HUD Grantees Need to Enhance Monitoring of ESG CARES Act Subrecipients

We audited HUD and its grantees’ monitoring of subrecipients and contractors in HUD’s Emergency Solutions Grants Coronavirus Aid, Relief, and Economic Security Act (ESG-CV) program to assess subrecipient monitoring in the program.  ESG and ESG-CV grantees often rely on subrecipients and contractors to carry out ESG-CV-funded activities on behalf of the grantees, and are required to monitor subrecipients to ensure that the purpose of the grant funds awarded is achieved and funds are spent on only eligible applicants and activities. HUD is responsible for ensuring that grantees are performing this oversight.  In August 2022, OIG found that 87 percent of ESG-CV grantees provided funds to subrecipients, and of that group 84 percent reported the pandemic affected their ability to effectively monitor subrecipients.  The ESG-CV funding represented a 1,379 percent increase to the regular 2020 annual ESG appropriation.  These factors place an increased importance on HUD’s Office of Community Planning and Development’s (CPD) monitoring how well its grantees, in turn, monitor subrecipients and contractors.CPD conducts risk-based monitoring of its ESG-CV grantees to ensure that grantee monitoring of subrecipients met 2 CFR part 200 requirements.  Through this monitoring, CPD identified deficiencies in grantees’ subrecipient monitoring and CPD took steps to resolve these findings with the grantees.  In addition, CPD provided training on monitoring requirements and best practices.  CPD’s efforts to ensure that ESG-CV grantees appropriately monitored their subrecipients helped to safeguard the $3.96 billion in ESG-CV funds.  We also independently reviewed nine ESG-CV grantees that relied heavily on subgrantees and received significant pandemic response funding.  We found eight grantees could have improved their subrecipient monitoring, including inadequate or delayed subrecipient monitoring, lack of ESG-CV policies and procedures, and missing required information on agreements.  These three areas were similar to the issues CPD found when monitoring grantees.  CPD and some grantees stated that the pandemic impacted the grantees’ ability to monitor, citing staffing capacity issues due to the increase in CARES Act funding.  In addition, some grantees did not fully understand the ESG-CV subrecipient and contractor monitoring and agreement requirements.  While the issues we found were similar to those identified in CPD’s own monitoring of grantees, they demonstrate the importance of continued monitoring and training by CPD in the area of subrecipient monitoring.  We recommend that the Principal Deputy Assistant Secretary for Community Planning and Development take corrective action on subrecipient monitoring and agreement deficiencies cited for the eight ESG-CV grantees and provide additional guidance or technical assistance as needed to ensure that they understand the requirements, and develop and implement additional training and guidance for all ESG grantees.