 

E-mail: KHAMRE@ci.duluth.mn.us 

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Appendix D—Materials of Interest

2. Los Angeles County “Partners” Web site 

Los Angeles County Community Development Corporation (LACDC) has created a 

controlled access, comprehensive Web site that provides subrecipients with everything 

they need to know about how to manage a CDBG grant. The Web site provides 

historical as well as current program information, and a rich, comprehensive, wellorganized, and attractively designed technical assistance component that draws from 

numerous resources. The resources are each just a click away for the user. A limited 

series of screenshots is provided here to illustrate the site, including an example from the 

“on-line” financial training; however, to do this site justice requires more space than is 

available in this report. LACDC has, however, offered to grant access to its Web site for 

a subscription fee of $300 per year. For additional information about how to obtain 

access to the “Partners” Web site, contact Linda Jenkins, as follows: 

Linda Jenkins, Manager 

CDBG Division 

Community Development Commission 

Telephone: 323-890-7168 

Email: Linda.Jenkins@lacdc.org 

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Appendix D—Materials of Interest

3. Fairfax County Web-based Reporting and Invoicing System (WebR) 

Fairfax County’s Web-based reporting system is illustrated here with examples from their 

monthly demographic, expenditure, and quarterly program activity reports, which all 

contractors are required to submit on-line. Once submitted, the program analyst reviews 

and approves or rejects (for corrections) the reports. An automatic e-mail is sent to the 

preparer stating that the report has been approved or rejected. For additional information 

about this Web-based reporting system, contact Alice Morris, as follows: 

Alice Morris 

Department of Administration for Human Services 

12011 Government Center Parkway, Suite 738 

Fairfax, VA 22035 

Telephone: 703-324-5968 

Demographic Report 

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Appendix D—Materials of Interest

Demographic Report (continued) 

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Appendix D—Materials of Interest

Demographic Report (continued) 

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Appendix D—Materials of Interest

Quarterly Program Report 

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Appendix D—Materials of Interest

Quarterly Program Report (continued) 

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Appendix D—Materials of Interest

Quarterly Program Report (continued) 

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Appendix D—Materials of Interest

Quarterly Program Report (continued) 

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Appendix D—Materials of Interest

Expenditure Report 

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Appendix D—Materials of Interest

4. Outcome-based Project Agreement, Asheville 

The following is a good example of a grantee’s subrecipient agreement that is tailored to 

the individual subrecipient and its activities. For additional information pertaining to this 

agreement, contact Charlotte Caplan, as follows: 

Charlotte Caplan 

Community Development Director 

City of Asheville 

P.O. Box 7148 

Asheville, NC 28802 

Telephone: 828-259-5723 

E-mail: ccaplan@ashevillenc.gov 

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Appendix D—Materials of Interest

5. Pre-Application Format 

Following is the combined CDBG/HOME ESGP Pre-Application used by the City of 

Duluth to help focus the review process earlier. For additional information about this 

pre-application form, contact Keith Hamre, as follows: 

Keith Hamre 

Community Development Manager 

Office of Planning and Development 

407 Duluth City Hall 

Duluth, MN 55802 

Telephone: 218-730-5480 

E-mail: KHAMRE@ci.duluth.mn.us 

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Appendix D—Materials of Interest

PRE - APPLICATION INSTRUCTIONS CDBG/HOME/ESGP 2006

ELIGIBLE APPLICANTS are: nonprofit agencies, for-profit businesses, governmental 

units and Institutions of Higher Education. 

Please note that the following activities are generally ineligible under HUD 

regulations: 

# Buildings for the general conduct of government 

# Political activities 

# Income payments for housing 

# Religious activities 

Your proposal should consist of the Cover Page, Program Budget Form, and a one 

page narrative proposal responding to the items listed below. Narrative responses 

should be complete but as concise as possible. 

I. PROJECT PROPOSAL (narrative page) 

< Briefly describe your project or program, including services to be provided 

or activities undertaken and any collaborations. 

< Describe what geographic area does your project cover 

< Who are you going to serve in this proposal 

< Describe the need for a program like your proposal, i.e. How many people 

need this project or activity within the community 

Describe what the CDBG/HOME/ESGP funding will be specifically used for in the 

program or project. (The Budget Form should have the amounts, this section should 

describe that line item) 

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Appendix D—Materials of Interest

FY 2006 APPLICATION 

CITY OF DULUTH 

HOME / CDBG / ESG Programs 

Organization: 

Address: Duluth, MN Zip: 

Contact Person: Phone: 

New Applicant (check one): Yes No 

Proposed Project(s) 

Project Title: 

Amount Requested 

CDBG $ HOME $ ESGP $ 

Organization Type (check all that apply): 

For Profit Non Profit Public CBDO* CHDO* 

*Certification Date: 

Program goal: (Number & type): 

Percent of goal that is income eligible: 

Project Type (check all that apply): 

CDBG: 

Housing Economic 

Development 

Public Facility 

Improvement 

Public 

Services 

Planning (Contact 

City Staff) 

HOME : 

Rehabilitation New 

Construction 

CHDO CHDO 

Operating 

ESGP: 

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Appendix D—Materials of Interest

FY 2006 HOME / CDBG / ESG Programs - Application 

I. Project Description 

A. Proposal: 

B. Program Need and Assistance: 

II. Program Inputs 

A. Service and Activities: 

B. Program Timeline: 

III. Program Outcome Measurements 

A. Outcome Objectives: 

B. Outcome Measurement: 

C. New Applicants (only): 

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Appendix D—Materials of Interest

FY 2006 HOME / CDBG / ESG Programs 

IV. Budget Narrative 

A. Total Program Sources 

Amount Secured Anticipates 

CDBG 

HOME 

ESGP 

B. Program Uses: 

C. Housing Applications (only): 

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Appendix D—Materials of Interest

FY 2006 CDBG/HOME/ESG PRE-APPLICATION 

PROGRAM BUDGET FORM 

Total Program Budget for FY 2006 Project _________________________* (Total of All Program 

Sources) 

SOURCES AND USES OF FUNDING FOR 2006 PROJECT (Itemize budget and list what source(s) will pay for 

each line item.) 

Budget Item* CDBG HOME ESG Other 

Public 

Other 

Private 

Line Item 

Total 

TOTALS FOR 

FUNDING SOURCE 

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