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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

May 2010: 

Homelessness: 

Information on Administrative Costs for HUD's Emergency Shelter Grants 
Program: 

GAO-10-491: 

GAO Highlights: 

Highlights of GAO-10-491, a report to congressional committees. 

Why GAO Did This Study: 

The Homeless Emergency Assistance and Rapid Transition to Housing Act 
of 2009 (HEARTH Act) directed GAO to study the appropriate 
administrative costs of the U.S. Department of Housing and Urban 
Development (HUD) Emergency Shelter Grants Program (ESG)—a widely 
used, formula-based program that supports services to persons 
experiencing homelessness. This report discusses (1) for selected 
recipients, the types of administrative activities performed and 
administrative costs incurred under the ESG program, and the extent to 
which grant proceeds cover these administrative costs; (2) how the ESG 
program’s allowance for administrative costs compares with 
administrative cost allowances for selected other targeted federal 
homeless grant programs, plus selected other HUD formula-based grant 
programs; and (3) how the nature or amount of administrative costs 
might be different under changes Congress made to the ESG program in 
the HEARTH Act that expand the types of activities that may be funded. 
To address these issues, GAO reviewed relevant policies and documents, 
interviewed officials of HUD and other agencies, made site visits in 
four states, reviewed HUD and other available standards on eligible 
administrative costs for federal grants, and reviewed cost allowances 
for homeless programs of the Departments of Education, Labor, and 
Health and Human Services. GAO makes no recommendations in this report. 

What GAO Found: 

ESG grantees and subgrantees we visited in four states performed a 
range of administrative activities, but the ESG program’s allowance 
for administrative costs—currently 5 percent—did not fully cover the 
cost of these activities. Grantees generally focused their 
administrative activities on awarding subgrants and monitoring 
subgrantee performance, while subgrantees focused their administrative 
activities on operating their programs and reporting results to their 
respective grantees. To cover unfunded ESG administrative costs, 
grantees and subgrantees told us they used other sources, such as 
other grants or private donations. They added that these estimated 
unfunded administrative costs, which averaged 13.2 percent and ranged 
from amounts equal to 2.5 percent to 56 percent of their ESG grant 
proceeds, diminished their ability to support other program 
activities. In addition, we found minimal standards available for 
evaluating the appropriateness of ESG administrative costs, and 
grantees and subgrantees in the states we visited monitored ESG 
administrative costs in varying levels of detail. 

The funding and treatment of administrative costs varied across other 
targeted federal homeless grant programs we reviewed. For example, the 
maximum administrative allowance for grantees ranged from 4 percent to 
50 percent for programs with such a provision; the ESG program’s 
current 5 percent allowance is thus one of the lower amounts provided. 
Programs with similar funding structures varied in their requirements 
for grantees to share their administrative allowance with subgrantees; 
the ESG program generally does not require grantees to share their 
allowance. In addition, none of the programs we reviewed offered 
comprehensive direction on eligible and ineligible administrative 
activities. Overall, these and other varying program features make it 
difficult to make direct comparisons between the administrative cost 
provisions of the ESG program and those of other targeted federal 
homeless grant programs. 

A number of ESG grantees and subgrantees we visited told us they 
expect the new ESG activities authorized by the HEARTH Act will result 
in different kinds of administrative activities that in many cases 
will be more costly. They cited client screening and eligibility 
verification, technical assistance to subgrantees, number of grant 
applicants, and facility management and collaboration with third 
parties as among areas where administrative costs may increase. 
Although the HEARTH Act makes significant changes, including 
increasing the administrative cost allowance to 7.5 percent, it 
remains unclear when new program activities might be implemented. 
Uncertainty over how and when the new ESG program might be 
implemented, plus variation in administrative activities under the 
current program, complicate any attempt to determine the appropriate 
size of the ESG administrative allowance. 

HUD told us in comments on a draft of this report that some 
subgrantees appear to be confusing program and administrative costs, 
thus potentially overstating any need for a larger administrative 
allowance. 

View [hyperlink, http://www.gao.gov/products/GAO-10-491] or key 
components. For more information, contact Alicia Puente Cackley at 
(202) 512-8678 or cackleya@gao.gov. 

[End of section]

Contents: 

Letter: 

Background: 

Grantees and Subgrantees We Visited Reported a Range of Administrative 
Activities Whose Costs Generally Were Not Fully Covered by the ESG 
Allowance: 

Funding and Treatment of Administrative Costs Varied Across Selected 
Federal Grant Programs: 

Some ESG Recipients Expect the Nature of Administrative Costs to 
Change and the Amount to Increase under New Activities Authorized by 
the HEARTH Act: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Retention of ESG Administrative Allowance by Selected 
Grantees: 

Table 2: Grantee Administrative Allowance for Selected HUD Formula 
Grant Programs: 

Table 3: ESG Grantee Summary for States Visited, Fiscal Year 2009: 

Figures: 

Figure 1: The Distribution of ESG Grants by State, Fiscal Year 2009: 

Figure 2: How ESG Grants Fund Homeless Services: 

Figure 3: ESG Grantee Administrative Activities by Major Categories: 

Figure 4: ESG Subgrantee Administrative Activities by Major Categories: 

Figure 5: Estimated Unfunded ESG Administrative Costs for Grantees and 
Subgrantees in Selected States: 

Figure 6: ESG Administrative Cost Provisions Compared to Selected 
Other Federal Homeless Programs: 

Abbreviations: 

CDBG: Community Development Block Grant: 

ESG: Emergency Shelter Grants Program: 

HEARTH Act: Homeless Emergency Assistance and Rapid Transition to 
Housing Act of 2009: 

HUD: Department of Housing and Urban Development: 

OMB: Office of Management and Budget: 

[End of section]

United States Government Accountability Office: 
Washington, DC 20548: 

May 20, 2010: 

Congressional Committees: 

Against a backdrop of economic recession, an estimated 1.2 million to 
2 million people used an emergency shelter or transitional housing 
program during the 12-month period ending September 30, 2008, 
according to a July 2009 report to Congress on homelessness.[Footnote 
1] That report also provided some early indications of how the 
sheltered homeless population might be changing as a result of the 
recent economic downturn. For example, the report noted that family 
homelessness, considered to be more sensitive to economic conditions 
than homelessness among individuals, has increased. In addition, the 
report noted that the number of those who reported living with family 
or friends the night before entering a homeless residential facility 
has increased, which could also reflect the economic downturn, because 
people tend to use all alternative housing options before resorting to 
the shelter system. Finally, the report noted that a larger percentage 
of sheltered homeless persons have come from stable accommodations 
prior to entering a facility.

The U.S. Department of Housing and Urban Development (HUD) Emergency 
Shelter Grants Program (ESG), a widely used federal program to address 
homelessness, provides funds for emergency shelters to help people 
achieve independent living. Under the program, HUD makes grants to 
states, large cities, urban counties, and U.S. territories. With the 
exception of states, these direct recipients, or "grantees," may carry 
out ESG projects through their own departments or agencies, or may 
make the funds available in the form of subgrants to nonprofit 
organizations that carry out ESG projects. State grantees, however, 
cannot use their ESG grant funds to conduct their own program 
activities and instead must subgrant funds to nonprofit organizations 
or local governments to carry out ESG projects.[Footnote 2] Eligible 
ESG projects include the renovation, rehabilitation, or construction 
of buildings to be used as emergency shelters; operation of the 
facilities; essential supportive services (including those related to 
employment, health, drug abuse, or education); and homeless prevention.

The Homeless Emergency Assistance and Rapid Transition to Housing Act 
of 2009 (HEARTH Act) made significant changes to the ESG program. 
[Footnote 3] Among other things, the act, which renamed the program 
the Emergency Solutions Grants Program, increased the range of 
eligible homeless prevention and re-housing activities, including 
short-or medium-term rental assistance and housing stabilization 
services. In general, according to HUD, the act shifted program 
emphasis from providing shelter to fostering housing stability. The 
act also increased the percentage of grant funds that grantees may use 
for administrative purposes from 5 percent to a maximum of 7.5 
percent. Finally, the HEARTH Act directed GAO to conduct a study of 
the appropriate administrative costs for the ESG program.

In this report, we provide information about ESG program 
administrative costs, based in significant part on our work at 
selected grantees and subgrantees in four states. More specifically, 
this report discusses (1) for selected recipients, the types of 
administrative activities performed and administrative costs incurred 
under the ESG program, and the extent to which grant proceeds cover 
these administrative costs; (2) how the ESG program's allowance for 
administrative costs compares with administrative cost allowances for 
selected other targeted federal homeless grant programs, plus selected 
other HUD formula-based grant programs; and (3) how the nature or 
amount of administrative costs might be different under the changes 
Congress made to the ESG program in the HEARTH Act.

To address these issues, we reviewed the ESG program's authorizing 
legislation, objectives, and implementing regulations. In addition, we 
interviewed HUD officials knowledgeable about the ESG program. We made 
site visits to four states--California, Georgia, Michigan, and 
Pennsylvania--where we interviewed selected ESG grantees and 
subgrantees and obtained estimates of their ESG administrative costs. 
We selected these states based on geographic balance and the total 
amount of funding HUD provided to state grantees for fiscal year 2009. 
We also reviewed available sources, including from HUD, regarding 
eligible administrative costs for federal grants. Further, we reviewed 
the administrative cost allowances for homeless grant programs 
administered by the Departments of Labor, Education, and Health and 
Human Services, and we interviewed officials from these departments 
knowledgeable about the programs. Finally, we reviewed the HEARTH Act 
changes to the ESG program and obtained the perspectives of HUD 
officials, 34 grantees and subgrantees we visited, various nonprofit 
organizations that advocate for people experiencing homelessness, and 
others regarding how these changes might affect the nature or amount 
of administrative costs for the ESG program. Appendix I provides a 
more detailed description of our scope and methodology.

We conducted this performance audit from August 2009 to May 2010, in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives.

Background: 

According to HUD, the ESG program was designed to be the first step in 
a continuum of assistance to prevent homelessness and to enable 
individuals and families experiencing homelessness to move toward 
independent living.[Footnote 4] More specifically, the program 
objectives were to increase the number and quality of emergency 
shelters for individuals and families experiencing homelessness, to 
operate these facilities and provide essential social services, and to 
help prevent homelessness. The ESG program is targeted at persons 
experiencing homelessness.[Footnote 5] It was originally established 
by the Homeless Housing Act of 1986, in response to the growing issue 
of homelessness among men, women, and children in the United States. 
[Footnote 6] In general, the ESG program uses the Community 
Development Block Grant (CDBG) formula as the basis for allocating 
funds to states, metropolitan cities, and urban counties.[Footnote 7] 
The CDBG formula uses factors reflecting community need, including 
poverty, population, housing overcrowding, and age of housing. 
According to HUD, in fiscal year 2009, there were 360 ESG grantees. 
[Footnote 8]

For fiscal year 2009, HUD awarded $160 million in ESG funding to 
grantees. Figure 1 shows the total amount of ESG funds received by 
grantees, by state, for fiscal year 2009.

Figure 1: The Distribution of ESG Grants by State, Fiscal Year 2009: 

[Refer to PDF for image: illustrated map of the U.S.] 

Total amount received by state and eligible local governments: 

$500,000 or less: 
Alaska: 
Delaware: 
Montana: 
North Dakota: 
South Dakota: 
Vermont: 
Wyoming: 

Greater than $500,000 to $1 million: 
District of Columbia: 
Hawaii: 
Idaho: 
Maine: 
Nebraska: 
Nevada: 
New Hampshire: 
New Mexico: 
Rhode Island: 
Utah: 

Greater than $1 million to $3 million: 
Alabama: 
Arizona: 
Arkansas: 
Colorado: 
Connecticut: 
Iowa: 
Kansas: 
Kentucky: 
Louisiana: 
Maryland: 
Minnesota: 
Mississippi: 
Missouri: 
Oklahoma: 
Oregon: 
South Carolina: 
Tennessee: 
Virginia: 
Washington: 
West Virginia: 
Wisconsin: 

Greater than $3 million to $10 million: 

Florida: 
Georgia: 
Illinois: 
Indiana: 
Massachusetts: 
Michigan: 
New Jersey: 
North Carolina: 
Ohio: 
Pennsylvania: 
Puerto Rico: 

Greater than $10 million: 
California: 
New York: 
Texas: 

Source: GAO analysis of HUD data; map (MapInfo). 

Notes: Amounts shown are for federal ESG grants only. The U.S. 
territories of Guam, Virgin Islands, American Samoa, and Northern 
Mariana Islands received $320,000 combined. 

[End of figure] 

The ESG program generally requires matching contributions by grantees, 
thus increasing the total funds used to provide services under the 
program. Metropolitan cities and urban counties must match the ESG 
funding dollar-for-dollar with cash or noncash resources from public 
or private sources. States are generally subject to the same 
requirement, with an exemption for the first $100,000 in funding. 
[Footnote 9]

ESG funds may reach eligible projects through different routes, as 
shown in figure 2. First, HUD allocates ESG funds to grantees. 
Metropolitan cities, urban counties, and territories may carry out the 
program directly or subgrant all or part of their ESG funds to 
nonprofit organizations. States cannot carry out program activities 
directly, and must subgrant ESG funds (but may retain up to 5 percent 
for administration, as discussed below) to local governments or 
nonprofit organizations. Local governments receiving ESG funds as a 
subgrant from the state may carry out the program themselves or 
further subgrant funds to nonprofit organizations. HUD allows ESG 
grantees flexibility to determine how to award funds to subgrantees. 
For example, many grantees conduct a competitive process for awarding 
funds to subgrantees. Other grantees offer repeat funding to 
organizations that have demonstrated success with ESG-funded homeless 
assistance programs in the past, or they alternate funding each year 
among multiple agencies with ongoing homeless assistance programs. 
Grantees also might make relatively few, but relatively larger, 
subgrants, or award relatively smaller grants to a greater number of 
subgrantees.

Figure 2: How ESG Grants Fund Homeless Services: 

[Refer to PDF for image: illustration] 

HUD: 

Funding (generally based on formula for Community Development Block 
Grant program): 

Metropolitan cities (including the District of Columbia), urban 
counties, territories[A] (can retain administrative allowance): 
Can carry out program directly, or subgrant to Nonprofit organizations. 

States (including Puerto Rico) (can retain administrative allowance): 
Must subgrant to: 
* Nonprofit organizations; 
* Must share portion of administrative allowance with Local 
governments; 
- Can carry out program directly, or subgrant to Nonprofit 
organizations. 

Source: GAO, HUD. 

[A] Regulations require HUD to set aside 0.2 percent of the total ESG 
allocation for U.S. territories. 

[End of figure] 

Subgrantees and grantees that are not states may use ESG funding to 
conduct a range of eligible activities which, as previously noted, 
include the rehabilitation or remodeling of buildings to be used as 
shelters, operation of the facilities, essential supportive services, 
and homeless prevention.

Under current law, ESG program grantees may use up to 5 percent of 
their grant award for administrative purposes, which can include staff 
to administer the grant, the preparation of progress reports and 
audits, or the monitoring of subgrantees.[Footnote 10] Grantees are 
not required to share any of their ESG administrative allowance with 
subgrantees, except in one instance--when a state awards a subgrant to 
a unit of local government. According to HUD, the department does not 
track the extent to which grantees share their ESG administrative 
allowance with subgrantees.

The HEARTH Act made major changes to the ESG program, while renaming 
it the Emergency Solutions Grants Program. As noted earlier, the 
HEARTH Act changed the amount of ESG funds that grantees may use to 
cover administrative costs, increasing it from 5 percent to a maximum 
of 7.5 percent of the total grant amount. Programmatically, the HEARTH 
Act also made the following changes: 

* The act authorized new eligible homeless assistance activities: 
short-term rental assistance, medium-term rental assistance, security 
deposits, utility deposits and payments, and moving costs.[Footnote 11]

* It established housing relocation and stabilization services as a 
major focus area for both homeless assistance and homeless prevention, 
including outreach, housing search, legal services, and credit repair.

* It established rapid re-housing as a major focus area for homeless 
assistance. The aim of rapid re-housing is to help people experiencing 
homelessness return to permanent housing as soon as possible. 
According to a national homeless advocacy group, these efforts reduce 
the length of time people remain in homeless shelters, which in turn 
opens beds for others who need them and reduces the public and 
personal costs of homelessness.[Footnote 12]

HUD expects to implement the HEARTH Act changes, including increasing 
the allowance for administrative costs, with the program's fiscal year 
2011 allocation.

Grantees and Subgrantees We Visited Reported a Range of Administrative 
Activities Whose Costs Generally Were Not Fully Covered by the ESG 
Allowance: 

We found that ESG grantees and subgrantees in the states we visited 
performed a range of administrative activities, but the program's 
allowance for administrative costs generally did not fully cover the 
cost of these activities. As a result, grantees and subgrantees told 
us they must cover any shortfalls with funds from other sources, which 
diminishes their ability to support other activities. In addition, 
there are minimal standards that can be used as guidance for 
evaluating the appropriateness of ESG administrative costs, and we 
found that grantees and subgrantees in the states we visited monitored 
ESG administrative costs at varying levels of detail.

Grantees' Administrative Activities Focus on Awarding and Monitoring 
Subgrants, while Subgrantee Administrative Activity Centers on 
Operating Programs and Reporting Outcomes: 

Grantees in the states we visited told us they conducted various 
activities to administer their ESG allocations. As figure 3 shows, 
these activities generally fell into five categories: application/ 
approval, financial, reporting, monitoring/oversight, and other. Our 
review found these grantees' ESG administrative activities generally 
focused on awarding subgrants and monitoring subgrantee performance. 
For example, City of Philadelphia officials told us they awarded a 
total of $2.2 million through five ESG grants for fiscal year 2009 and 
their administrative activities included, among other things, approval 
and tracking of subgrantee budgets and program monitoring.

Figure 3: ESG Grantee Administrative Activities by Major Categories: 

[Refer to PDF for image: illustrated table] 

Application/approval: 
* Advise localities of grant availability; 
* Create, distribute, receive applications; 
* Hold workshops, provide information and technical assistant to 
applicants; 
* Troubleshoot applications; 
* Evaluate, rank, approve applications; 
* Share proposals with citizens, local government officials for review; 
* Recommend funding decisions to local government officials; 
* Conduct public hearings on grant funding decisions; 
* Determine subgrantee funding sources and mix, if multiple programs 
involved; 
* After approval, submit plans to HUD; 
* Negotiate, prepare contracts; 
* Conduct post-award workshops, provide other information and 
technical assistance to subgrantees. 

Financial: 
* Process grant disbursements, including related financial and 
accounting functions; 
* Planning, budgeting; 
* Audits, including auditor review of subgrantee reports; 
* Review, adjust subgrantee budgets; 
* Monitor subgrantee budgets, programs to ensure HUD compliance; 
* Report information to HUD grant management system; 
* Reconcile data discrepancies between HUD system and local accounting 
system; 
* Secure matching funds. 

Reporting: 
* Prepare reports to HUD; 
* Provide technical assistance to subgrantees for their reporting 
requirements to primary grantee; 
* Collect, assess required subgrantee progress reports; 
* Prepare annual reports on program activity. 

Monitoring/oversight: 
* Financial monitoring of subgrantees, including procurement and 
financial systems, to ensure costs incurred are eligible; 
* Program monitoring of subgrantees, including reviews for program 
eligibility, timeliness of service delivery, that the proper clients 
being served; 
* Conduct site visits/inspections; 
* Share best practices. 

Other: 
* Portion of rent, utilities; 
* Portion of senior managers’ time; 
* Information technology, including grants management system; 
* Legal review; 
* Incidental expenses; 
* Prepare Consolidated Plan (master plan for addressing homelessness); 
* General problem-solving, including denial of applications, funding 
reductions, trouble with grant reimbursements, and monitoring; 
* Addressing complaints. 

Source: GAO interviews with grantees. 

[End of figure] 

Similarly, City and County of San Francisco officials reported they 
awarded $944,900 in ESG grants to 19 local service providers for 
fiscal year 2009 and their administrative activities included site 
visits and audit reviews.

Among grantees we reviewed, current practice in retaining the 5 
percent administrative allowance varied, as shown in table 1. Where 
grantees kept all or most of the administrative allowance, officials 
told us this was to cover, at least in part, their administration 
costs. Where they kept none of the allowance, officials said this was 
to maximize funds available to local service providers. Table 1 also 
shows what grantees told us they expect to retain under the higher 
administrative allowance provided under the HEARTH Act.

Table 1: Retention of ESG Administrative Allowance by Selected 
Grantees: 

Grantee: State of California; 
Percentage retained under current ESG program (up to 5%): Retain 4%; 
Share 1%; 
Expectation for percentage retained under new ESG program (up to 
7.5%): Retain 6%; Share 1.5%.

Grantee: Oakland; 
Percentage retained under current ESG program (up to 5%): Retain 5%; 
Expectation for percentage retained under new ESG program (up to 
7.5%): Retain 7.5%.

Grantee: San Francisco; 
Percentage retained under current ESG program (up to 5%): Retain 5%; 
Expectation for percentage retained under new ESG program (up to 
7.5%): Retain 7.5%.

Grantee: State of Michigan; 
Percentage retained under current ESG program (up to 5%): Retain 0%; 
Expectation for percentage retained under new ESG program (up to 
7.5%): Retain 0%.

Grantee: Detroit; 
Percentage retained under current ESG program (up to 5%): Retain 0%[A]; 
Expectation for percentage retained under new ESG program (up to 
7.5%): Retain 7.5%.

Grantee: Commonwealth of Pennsylvania[B]; 
Percentage retained under current ESG program (up to 5%): Retain 2.5%; 
Share 2.5% with local governments; 
Expectation for percentage retained under new ESG program (up to 
7.5%): Retain 3.75%; Share 3.75% with local governments.

Grantee: Philadelphia; 
Percentage retained under current ESG program (up to 5%): Retain 5%; 
Expectation for percentage retained under new ESG program (up to 
7.5%): Retain 7.5%.

Grantee: State of Georgia; 
Percentage retained under current ESG program (up to 5%): Retain 5%; 
Expectation for percentage retained under new ESG program (up to 
7.5%): Retain 7.5%.

Grantee: Atlanta; 
Percentage retained under current ESG program (up to 5%): Retain 5%; 
Expectation for percentage retained under new ESG program (up to 
7.5%): Retain 7.5%.

Source: As reported to GAO by grantees.

[A] Before 2009, Detroit retained 5 percent, but officials reduced the 
amount to zero, in part due to declining grant amounts. 

[B] For compliance purposes, the state uses local governments to 
distribute ESG funds to local service providers. In such cases, 
sharing of the administrative allowance, from state to local 
government, is mandatory, although the amount is not specified. 

[End of table] 

Subgrantees in the states we visited also reported a range of 
administrative activity.[Footnote 13] As figure 4 shows, these 
activities generally fell into six categories: application/approval, 
financial, reporting, management, monitoring/oversight, and other. Our 
review found that their ESG administrative activities generally 
focused on operating programs and reporting outcomes. For example, one 
Georgia subgrantee told us its ESG administrative activities included 
a portion of the executive director's time, for program oversight; 
preparing monthly reimbursement requests; coordinating maintenance; 
and training and coordinating volunteers.

Figure 4: ESG Subgrantee Administrative Activities by Major Categories: 

[Refer to PDF for image: illustrated table] 

Application/approval: 
* Write grant proposals, applications; 
* Review grant contracts; 
* Participate in grant orientations, training. 

Financial: 
* Budgeting; 
* Cash management; 
* Track, allocate grant funds; 
* Billing; 
* Obtain reimbursements from primary grantees; 
* Accounting, payroll; 
* Audit; 
* Procurement; 
* Pay contractors; 
* Process checks; 
* Review documentation for checks, invoices. 

Reporting: 
* Various reports to primary grantees or others, including financial 
matters, number of clients served, services provided, number of 
clients housed, referrals made; 
* Data collection, reporting for Homeless Management Information 
System. 

Management: 
* General supervision/oversight of program operations, including time 
of executive director, managers of finance, operations, human 
resources; 
* Outreach to funding sources, participate in networking meetings; 
* Community relations, such as with police or neighbors who dislike 
shelter nearby; 
* Recruit, hire, train staff; 
* Supervise volunteers. 

Monitoring/oversight: 
* Participate in oversight meetings, visits, other activities with 
primary grantee; 
* Prepare staff for audits/oversight. 

Other: 
* Utilities, including phone, Internet; 
* Technical support, including for copiers; 
* Staff time for mailings; 
* Building, maintenance costs; 
* Rent; 
* Document staff time utilization; 
* Risk management; 
* Human resources, including employee assistance program; 
* Train, coordinate volunteers, including background checks. 

Source: GAO interviews with subgrantees. 

[End of figure]

Similarly, a Michigan subgrantee told us its ESG administrative 
activities included oversight and supervision of its program, 
financial reporting and auditing, and reporting shelter statistics.

Neither Grantees Nor Subgrantees Fully Cover Administrative Costs with 
Amounts Designated for Administration and Rely on Other Sources to 
Cover Unfunded Costs: 

Grantees and subgrantees in the states we visited told us the ESG 
administrative allowance generally did not fully cover their actual 
costs to administer the grant award, and that as a result, they relied 
on other sources to cover any unfunded costs. We found that grantees' 
and subgrantees' actual ESG administrative costs depended on a number 
of factors, such as the number of grant awards made, level of 
oversight provided, number of staff involved in administrative tasks, 
and types of ESG program activities funded. Figure 5 provides details 
on the estimated unfunded ESG administrative costs and sources used to 
cover these costs for grantees and subgrantees we visited. Overall, 
the unfunded administrative costs reported to us across the eight 
grantees and 22 subgrantees we visited for which information was 
available averaged an estimated 13.2 percent of the ESG allocation, 
with a range of 2.5 percent to 56 percent. However, HUD officials 
cautioned that some subgrantees we visited appear to be confusing 
program activities with administrative activities, which might have 
affected their estimates of actual administrative costs.

Figure 5: Estimated Unfunded ESG Administrative Costs for Grantees and 
Subgrantees in Selected States: 

[Refer to PDF for image: 4 illustrated tables] 

State: California; 
Grantee: State of California; 
ESG grant funds received: $6.8 million; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
4.0%; 
Source(s) used to fill the gap: General fund; 
Grantee: Oakland; 
ESG grant funds received: $371,000; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
25.0%; 
Source(s) used to fill the gap: General fund, redevelopment funds; 
Grantee: San Francisco; 
ESG grant funds received: $939,000; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
16.0%; 
Source(s) used to fill the gap: CDBG[A], general fund; 
Subgrantee: Local homeless service provider: Shelter for homeless 
women, children; 
Use of ESG funds: General operations; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
3.4%; 
Source(s) used to fill the gap: Private fundraising; 
Subgrantee: Local homeless service provider: Emergency shelter, 
transitional housing; 
Use of ESG funds: Case manager salary; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
13.5%; 
Source(s) used to fill the gap: Federal, county funding; private 
fundraising; 
Subgrantee: Local homeless service provider: Range of housing options 
from emergency shelter to permanent supportive housing, plus homeless 
services; 
Use of ESG funds: Facilities, food, and direct operating costs for age 
18-24 shelter; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
9.0%; 
Source(s) used to fill the gap: City funding; private fundraising; 
Subgrantee: Local homeless service provider: Shelter for abused and 
homeless women, children; 
Use of ESG funds: General operations; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
9.0%; 
Source(s) used to fill the gap: County funding; private fundraising; 
Subgrantee: Local homeless service provider: Drop-in resource center 
for homeless; 
Use of ESG funds: Primarily employee salaries, plus some telephone and 
rent; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
10.0%; 
Source(s) used to fill the gap: Private fundraising; 
Subgrantee: Local homeless service provider: Shelter for homeless 
adults; 
Use of ESG funds: Shelter utility costs; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
12.0%; 
Source(s) used to fill the gap: City funding. 

State: Michigan; 
Grantee: State of Michigan; 
ESG grant funds received: $2.8 million; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
13.0%; 
Source(s) used to fill the gap: State housing development authority[B]; 
Grantee: Detroit; 
ESG grant funds received: $1.6 million; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
27.5%; 
Source(s) used to fill the gap: CDBG[A]; 
Subgrantee: Local homeless service provider: Emergency shelter, 
transitional housing, other housing and services, for men, women, 
children; 
Use of ESG funds: General operations; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
8.5%; 
Source(s) used to fill the gap: Private fundraising, foundation grants; 
Subgrantee: Local homeless service provider: Emergency shelter for 
victims of domestic violence and sexual assault, and their children; 
Use of ESG funds: Utilities and other shelter expenses such as 
insurance, trash pickup, telephone, janitorial; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
14.0%; 
Source(s) used to fill the gap: Private fundraising; 
Subgrantee: Local homeless service provider: Transitional housing, 
apartments, case management, prevention, other services; 
Use of ESG funds: General operations; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
20.0%; 
Source(s) used to fill the gap: Federal, state, county funding; United 
Way, private fundraising; 
Subgrantee: Local homeless service provider: Shelter, apartments for 
homeless women; 
Use of ESG funds: General operations; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
18.0%; 
Source(s) used to fill the gap: Private fundraising, endowment funds. 

State: Pennsylvania; 
Grantee: Commonwealth of Pennsylvania; 
ESG grant funds received: $3.2 million; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
not available; 
Source(s) used to fill the gap: General fund; 
Grantee: Philadelphia; 
ESG grant funds received: $2.3 million; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
5.0%; 
Source(s) used to fill the gap: General fund; 
Subgrantee: Local homeless service provider: Human services, including 
homeless family shelter; 
Use of ESG funds: Rent, utilities, equipment, insurance, sometimes 
fuel; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
7.3%; 
Source(s) used to fill the gap: Subsidy from parent organization; 
Subgrantee: Local homeless service provider: Shelter for domestic 
violence victims and their children; 
Use of ESG funds: Supplies, utilities, maintenance; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
6.5%; 
Source(s) used to fill the gap: United Way, private fundraising; 
Subgrantee: Local homeless service provider: Shelter and services for 
families, single adults; 
Use of ESG funds: General operations; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
10.0%; 
Source(s) used to fill the gap: Federal, county funding; United Way; 
Subgrantee: Local homeless service provider: Shelters for men and 
women, other programs; 
Use of ESG funds: General operations; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
13.0%; 
Source(s) used to fill the gap: City funding[C], internal funds; 
Subgrantee: Local homeless service provider: Homeless shelter, 
transitional housing for women, children; 
Use of ESG funds: Heating, ventilation, air-conditioning repairs; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
2.5%; 
Source(s) used to fill the gap: United Way, corporate and foundation 
donations; 
Subgrantee: Local homeless service provider: Emergency shelter, other 
housing, case management, employment support for homeless families; 
Use of ESG funds: General operations; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
10.0%; 
Source(s) used to fill the gap: City funding[C]; 
Subgrantee: Local homeless service provider: Multi-state human service 
agency, including homeless shelters; 
Use of ESG funds: General operations; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
15.0%; 
Source(s) used to fill the gap: City funding[C],[D]. 

State: Georgia; 
Grantee: State of Georgia; 
ESG grant funds received: $2.4 million; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
12.5%; 
Source(s) used to fill the gap: State trust fund for homeless, state 
housing finance authority; 
Grantee: Atlanta; 
ESG grant funds received: $369,000; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
56%; 
Source(s) used to fill the gap: CDBG[A]; 
Subgrantee: Local homeless service provider: Homeless prevention; 
Use of ESG funds: Prevention services; in most cases, to pay client 
rent; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
20.0%; 
Source(s) used to fill the gap: County funding, United Way; 
Subgrantee: Local homeless service provider: Emergency shelter, 
transitional housing for women, families with children; homeless 
prevention; 
Use of ESG funds: General operations; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
5.0%; 
Source(s) used to fill the gap: Donations from congregations, other 
private donations; 
Subgrantee: Local homeless service provider: Emergency shelter, 
residential recovery, transitional housing; 
Use of ESG funds: Utilities; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
10.5%; 
Source(s) used to fill the gap: Generally from other sources; 
Subgrantee: Local homeless service provider: Shelter, financial 
assistance, employment education; 
Use of ESG funds: Short-term housing; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
13.0%; 
Source(s) used to fill the gap: Generally from other sources; United 
Way; 
Subgrantee: Local homeless service provider: Comprehensive homeless 
service center, including shelter,day center, medical clinic, 
employment and training services; 
Use of ESG funds: Food, security; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
7.0%; 
Source(s) used to fill the gap: Generally from other sources; United 
Way; 
Subgrantee: Local homeless service provider: Legal services; 
Use of ESG funds: Foreclosure prevention; 
Estimated unfunded ESG administrative expenses as percentage of grant: 
not available; 
Source(s) used to fill the gap: Generally from other sources; 

Source: GAO interviews with respective government officials, homeless 
service providers. 

Notes: "Use of ESG funds" refers to program services funded by ESG 
grants. "Est. unfunded ESG administrative expenses" refers only to 
administrative costs. Funding is as reported for fiscal year 2009. 
When range provided by source, mid-point is reported here. Figures for 
unfunded administrative costs are for actual or minimum amount, as 
reported by source. Some local homeless service providers may receive 
ESG funds from state as well as local government sources. Omitted is 
one additional homeless service provider in Detroit, for which 
information was unavailable.

[A] Community Development Block Grant: 

[B] Specifically, proceeds from operations of the Michigan State 
Housing Development Authority, a quasi-governmental authority that 
oversees the state's ESG program.

[C] City combines ESG funding with other sources to make lump sum 
grants to homeless service providers, of which 12 percent may be used 
for administration. ESG funds do not go towards the 12 percent 
allowance.

[D] Also, some charges not billed, and some costs absorbed through 
growth. 

[End of figure] 

For example, California ESG program officials estimated their unfunded 
ESG administrative costs at 4 percent of the state's ESG allocation 
(actual administrative costs equal to 8 percent of ESG allocation, 
less 4 percent retained for administrative costs). To cover these 
unfunded costs, the officials said they rely on the state's general 
fund revenues. Similarly, City of Oakland (California) officials 
estimated their unfunded ESG administrative costs at 25 percent of 
their ESG annual allocation (actual administrative costs equal to 30 
percent of ESG allocation, less 5 percent retained for administrative 
costs). These officials also told us that they used the city's general 
and redevelopment funds to cover the unfunded costs. In Pennsylvania, 
one subgrantee estimated its unfunded ESG administrative costs at 2.5 
percent of its grant award (based on actual costs, with no 
administrative allowance from its grantee). This subgrantee, which 
reported using ESG funds for a one-time building repair project, told 
us that it used private donations, including from corporations and 
foundations, to cover its unfunded costs. In Michigan, a subgrantee 
estimated its uncovered ESG administrative costs at 14 percent (based 
on actual costs with no administrative allowance), saying it also 
relied on private donations to cover its unfunded costs. As previously 
noted, grantees must match their ESG allocations, and subgrantees can 
provide the match. These matching funds provide a potential source for 
covering administrative costs.

Several subgrantees in the states we visited told us there has been a 
trend toward more private donations being restricted--that is, made 
for specific programs or purposes, rather than generally available for 
a subgrantee's operations, including administrative costs. Thus, 
reliance on private donations to cover unfunded ESG administrative 
costs may become more challenging. For example, one subgrantee told us 
that donors feel it is more attractive to fund specific programs that 
have more tangible outcomes compared with funding administrative 
costs. Another subgrantee told us that business donors tend to target 
contributions to address specific issues and achieve particular 
results. Finally, one subgrantee told us that nonprofits themselves 
have contributed to this trend by telling potential donors they will 
use donations to undertake specific nonadministrative tasks.[Footnote 
14]

Some grantees and subgrantees in the states we visited told us the 
need to cover unfunded ESG administrative costs using other funding 
sources has diminished their ability to fund other program activities. 
For example, one grantee told us that amounts spent to cover unfunded 
ESG administrative costs could otherwise be directed toward community 
and economic development activities. Another grantee cited housing 
counseling and home purchase down-payment assistance as areas that 
could receive funding but for the need to cover unfunded ESG 
administrative costs. One subgrantee also told us it could otherwise 
devote more resources to programs aimed at adoption, single mothers, 
and family counseling if not for unfunded ESG administrative costs.

Some grantees and subgrantees also told us that unfunded ESG 
administrative costs can affect program administration, interest in 
participating in the program, and program oversight.[Footnote 15] For 
example, one grantee told us that it chooses to make fewer but larger 
ESG awards to subgrantees, rather than make a greater number of 
smaller awards, in part because it is less costly to oversee a smaller 
number of subgrantees. In addition, two subgrantees told us that but 
for other mitigating factors, they would consider not participating in 
the ESG program because of the unfunded administrative costs.[Footnote 
16] Some grantees also told us that if more funds were available for 
administrative costs, there could be greater monitoring of subgrantee 
activity. One grantee noted that it must stop monitoring subgrantees 
during parts of the year and generally does not do as much oversight 
as is desirable. Another grantee added it has difficulty meeting its 
goal of making at least one site visit to subgrantees each year.

According to HUD officials, the ESG program was established with a 
lower administrative cost allowance based on the expectation that 
grantees could obtain funds from other sources to cover unfunded ESG 
administrative costs. The officials also told us that although they do 
not have comprehensive information on the extent to which the ESG 
administrative cost allowance is sufficient to cover grantees' actual 
administrative costs, the agency has received many informal comments 
over time characterizing the allowance as insufficient.[Footnote 17]

Available Sources for Evaluating the Appropriateness of ESG Program 
Administrative Costs Offer Little Detail, and Monitoring of These 
Costs Varies: 

As GAO has noted previously, there is no government-wide definition of 
what constitutes an administrative cost.[Footnote 18] For the ESG 
program in particular, there are a number of sources that provide 
standards for administrative costs, but we found they generally offer 
little detail for evaluating the appropriateness of these costs.

For grantees, there are regulations and agency guidance that address 
administrative costs.

* HUD Regulations. HUD regulations for ESG administrative costs define 
such costs by way of example only, to include costs associated with: 
accounting for the use of grant funds, preparing reports for 
submission to HUD, obtaining program audits, similar costs related to 
administering the grant after the award, and staff salaries associated 
with these administrative costs.[Footnote 19] Under the regulations, 
administrative costs do not include the costs of carrying out eligible 
activities under the ESG program.[Footnote 20]

* HUD ESG Program Desk Guide. The desk guide provides an overview of 
the ESG program, describes the funding process, and covers topics 
including the initial application, grant administration, project 
implementation, and performance monitoring. For administrative costs, 
the desk guide also works on the basis of example, stating that 
eligible administrative costs include staff to operate the program, 
preparation of progress reports and audits, and monitoring of 
recipients. Ineligible administrative costs include the preparation of 
the Consolidated Plan and other application submissions,[Footnote 21] 
conferences or training in professional fields, and salary of an 
organization's executive director, except to the extent they are 
involved in carrying out eligible administrative functions.

In addition to the regulations and the desk guide, HUD also publishes 
the Guide for Review of ESG Cost Allowability and the Guide for Review 
of ESG Financial Management as resources for grantees.[Footnote 22] 
These guides, however, do not provide any additional details on the 
appropriateness of administrative expenses. The guides refer to 
compliance with regulations and circulars published by the Office of 
Management and Budget (OMB). In particular, OMB Circular A-87, Cost 
Principles for State, Local, and Indian Tribal Governments, details 
principles for determining allowable costs incurred by state, local, 
and federally recognized Indian tribal governments under grants and 
other agreements with the federal government. These principles are not 
specific to the ESG program, and the circular is not necessarily the 
final authority on such matters, as it requires agencies administering 
programs to issue regulations implementing the circular. HUD officials 
told us the agency's ESG regulations incorporate the provisions of OMB 
Circular A-87.[Footnote 23]

It is difficult to evaluate the appropriateness of grantees' ESG 
administrative costs because the available sources for doing so, as 
described above, are brief and not exhaustive. For example, 
Pennsylvania ESG program officials undertake a number of activities 
during the preaward application stage, including providing technical 
assistance to applicants and offering general training every several 
years, but it is not explicitly clear under the federal guidance 
whether such activities are eligible administrative costs based on 
available sources for evaluation. In addition, San Francisco ESG 
program officials told us they included office space rental, general 
overhead, and utility costs among their ESG administrative costs, but 
the available sources do not address nonpersonnel costs. As a result, 
it is not clear whether such specific activities are eligible 
administrative costs. Further complicating the issue of examining 
administrative costs is grantees' self-funding of ESG administrative 
costs. To the extent grantees use other funding sources to cover 
unfunded ESG administrative costs, as discussed earlier, the ESG 
program standards for administrative expenses do not apply.

For subgrantees we visited, we also found that ESG administrative cost 
standards were varied and can offer little or no detail for evaluating 
the appropriateness of these costs. Generally, grantees address 
subgrantee administrative costs by providing rules or guidance through 
program solicitation documents or contracts with subgrantees. The 
State of California's ESG Notice of Funding Availability, for example, 
states that eligible administrative costs are "only those necessary to 
administer the [ESG] grant, not to administer or operate the shelter." 
In addition, specific allowable administrative expenses include staff 
costs to prepare ESG reports, communications with ESG staff, payment 
for the ESG share of a required audit, and staff costs associated with 
processing accounting records and billings. The City of Atlanta takes 
a different approach, citing administrative expenses as identified 
under OMB Circular A-122, Cost Principles for Non-Profit 
Organizations, as acceptable. This circular distinguishes 
administrative costs from other types of expenses, and includes 
consideration of a number of different expense categories.[Footnote 
24] The state of Georgia took the least detailed approach among the 
states we visited, as Georgia ESG program officials told us they do 
not provide criteria for administrative costs because the state does 
not fund these types of costs.

As with grantees, the level of detail in the various cost standards 
for subgrantees' administrative costs can make it difficult to assess 
the appropriateness of spending. For example, as noted, California 
rules cite expenses necessary to administer the ESG grant itself, not 
to administer or operate a shelter. However, one California subgrantee 
reported to us that its ESG administrative activities include those 
associated with client intake, handling client case management forms, 
and technical support. Similarly, as noted, the City of Atlanta relies 
on OMB Circular A-122, which identifies administrative costs as a form 
of "indirect costs"--those incurred for common or joint objectives--
and defines "administration" as "general administration and general 
expenses." However, a subgrantee also reported to us that its ESG 
administrative activities include those associated with a range of 
client-focused dealings spanning intake to post-program follow-up. HUD 
officials told us that both client intake and case management 
(including handling case management forms) activities are not eligible 
administrative costs under the ESG program; rather, these activities 
are eligible program costs under the shelter operations and essential 
services categories. Moreover, as with grantees, a complicating factor 
is subgrantees' self-funding of ESG administrative costs.

To monitor the ESG program's grantees, HUD field offices annually 
conduct a risk analysis to determine which grant programs are higher 
risk and thus warrant attention. According to HUD officials, the ESG 
program usually is not identified for any heightened on-site 
monitoring. However, HUD officials said that HUD field office staff 
conduct off-site monitoring of many ESG grants annually. ESG grantees 
must submit a Consolidated Annual Performance and Evaluation Report 
that contains qualitative and quantitative information about ESG, 
including annual expenditures and accomplishments. More broadly, 
grantees prepare an annual action plan that describes, among other 
things, how they plan to use ESG funds. The plan includes a brief 
description of activities, and it varies as to whether the plan 
includes details on administrative expenses, HUD officials told us. 
[Footnote 25] Overall, HUD officials told us they have not conducted 
any comprehensive evaluation of ESG administrative costs for grant 
recipients.[Footnote 26]

Grantees and subgrantees in the states we visited also monitored ESG 
administrative costs at varying levels of detail. Grantees told us 
they generally monitored subgrantee administrative costs through 
budget reviews, either before or after grant award, or both, and also 
through in-office monitoring and subgrantee site visits. For example, 
San Francisco ESG program officials told us they evaluate subgrantees' 
audits, conduct site visits, perform business and cost reviews, and 
provide technical assistance. In addition, City of Detroit ESG program 
officials told us they do not perform a specific check of ESG 
administrative spending but watch for any obvious problems, such as 
whether a program's total administrative costs exceed 10 percent. 
Further, City of Atlanta officials told us they review proposed 
budgets of subgrantees as part of the application process, and 
applications with administrative costs deemed to be too high (greater 
than 20 percent) are rated negatively. They added that the city 
monitors its ESG subgrantees annually, but does not specifically track 
the administrative costs of ESG-funded activities because the city 
provides no funding for these administrative costs.

Funding and Treatment of Administrative Costs Varied Across Selected 
Federal Grant Programs: 

We found that the funding and treatment of administrative costs varied 
across the other targeted federal homeless grant programs we reviewed. 
We identified variations in areas such as the administrative allowance 
provided to grantees, requirements for sharing any of that allowance 
with subgrantees, and guidance on the appropriateness of 
administrative costs. First, as shown in figure 6, the extent to which 
each program included a maximum administrative allowance varied, and 
when a maximum allowance was specified, the amount of that allowance 
varied widely. Among programs with a maximum administrative allowance, 
the ESG program's current 5 percent maximum administrative allowance 
for grantees is one of the lower allowances. The maximum 
administrative allowance for the other programs that have specified a 
maximum allowance ranges from 4 percent to 50 percent. 

Figure 6: ESG Administrative Cost Provisions Compared to Selected 
Other Federal Homeless Programs: 

[Refer to PDF for image: illustrated table] 

HUD: Emergency Shelter Grants Program: Emergency shelter, related 
services, homeless prevention; 
Administrative allowance (percentage of grant if specified) authorized 
for: Grantees: less than or equal to 5% (increasing to 7.5%); 
(provision/allowance); 
Administrative allowance (percentage of grant if specified) authorized 
for: Subgrantees: No provision/allowance, with one exception; 
Provision for sharing administrative allowance: Yes, sharing 
provisions vary by program; 
Administrative costs not funded: Grant preparation: [Check]; 
Administrative costs not funded: Professional training: [Check]; 
Administrative costs not funded: Executive director salary[A]: [Check]; 
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check]; 
Other: Law, regulations silent on whether grantees must share 
allowance with nonprofit subgrantees. 

HUD: Supportive Housing Program: Supportive housing, related services 
for independent living; 
Administrative allowance (percentage of grant if specified) authorized 
for: Grantees: less than or equal to 5%; (provision/allowance); 
Administrative allowance (percentage of grant if specified) authorized 
for: Subgrantees: Provided, but unspecified; 
Provision for sharing administrative allowance: Yes, sharing 
provisions vary by program; 
Administrative costs not funded: Grant preparation: [Check]; 
Administrative costs not funded: Professional training: [Check]; 
Administrative costs not funded: Executive director salary[A]: [Check]; 
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check]; 
Other: Government grantees that pass on at least 50% of administrative
funds deemed to have met sharing requirement. 

Labor: Homeless Veterans' Reintegration Program: Job placement for 
homeless veterans; 
Administrative allowance (percentage of grant if specified) authorized 
for: Grantees: less than or equal to 20% (provision/allowance);
Administrative allowance (percentage of grant if specified) authorized 
for: Subgrantees: Provided, but unspecified; 
Provision for sharing administrative allowance: Yes, sharing 
provisions vary by program; 
Administrative costs not funded: Grant preparation: [Empty]; 
Administrative costs not funded: Professional training: [Empty]; 
Administrative costs not funded: Executive director salary[A]: [Empty]; 
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check]; 
Other: Grantees required to attend financial management training, 
which includes administrative costs. 

Education: Education for Homeless Children and Youth — Grants for 
State and Local Activities: Public education for homeless children; 
Administrative allowance (percentage of grant if specified) authorized 
for: Grantees: less than or equal to 25%[E] (provision/allowance);
Administrative allowance (percentage of grant if specified) authorized 
for: Subgrantees: Provided, but unspecified; 
Provision for sharing administrative allowance: Yes, sharing 
provisions vary by program; 
Administrative costs not funded: Grant preparation: [Empty]; 
Administrative costs not funded: Professional training: [Empty]; 
Administrative costs not funded: Executive director salary[A]: [Empty]; 
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check]; 
Other: States can impose more stringent requirements than 25% federal 
rule. 

Education: Homeless Education Disaster Assistance Program: Assistance 
to local education agencies where homeless student enrollment 
increased due to 2008 natural disasters[F]; 
Administrative allowance (percentage of grant if specified) authorized 
for: Grantees: Provided, but unspecified; 
Administrative allowance (percentage of grant if specified) authorized 
for: Subgrantees: N/A (fund distributed directly); 
Provision for sharing administrative allowance: N/A (fund distributed 
directly); 
Administrative costs not funded: Grant preparation: [Empty]; 
Administrative costs not funded: Professional training: [Empty]; 
Administrative costs not funded: Executive director salary[A]: [Empty]; 
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check]; 
Other: One-time program ending in 2010; under the grant, states not 
responsible for monitoring local educational agency activities. 

HHS: Health Care for the Homeless: Primary health care, mental health, 
substance use services; 
Administrative allowance (percentage of grant if specified) authorized 
for: Grantees: Provided, but unspecified; 
Administrative allowance (percentage of grant if specified) authorized 
for: Subgrantees: N/A (fund distributed directly); 
Provision for sharing administrative allowance: N/A (fund distributed 
directly); 
Administrative costs not funded: Grant preparation: [Check]; 
Administrative costs not funded: Professional training: [Empty]; 
Administrative costs not funded: Executive director salary[A]: [Empty]; 
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check]; 
Other: Grantees are federally qualified health centers, and may use 
health center income to cover general costs, including administrative 
costs. 

HHS: Programs for Runaway and Homeless Youth: Immediate needs, 
transitional living, street outreach services for runaway and homeless 
youth; 
Administrative allowance (percentage of grant if specified) authorized 
for: Grantees: Provided, but unspecified; 
Administrative allowance (percentage of grant if specified) authorized 
for: Subgrantees: N/A (fund distributed directly); 
Provision for sharing administrative allowance: N/A (fund distributed 
directly); 
Administrative costs not funded: Grant preparation: [Check]; 
Administrative costs not funded: Professional training: [Empty]; 
Administrative costs not funded: Executive director salary[A]: [Empty]; 
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check]; 
Other: Peer monitoring process used, where reviewer selected as a 
suitable peer to program under review is paired with HHS program 
specialist. 

HHS: Projects for Assistance in Transition from Homelessness: Support 
services for homeless, or at risk of homelessness, with mental illness 
or substance use disorders; 
Administrative allowance (percentage of grant if specified) authorized 
for: Grantees: less than or equal to 4% (provisional/allowance); 
Administrative allowance (percentage of grant if specified) authorized 
for: Subgrantees: No provision/allowance; 
Provision for sharing administrative allowance: No provision/allowance; 
Administrative costs not funded: Grant preparation: [Check]; 
Administrative costs not funded: Professional training: [Empty]; 
Administrative costs not funded: Executive director salary[A]: [Empty]; 
Administrative costs not funded: Unnecessary, unreasonable[B]: [Empty]; 
Other: No formal guidance for indirect costs, which include 
administrative costs. 

HHS: Grants for the Benefit of Homeless Individuals: Treatment for 
homeless persons with mental illness or substance use disorders	; 
Administrative allowance (percentage of grant if specified) authorized 
for: Grantees: Provided, but unspecified; 
Administrative allowance (percentage of grant if specified) authorized 
for: Subgrantees: N/A (fund distributed directly); 
Provision for sharing administrative allowance: N/A (fund distributed 
directly); 
Administrative costs not funded: Grant preparation: [Check]; 
Administrative costs not funded: Professional training: [Empty]; 
Administrative costs not funded: Executive director salary[A]: [Empty]; 
Administrative costs not funded: Unnecessary, unreasonable[B]: [Empty]; 
Other: Grantees must have indirect cost agreement if claiming indirect 
costs, which include administration. Otherwise, grant specialists 
review administrative items. 

HHS: Services in Supportive Housing Program: Housing assistance and 
support services for homeless persons with mental illness and 
substance use disorders; 
Administrative allowance (percentage of grant if specified) authorized 
for: Grantees: Provided, but unspecified; 
Administrative allowance (percentage of grant if specified) authorized 
for: Subgrantees: N/A (fund distributed directly); 
Provision for sharing administrative allowance: N/A (fund distributed 
directly); 
Administrative costs not funded: Grant preparation: [Check]; 
Administrative costs not funded: Professional training: [Empty]; 
Administrative costs not funded: Executive director salary[A]: [Empty]; 
Administrative costs not funded: Unnecessary, unreasonable[B]: [Empty]; 
Other: Grantees must have indirect cost agreement if claiming indirect 
costs, which include administration. Otherwise, grant specialists 
review administrative items. 

Source: Agency documents, GAO interviews with respective agency 
officials. 

Note: This comparison does not include HUD's Shelter Plus Care 
Program, which provides rental assistance for permanent housing. 
According to HUD, the program provides an allowance for administering 
rental assistance, such as providing housing information or inspecting 
housing units, but does not provide funds for grant administration. On 
that basis, although Shelter Plus Care is a targeted homeless program, 
we excluded it from our comparison. 

[A] Salary of an organization’s executive director is an ineligible 
administrative cost, except to extent he or she is involved in 
carrying out eligible administrative functions. 

[B] Administrative costs must be reasonable and necessary, as 
indicated in OMB Circular A-87. 

[C] Program’s 20 percent administrative allowance cap applies even if 
the grantee has negotiated an indirect cost rate greater than 20 
percent. 

[D] Limited to 20 percent total for grantees and subgrantees combined. 

[E] State grantees may retain up to 25 percent of grant for state-
level activities, which may include administration; in minimally 
funded states, figure is up to 50 percent. 

[F] Eligibility determined according to a Federal Emergency Management 
Agency compilation of disasters, available at [hyperlink, 
www.fema.gov/news/disasters.fema#sev1.

[End of figure] 

Second, we found that program rules for grantee sharing of 
administrative allowances with subgrantees varied across homeless 
programs with similar funding structures. For example, HUD's 
Supportive Housing Program requires grantees to share administrative 
allowances with subgrantees, but does not specify the amount.[Footnote 
27] The Department of Labor's Homeless Veterans' Reintegration Program 
does not require sharing of administrative allowances, but gives 
grantees discretion to share with subgrantees. The ESG program 
combines mandatory and discretionary sharing--it requires grantees 
that are state governments to share an unspecified portion of their 
administrative allowance when passing funds to local governments. 
Otherwise, sharing is optional but not mandated.[Footnote 28] These 
specific programs and their particular rules notwithstanding, most of 
the programs we reviewed do not provide administrative cost allowances 
for when grantees pass along funds to subrecipients. In all, there was 
considerable variation across programs in provision of subgrantee 
administrative allowances.

Third, we found that program guidance on the appropriateness of 
administrative costs differed across the targeted homeless programs we 
reviewed, and that no program offered comprehensive direction on 
eligible and ineligible administrative activities. As noted earlier, 
the ESG program's desk guide provides examples of both eligible and 
ineligible administrative activities, albeit not exhaustively. By 
contrast, five of the targeted programs' rules--including programs of 
the Departments of Education, Labor, and Health and Human Services--do 
not specifically define eligible or ineligible administrative 
activities. Instead, some of these programs' rules reference OMB cost 
principles and note that administrative costs must be reasonable and 
necessary, as defined by OMB Circular A-87.[Footnote 29] HUD's 
Supportive Housing Program follows an ESG-style example approach.

We also found that the ESG program's maximum administrative allowance 
for grantees was one of the lower allowances for HUD formula grant 
programs offered through HUD's Office of Community Planning and 
Development. As table 2 shows, the ESG program's administrative 
allowance for grantees will also remain one of the lower of the group 
after it increases to 7.5 percent. The ESG program is among four 
formula grant programs offered through the Office of Community 
Planning and Development, which seeks to develop communities by 
promoting decent housing and expanded economic opportunities for low-
and moderate-income persons. However, given the programs' diverse 
missions, as also shown in table 2, the nature and amount of 
administrative costs may vary among them.

Table 2: Grantee Administrative Allowance for Selected HUD Formula 
Grant Programs: 

Grant program and purpose: Emergency Shelter Grants Program Emergency 
shelter, related services, homeless prevention; 
Administrative allowance: Up to 5% of grant amount; 
increasing to 7.5%; 
Total allocation, FY 2009: $160 Million.

Grant program and purpose: Community Development Block Grants Range of 
purposes, including affordable housing, community services, job 
creation through expansion and retention of business; 
Administrative allowance: Up to 20% of grant amount (also includes 
planning costs); 
Total allocation, FY 2009: $3.64 Billion.

Grant program and purpose: HOME Investment Partnerships Program Build, 
buy, rehabilitate affordable housing for rent or ownership, or provide 
rental assistance to low-income renters; 
Administrative allowance: Up to 10% of grant amount; 
Total allocation, FY 2009: $1.82 Billion.

Grant program and purpose: Housing Opportunities for People with AIDS 
Housing, social services, program planning costs; 
Administrative allowance: Up to 3% of grant amount; 
Total allocation, FY 2009: $276 Million.

Source: HUD Office of Community Planning and Development: 

[End of table] 

Some ESG Recipients Expect the Nature of Administrative Costs to 
Change and the Amount to Increase under New Activities Authorized by 
the HEARTH Act: 

A number of grantees and subgrantees in the states we visited and 
others told us they expect that the newly allowable ESG activities 
authorized by the HEARTH Act will result in different kinds of 
administrative activities that in many cases will be more costly than 
before. As previously noted, the act increased the range of eligible 
prevention and re-housing activities to include short-or medium-term 
rental assistance and housing relocation or stabilization services. 
Overall, grantees and subgrantees told us they expect changes in areas 
including client screening and eligibility verification, technical 
assistance to subgrantees, number of applicants for grants, and 
facility management and collaboration with third parties, which in 
turn could affect administrative costs. For example, City of San 
Francisco and Pennsylvania state officials told us the new activities 
authorized by the act might result in a greater number of applicants 
for grant awards, or their agencies might have to provide more 
outreach and technical assistance to subgrantees. In addition, one 
California subgrantee told us that they expect an effort to have 
people leave shelters more quickly under the new ESG activities. This 
subgrantee added that this might increase the administrative costs 
associated with collecting and reporting data on an increased number 
of people coming through the program. This subgrantee also said it 
expects the new ESG activities to have a secondary effect in shelters 
themselves, where a changing mix of residents likely will mean higher 
administrative costs. This subgrantee said that new HEARTH Act-style 
programs will likely enroll the best functioning people, so those left 
in shelters will be relatively less functioning--and hence more costly 
to manage. Another subgrantee, in Michigan, told us it is already 
starting to see changes in administrative costs with expansion of 
activities beyond traditional emergency shelter services and into 
rapid re-housing. For example, new program activities require more 
time for administration, both internally and externally, and there 
have been organizational changes such as in handling of rent funds. 
Finally, one California subgrantee estimated its administrative costs 
could rise from about 3.5 percent to between 12 percent to 14 percent 
under the new ESG activities. As noted previously, however, HUD 
officials told us that some subgrantees we visited appear to be 
confusing program activities with administrative activities, which 
might have affected their estimates of actual administrative costs.

While a number of grantees and subgrantees told us they expect the 
nature of administrative activities to change, and their costs to 
increase, not all the recipients we visited agreed that higher 
administrative costs are likely. For example, a Pennsylvania 
subgrantee told us it anticipates that the administrative costs 
associated with a prevention program would probably be equal to the 
costs of a shelter program, and it would not expect costs to be higher 
unless program requirements become more onerous. California state 
officials told us they do not expect the nature or amount of 
administrative costs will change with new program activities, because 
activities already change frequently today. Similarly, a Michigan 
subgrantee told us that barring any increase in regulatory 
requirements, it does not expect any added burden in areas such as 
reporting of program activity, audit duties, or office space required 
for administration. Overall, expectations about higher administrative 
costs are plainly prospective in nature, because the new activities 
have not yet been implemented.

Although the HEARTH Act makes significant changes to allowable ESG 
activities, it remains unclear when actual program changes might be 
implemented. According to HUD officials, the total funds allocated to 
the ESG program will determine the extent to which money is available 
for the new services. HUD officials also told us that a significant 
increase in ESG funding, along with significant program changes, could 
increase grantees' costs of monitoring and reporting, because more 
money must be tracked and monitored in conjunction with a wider array 
of program requirements.[Footnote 30]

Uncertainty over how and when the new ESG program might be 
implemented, as well as variation in the nature of administrative 
activities seen in the current ESG program, complicate any attempt to 
determine the appropriate size of the program's administrative 
allowance. Providing such an allowance helps ensure funds are spent 
properly and directed to their appropriate purpose. But if the 
allowance is insufficient to allow adequate administration and 
oversight, program efficiency and effectiveness could be at risk. 
Grantees and subgrantees we spoke with reported that the current ESG 
administrative allowance does not fully cover their administrative 
costs. Moreover, our work indicates that even with the new 
administrative allowance of 7.5 percent, the ESG program would still 
have one of the lower allowances among similarly structured homeless 
grant programs. If the new ESG program increases in complexity or 
scope of services, its administrative cost allowance will take on even 
more significance in the future.

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Departments of Housing and 
Urban Development, Education, Health and Human Services, and Labor for 
their review and comment. HUD did not provide formal comments, but 
noted by e-mail that some subgrantees we visited may not be making a 
proper distinction between program costs and administrative costs, 
which could have the effect of overstating any need for a larger ESG 
administrative allowance. We reflected this sentiment throughout this 
report as appropriate. HUD further indicated that the department would 
examine what steps it could take to help grantees and subgrantees 
better understand which administrative costs can be funded under the 
ESG program and the extent to which administrative costs differ from 
activity delivery costs. HUD added that these steps would include 
providing greater clarity and detail on what costs are eligible under 
the different ESG activity categories, including administrative costs, 
in a proposed new rule the department is developing to implement the 
changes to the McKinney-Vento Homeless Assistance Act provided in the 
HEARTH Act. HUD also provided technical comments by e-mail, which we 
have incorporated into the report as appropriate.

The Secretaries of Education, Health and Human Services, and Labor did 
not provide comments.

We are sending copies of this report to interested congressional 
committees and the Secretaries of the Departments of Housing and Urban 
Development; Education; Health and Human Services; and Labor. This 
report will also be available at no charge on GAO's Web site at 
[hyperlink, http://www.gao.gov]. Please contact me at (202) 512-8678 
or cackleya@gao.gov if you or members of your staffs have any 
questions about this report. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. See appendix II for key contributors to this 
report.

Signed by: 

Alicia Puente Cackley: 
Director, Financial Markets and Community Investment: 

List of Committees: 

The Honorable Christopher J. Dodd: 
Chairman: 
The Honorable Richard C. Shelby: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Robert Menendez: 
Chairman: 
The Honorable David Vitter: 
Ranking Member: 
Subcommittee on Housing, Transportation and Community Development: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Barney Frank: 
Chairman: 
The Honorable Spencer Bachus: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Maxine Waters: 
Chairwoman: 
The Honorable Shelley Moore Capito: 
Ranking Member: 
Subcommittee on Housing and Community Opportunity: 
Committee on Financial Services: 
House of Representatives: 

[End of section]

Appendix I: Scope and Methodology: 

To determine the types of administrative activities performed and 
costs incurred under the Emergency Shelter Grants Program (ESG) of the 
U.S. Department of Housing and Urban Development (HUD), and the extent 
to which grant proceeds cover these administrative costs, we made site 
visits to four states: California, Georgia, Michigan, and 
Pennsylvania. We selected these states based on the amount of ESG 
funding distributed to these grantees for fiscal year 2009 and their 
geographic location across the country. We initially identified state-
level grantees receiving more than $1.5 million in ESG funding, in 
order to focus on states with relatively more ESG activity. This 
criterion reduced our target group to 20 states. We judgmentally 
selected the four states we visited by considering proximity of the 
capital city, where state officials are located, to the location of 
other grantees we could visit concurrently. Within the four states, we 
visited nine grantees (four state governments and five local 
governments) and 25 subgrantees. This allowed us to obtain 
illustrative observations from state officials, local government 
officials, and representatives of local homeless service providers on 
the operation of the ESG program, with an emphasis on type and level 
of spending to administer grants received under the program. Table 3 
provides details on grantees' receipt of ESG funds in the states we 
visited.

Table 3: ESG Grantee Summary for States Visited, Fiscal Year 2009: 

State government award; 
California: $6.8 million; 
Georgia: $2.2 million; 
Michigan: $2.8 million; 
Pennsylvania: $3.2 million.

Total awards to local governments; 
California: $13.4 million; 
Georgia: $1.4 million; 
Michigan: $2.9 million; 
Pennsylvania: $6.4 million.

Number of local governments with awards; 
California: 46; 
Georgia: 8; 
Michigan: 10; 
Pennsylvania: 22.

Median local award; 
California: $147,700; 
Georgia: $131,800; 
Michigan: $138,000; 
Pennsylvania: $149,200.

Largest local award; 
California: $3.2 million Los Angeles (city); 
Georgia: $368,900 Atlanta; 
Michigan: $1.6 million Detroit; 
Pennsylvania: $2.3 million Philadelphia.

Smallest local award; 
California: $84,000 Fontana; 
Georgia: $91,800 Clayton County; 
Michigan: $81,000 Genesee County; 
Pennsylvania: $85,100 Wilkes-Barre.

Source: GAO analysis of U.S. Department of Housing and Urban 
Development data.

Note: Figures for state governments, total awards to local governments 
rounded to nearest $100,000; local award figures rounded to nearest 
$100. 

[End of table] 

The states we visited collectively received 24.5 percent of the total 
ESG funds HUD awarded to grantees in fiscal year 2009. Because we used 
a nongeneralizable sample to select state grantees that had received 
larger amounts of ESG funding in fiscal year 2009, our findings cannot 
be used to make inferences about other grant recipients. Other 
grantees that we did not visit may have different characteristics that 
are unknown to us. However, we believe that our selection of the 
states and recipients was appropriate for our design and objectives, 
and that the selection provides valid and reliable evidence to support 
our work. We interviewed grantees and subgrantees in the states we 
visited to obtain information on administrative activities performed, 
the cost of performing those activities, and related topics.[Footnote 
31] We also interviewed HUD officials, plus representatives of 
national organizations involved with homeless issues, that are 
familiar with trends in charitable giving, or that represent local 
governments. We also researched the legislative history of the ESG 
program. We examined HUD guidance, federal regulations, and relevant 
Office of Management and Budget (OMB) circulars on allowability of 
administrative costs, including circulars A-87, Cost Principles for 
State, Local, and Indian Tribal Governments, and A-122, Cost 
Principles for Non-Profit Organizations. Further, we reviewed state 
and local government ESG solicitation documents, such as Notices of 
Funding Availability and Requests for Proposal.

To determine how the ESG program's allowance for administrative costs 
compares with administrative cost allowances for selected other 
targeted federal homeless grant programs, plus selected other HUD 
formula-based grant programs, we interviewed officials from HUD and 
the Departments of Education, Labor, and Health and Human Services. We 
examined relevant federal statutes and regulations, as well as 
relevant OMB circulars. We also examined program guidance and 
documents, such as desk guides, resource manuals, solicitations for 
grant applications, and requests for applications, for the federal 
targeted homeless grant programs and the other HUD formula grant 
programs that we reviewed.

To determine how the nature or amount of administrative costs might be 
different under the changes Congress made to the ESG program in the 
Homeless Emergency Assistance and Rapid Transition to Housing Act of 
2009, we reviewed relevant provisions of the act detailing the newly 
allowable activities. We also interviewed HUD officials, state and 
local government officials, representatives of homeless organizations, 
and homeless service providers to obtain their perspectives.

We conducted this performance audit from August 2009 to May 2010, in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives.

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Alicia Puente Cackley, (202) 512-8678, or cackleya@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Marshall Hamlett, Assistant 
Director; William Chatlos; Meredith Graves; Kun-Fang Lee; Marc Molino; 
Christopher Schmitt; Jennifer Schwartz; and Paul Thompson made major 
contributions to this report.

[End of section] 

Footnotes: 

[1] See The 2008 Annual Homeless Assessment Report to Congress, U.S. 
Department of Housing and Urban Development, Office of Community 
Planning and Development, July 2009.

[2] Grantees that make subgrants are responsible for ensuring that 
subgrantees comply with ESG program requirements.

[3] The HEARTH Act is contained in Division B of Public Law 111-22. 
Pub. L. No. 111-22 § 1001, et seq., 123 Stat. 1632 (May 20, 2009).

[4] In this report, we use "ESG" primarily to refer to the current 
version of the program, because the new Emergency Solutions Grants 
Program, as authorized by the HEARTH Act, has not yet been 
implemented. Where appropriate, we distinguish between the current 
program and the new program.

[5] Targeted homeless programs such as ESG are designed to 
specifically assist people experiencing homelessness; homeless persons 
may also obtain assistance from mainstream programs, which are not 
specifically designed to assist them. Examples of such mainstream 
programs include Medicaid, HUD's Section 8 Rental Voucher Program, and 
employment and training activities provided under the Workforce 
Investment Act. See, for example, GAO, Homelessness: Barriers to Using 
Mainstream Programs, [hyperlink, 
http://www.gao.gov/products/GAO/RCED-00-184] (Washington, D.C.: July 
6, 2000).

[6] The Homeless Housing Act of 1986 was enacted at Pub. L. No. 99-500 
§ 101(g), 100 Stat. 1783 (Oct. 18, 1986) and Pub. L. No. 99-591 § 
101(g), 100 Stat. 3341 (Oct 30, 1986). In 1987, the ESG program was 
incorporated into Subtitle B of Title IV of the Stewart B. McKinney 
Homeless Assistance Act. Pub. L. No. 100-371 (July 22, 1987).

[7] For purposes of the CDBG formula, a metropolitan city is a city 
within a metropolitan area that is the central city of the area, as 
defined by the Office of Management and Budget (OMB), or any other 
city within a metropolitan area that has a population of 50,000 or 
more. An urban county is, generally, one meeting specified population 
or density requirements. 24 C.F.R. § 576.3; see Housing and Community 
Development Act of 1974, as amended, 42 U.S.C. § 5302(a). Prior to the 
CDBG-based allocation, HUD first sets aside 0.2 percent of the annual 
appropriation for allocation among U.S. territories.

[8] According to HUD, the grantees were: the 50 states, the District 
of Columbia, Puerto Rico, 202 metropolitan cities, 102 urban counties, 
and the U.S. territories of Guam, Virgin Islands, American Samoa, and 
the Northern Mariana Islands.

[9] Grantees that are local governments may comply with the matching 
requirement by providing matching funds themselves, or through 
matching funds or voluntary efforts provided by any subgrantee. For 
state grantees, ESG subgrantees can also contribute the matching 
funds, but each state grantee must distribute the benefit of a 
$100,000 credit toward the state's required match amount to those 
subgrantees that are least capable of contributing matching funds. 
Matching funds can be cash or other forms including donated materials, 
rental value of a building, or value of time and services contributed. 
Territories are not subject to the matching requirement.

[10] As noted previously, the 5 percent limitation, set forth at 42 
U.S.C. § 11378, will increase to 7.5 percent when the pertinent 
provisions of Pub. L. No. 111-22 take effect. The effective date is 
the earlier of 18 months from the date of enactment (May 20, 2009) or 
3 months after the publication of HUD's final regulations implementing 
the amendments, which are to be promulgated not later than 12 months 
after the date of enactment. Pub. L. No. 111-22 § 1503.

[11] See Pub. L. No. 111-22 § 1202.

[12] See Rapid Re-Housing: Creating Programs That Work, National 
Alliance to End Homelessness, Washington, D.C., July 2009.

[13] As noted earlier, ESG funding may reach eligible projects through 
different routes. In our state visits, we spoke with homeless service 
providers that were nonprofit organizations. We did not visit any 
local governments that use ESG funds to provide homeless services 
themselves. We refer collectively to the nonprofit organizations we 
visited as "subgrantees."

[14] Representatives of two national organizations we contacted that 
are familiar with charitable giving--the National Council of 
Nonprofits and the Center on Nonprofits and Philanthropy of the Urban 
Institute--echoed the views of the subgrantees, saying there is a 
pronounced trend toward more restricted donations, accompanied by a 
growing awareness among nonprofits that too much restricted funding 
can undermine their ability to perform by not providing enough money 
for essential general and administrative activities.

[15] Our review focused on current ESG grantees and subgrantees. We 
did not seek to identify any instances of grantees or subgrantees 
dropping out of the ESG program, or declining to participate, because 
of unfunded administrative costs.

[16] For one subgrantee, the mitigating factor was the ability to 
realize economies by using data produced for other purposes to satisfy 
ESG requirements. For the other, officials told us that cost 
notwithstanding, they believed it is important to be an active 
participant in the local community.

[17] In general, federal grant programs can treat administrative 
expenses, and expected contributions by grant recipients, a number of 
different ways. See, for example, GAO, Human Service Programs: 
Demonstration Projects Could Identify Ways to Simplify Policies and 
Facilitate Technology Enhancements to Reduce Administrative Costs, 
[hyperlink, http://www.gao.gov/products/GAO-06-942] (Washington, D.C.: 
Sept. 19, 2006). This report describes, among other things, how 
definitions of administrative costs vary across programs, and how 
federal and state participation in funding administrative costs can be 
governed by matching rates, block grants, spending caps, or other rules.

[18] See, for example, GAO, Title I: Although Definitions of 
Administrative Expenditures Vary, Almost All School Districts Studied 
Spent Less Than 10 Percent on Administration, GAO-03-386 (Washington, 
D.C.: Apr. 7, 2003). Additionally, a relevant OMB circular--OMB 
Circular A-87, Cost Principles for State, Local, and Indian Tribal 
Governments--does not define administrative costs. Similarly, OMB 
Circular A-122, Cost Principles for Non-Profit Organizations, which 
establishes cost principles for determining costs of grants, contracts 
and other agreements with nonprofit organizations, states that 
"because of the diverse characteristics and accounting practices of 
non-profit organizations, it is not possible to specify the types of 
cost which may be classified as indirect cost in all situations," 
where "indirect cost" includes "administration" expenses.

[19] See 24 CFR 576.3 (defining ESG "administrative costs" by 
reference to 24 C.F.R. § 583.135(b)).

[20] Id.

[21] According to HUD, a Consolidated Plan is a plan resulting from a 
collaborative process in which a community establishes a unified 
vision for community development. The process aims to have local 
jurisdictions shape various housing and community development programs 
into coordinated neighborhood and community development strategies. 
HUD requires jurisdictions receiving ESG grants, among other programs, 
to submit a Consolidated Plan detailing objectives for community 
revitalization. 

[22] These are contained within HUD's CPD Monitoring Handbook, which 
contains HUD monitoring criteria for programs administered by HUD's 
Office of Community Planning and Development.

[23] See, e.g., 24 C.F.R. § 576.57 (specifying applicability of OMB 
Circulars).

[24] The circular identifies administrative costs as a form of 
"indirect costs"--those incurred for common or joint objectives--and 
specifically defines "administration" as "general administration and 
general expenses" such as a director's office, accounting, personnel, 
library expenses, and other nonfacility expenses. OMB Circular A-122, 
Attachment A (Revised June 9, 2004). See 2 C.F.R. Part 230.

[25] In addition to HUD's own monitoring of grantees, there can also 
be monitoring by entities other than HUD. For example, officials of 
the Michigan State Housing Development Authority, which runs the 
state's ESG program, described to us how credit rating agencies play a 
role in overseeing their agency's performance. As an issuer of bonds, 
the authority is subject to evaluations by credit rating agencies. 
According to authority officials, the ratings agencies look at such 
things as the authority's finances, legal situation, and program and 
service delivery. The officials told us that despite the scrutiny, 
rating agency attention is more constructive than a liability and has 
contributed to the agency's financial stability and ability to expand. 

[26] HUD officials said the last major evaluation of the ESG program 
was in 1994; see HUD Office of Policy Research and Development, 
Evaluation of the Emergency Shelter Grants Program, Washington, D.C., 
prepared by Abt Associates: September 1994. The report contains 
limited discussion of administrative costs. Since then, the agency has 
not undertaken a separate analysis of ESG administrative costs, 
officials told us.

[27] Under the program, when a state or local government receives a 
grant to fund projects operated by nonprofit organizations, the 
administrative funds provided as part of the grant must be passed on 
to the nonprofit in proportion to the administrative burden borne. HUD 
considers sharing of at least 50 percent of the administrative 
allowance as meeting this requirement.

[28] Regarding sharing of the ESG administrative allowance in 
particular, subgrantees to whom we spoke said they would welcome 
additional money, but there were mixed views about requiring sharing 
in all cases. Some said sharing should be mandated and questioned the 
worth of the activities performed by grantees. Other service 
providers, however, said they recognized that grantees themselves have 
legitimate administrative costs or that programs could suffer if their 
administrative funding were reduced through a mandatory sharing 
feature. HUD officials echoed this view, saying that in focus groups 
held in preparation for writing the HEARTH Act regulations, 
participants were divided on whether there should be mandatory 
sharing. If sharing were required, less funding would be available for 
programs. HUD officials also told us it is a significant concern for 
them that oversight could be compromised if grantees are required to 
transfer some of their administrative allowance to local service 
providers.

[29] HUD officials said they have adopted OMB's reasonable and 
necessary standard into the agency's own rules.

[30] HUD officials told us they are drafting regulations to implement 
the new Emergency Solutions Grant Program, but did not specify a 
schedule for publishing proposed regulations for public comment. HUD 
expects to implement the new ESG program in the fiscal year 2011 
allocation process. In its fiscal year 2011 budget proposal, HUD 
requested $200 million for the new ESG program, a 25 percent increase 
above the $160 million allocated for ESG in fiscal year 2010.

[31] We obtained cost information expressed as a percentage of the ESG 
grant amount. The amounts reported to us generally were estimates and 
not the product of formal accounting systems, because ESG grant 
recipients generally did not track ESG administrative costs 
specifically. We compared the cost figure to any administrative 
allowance received from ESG grant proceeds, also expressed as a 
percentage of the grant amount. We netted the two amounts to calculate 
any unfunded ESG administrative expenses.

[End of section] 

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