We completed a nationwide inspection of the monitoring conducted by State agencies of units of general local government (referred to in this document as local grant recipients) under the State Community Development Block Grant (CDBG) program. Monitoring is one method used by States to ensure compliance with program regulations and assists agencies in the detection and prevention of fraud.

The objective of this inspection was to determine the types and extent of monitoring utilized by the States to ensure the proper use of CDBG funds by local grant recipients. The inspection also set out to determine whether the monitoring efforts resulted in any remedial actions taken by the States. The review focused on the monitoring efforts carried out by the States during their 2004 and 2005 program years and did not evaluate the effectiveness of their monitoring.

We determined that, except for the need to improve their monitoring of the receipt of single audit reports from local grant recipients, the participating States are essentially adhering to the basic Federal monitoring requirements. Almost all of the participating States have conducted on-site monitoring visits during their 2004 and 2005 program years, and all 49 participating States and Puerto Rico submitted their annual performance and evaluation reports to HUD. While the States have assigned staff to monitor the local grant recipients, a total of six States advised that inadequate resources have hindered their ability to monitor the local grant recipients. It was also noted that five of the nine States we contacted issued sanctions against local grant recipients for not complying with program requirements or achieving program objectives.