Office of Economic Opportunity BY THE CQMPTROLLER GENERAL OF THE UNITED STATES COMP-~R~LER GENERAL 0~ THE UNITED STATES WASHINGTON. D.C. 20548 B-130515 To the President of the Senate and the Speaker of the House of Representatives This is our report on improvements needed in management of Office of Economic Opportunity projects to develop business opportunities for the poor. Our review was made pursuant to the Budget and Account- ing Act, 1921 (31 U.S.C. 53), and the Accounting and Auditing Act of 1950 (31 U.&C. 67). Copies of this report are being sent to the Director, Office of Management and Budget; the Secretary of Agriculture; the Sec- retary of Commerce; the Cirector, Office of Economic Opportu- nity; and the Administrator, Small Business Administration. Comptroller General of the United States 50TH ANNIVERSARY 1921- 1971 COMPTROLLERGENERAL'S IMPROVEMENTSNEEDEDIN MANAGEMENT OF PROJ- REPORTTO THE CONGRESS ECTS TO DEVELOPBUSINESS OPPORTUNITIESFOR THE POOR ‘I Office of Economic Opportunity B-130515 yr7 / DIGEST ------ WHYTHE REVIEW WASMADE I Through the creation of new business opportunities for the poor in__ghet_$o , and rural ---7- - areas, the Office of Economic Opportuiiity~(OE0) is a=pting I to innovate and develop new ways to help the poor become self-sufficient. OEO funded about 740 research and pilot projects at about $204 million during fiscal years 1965 through 7970. The projects--includikg economic ----_ development .pilot projects--were designed to test new approaches to o.ver- zWile"^special poverty problems or to further urban and rural community ac- I tio‘rfprograms. I These innovative projects are given a high priority in OEO's overall anti- I poverty program. Therefore, the General Accounting Office (GAO) reviewed six of these projects located in Alabama, California, Ohio, Oregon, and Texas. Grant funds of about $3.7 million were provided for these projects. GAO evaluated --project accomplishments, --solutions to problems encountered, --efficiency of OEO's administration, and --control exercised by the grantees over the grant funds. To evaluate OEO's general management of pilot projects, GAO reviewed also at OEO headquarters 23 pilot projects randomly selected from a total of 136 projects funded in fiscal year 1969. FINDINGS AND CONCLUSIONS The six economic development pilot projects had limited success in achiev- ing their objectives and in demonstrating that these were workable ap- proaches to solving the problems involved. The projects' lack of managerial competence was one of the most critical problems in establishing minority-owned businesses or other business ven- tures to be operated by the poor. Tear Sheet 1 Other problems involving one or more of the projects included: --Inadequate evaluations of the practicability of projects prior to funding. --Unrealistic goals established in view of the amount of funds and the period of time available under the grant. --Projects not organized sufficiently well to be effective. --OEO's and projects' disagreements on program objectives. --Work plans not fully implemented by projects. The general downturn in the economy during fiscal year 1970 also may have hampered some projects from achieving their stated objectives. (See p. 11.) In funding future projects, OEO should improve the planning and imple- mentation of the projects to minimize these shortcomings. In the event that project goals cannot be accomplished, OEO should redirect such goals-or should take other action timely to prevent or mini mize the in- effective use of Federal funds. (See pp. 27 and 28.) Federal and private expertise not used The resources of private enterprise were not sufficiently i nvolved in carrying out the six pilot projects nor were the resources of other Fed- eral agencies sought to the fullest extent available. (See p. 30.) OEO should consider ways to increase the use of jointly sponsored industry-OEO economic development pilot projects to establish minority- operated businesses or other businesses to aid the poor. It was anticipated that four of the six projects would receive financial and technical assistance from other Federal agencies to accomplish their objectives, For two of the fours however, the necessary cooperation from other Federal agencies was not sought by OEO in advance of funding or was not well coordinated after funding. As a result the successful accom- plishment of project goals was hampered. (See pp. 35 and 36.) For example, the success of a component of one pilot project, a farmers' cooperative for raising and marketing feeder pigs, depended on about 1,000 farmers each obtaining a loan of $2,750 from the Farmers Home Ad- ministration, Department of Agriculture. Neither OEO nor the project determined, prior to funding, whether these loans would be made available. When these loans could not be obtained, only 32 farmers were able to par- ticipate in the project by receiving loans provided from OEO funds. (See Pm 36.) Another Federal program, the Service Corps of Retired Executives (SCORE), which might have been helpful to several of the pilot projects, was not used by OEO. The Small Business Administration organized SCOREin 1964 to provide free counseling and guidance to new and established small busi- nesses. More than 3,800 retired business executives belong to SCORE. Not until July 1970 did OEO inform its grantees of the availability of SCORE volunteers. (See pp. 36 and 37.) Ineffectiva management by OEO Some of the problems encountered by the six economic development pilot projects indicated a need for more effective management of the projects by OEO headquarters staff. For example, OEO project managers of five of the six projects did not have training and experience in business. As a result they were not techni- cally capable of providing management assistance to the projects. (See p* 39.) GAO's review of OEO's general management of pilot projects showed a need for improvement. GAOfound that --adequate instructions, guidelines, and procedures had not been issued; --most project managers did not have business backgrounds; --projects were not always reporting on their operations; --project operations were not being adequately monitored and evalu- ated; and --project results were not being determined and disseminated. (See p. 39.) Better finuncia2 management needed Questionable expenditures of grant funds totaling about $200,000 for four of the six projects were found by GAO, as well as by certified public ac- countants and by OEO's audit staff. These audits also showed that im- provements were needed in the accounting procedures and internal controls for five of the six projects to provide greater assurance that grant funds were expended in compliance with OEO requirements. (See p. 56.) Grantees are responsible for establishing an acceptable system'of control and administration of grant funds, and OEO has a responsibility to pro- vide sufficient surveillance and assistance to grantees to help ensure that grant funds are expended properly. (See p. 56.) Tear Sheet 3 RECOkMENDATIONS OR SUGGESTIONS In planning and implementing economic development pilot projects, OEO, through its Office of Program Development, should --determine the feasibility of proposed projects and the organiza- tional and managerial capability of the grantees to carry out the projects, --reach a clear understanding with grantees on carrying out approved project plans9 --make evaluations at established intervals to detect problems in meeting interim goals to minimize the consequences of the problems, and --take prompt and effective action toward resolving obstacles affect- ing accomplishments. (See pa 28.) To obtain needed managerial competence in future economic development projects, OEO should consider using the resources of private enterprise and seeking maximum cooperation of other Federal agencies which could provide financial and technical assistance to OEO-sponsored projects. (See p. 37.) OEO, through the Office of Program Development, needs to --issue instructions, guidelines, and procedures for managing and funding research and pilot project grants; --employ personnel having educational and vocational backgrounds in business to assist in the management of the projects; --establish a training program for project managers; --establish requirements as to the number and type of reports to be furnished on pilot projects; --establish an effective monitoring and evaluation system to ensure that OEOwill receive information to aid in managing projects and in analyzing their results; and --improve OEO's dissemination of project results. (See pp. 53 and 54.) I I OEO should ensure that pilot project grantees improve their management of i grant funds and disallow unauthorized expenditures of grant funds. (See i P* 57.) I 4 , I AGENCYACTIONS OEO stated that GAO's report accurately presented OEO's management of economic development pilot projects and that it would be helpful in im- . proving the projects and their management. OEOagreed with the recommendations in the report and informed GAO of the actions taken or planned to implement them. (See app. I.) MATTERS FOR CONSIDERATIONBY THE CONGRESS No new legislation is needed. GAO is reporting its findings to inform the Congress of the problems which have arisen in the administration of the economic development pilot projects and to demonstrate the need for greater use of the private sector and for better cooperation of Federal agencies in carrying out this program. Tear Sheet 5 --Conte'nts DIGEST 1 CHAPTER 1 INTRODUCTION 6 Economic opportunity programs 6 Pilot project administration 9 The six pilot projects 10 SIX ECONOMIC DEVELOPMENTPILOT PROJECTS EXPERIENCEDLIMITED SUCCESS 11 Albina Manufacturing Corporation 12 East Central Citizens Organization 16 South East Alabama Self-Help Association 21 Project Demeter 23 Migrant Rural Action, Inc. 23 Watts Labor Consumer Action project 26 Conclusions 27 Recommendations to the Director, OEO 28 OPPORTUNITIES FOR IMPROVED EFFECTIVENESS OF ECONOMIC DEVELOPMENTPILOT PROJECTS 30 Opportunities for participation of pri- vate enterprise 30 Coordination with other Federal agencies 35 Conclusions 37 Recommendations to the Director, OEO 37 IMPROVEMENTSNEEDED IN OEO'S MANAGEMENT OF PILOT PROJECTS 39 . and procedures 40 Instructrons, guidelines, Recruiting and training of pilot project managers 42 Reporting 45 Monitoring and evaluation 45 Determining and disseminating project results 51 Conclusions 54 Recommendations to the Director, OEO 54 CHAPTER 5 NEED FOR IMPROVED CONTROLSOVER THE EXPEN- DITURES OF GRANT FUNDS 56 Conclusion 57 Recommendations to the Director, OEO 57 APPENDIX I Letter dated April 21, 1971, from the Dep- uty Director, Office of Economic Opportu- nity, to the General Accounting Office 61 II Letter dated March 19, 1971, from the As- sistant Secretary of Commerce to the General Accounting Office 75 III Letter dated March 1, 1971, from the Direc- tor, Office of Minority Business Enter- prise, Department of Commerce, to the General Accounting Office 78 IV Letter dated February 8, 1971, from the Ad- ministrator, Farmers Home Administration, Department of Agriculture, to the General Accounting Office 79 V Letter dated March 9, 1971, from the Adminis- trator, Small Business Administration, to the General Accounting Office 80 VI Principal officials of the Office of Eco- nomic Opportunity responsible for the ad- ministration of activities discussed in this report 81 ABBREVIATIONS -------- CPA certified public accountant ECCO East Central Citizens Organization Farmers Home Administration GAO General Accounting Office MIRA Migrant Rural Action, Inc. OEO Office of Economic Opportunity SBA Small Business Administration SCORE Service Corps of Retired Executives SEASHA South East Alabama Self-Help Association COMPTROLLERGENERAL'S IMPROVEMENTS NEEDED IN MANAGEMENT OF PROJ- REPORTTO THE CONGRESS ECTS TO DEVELOP BUSINESS OPPORTUNITIES FOR THE POOR Office of Economic Opportunity B-130515 DIGEST ------ WHYTHE REVIEW WASMADE Through the creation of new business opportunities for the poor in ghetto and rural areas, the Office of Economic Opportunity (OEO) is attempting to innovate and develop new ways to help the poor become self-sufficient. OEO funded about 740 research and pilot projects at about $204 million during fiscal years 1965 through 1970. The projects--including economic development pilot projects--were designed to test new approaches to over- come special poverty problems or to further urban and rural community ac- tion programs. These innovative projects are given a high priority in OEO's overall anti- poverty program. Therefore, the General Accounting Office (GAO) reviewed six of these projects located in Alabama, California, Ohio, Oregon, and Texas. Grant funds of about $3.7 million were provided for these projects. GAO evaluated --project accomplishments, --solutions to problems encountered, --efficiency of OEO's administration, and --control exercised by the grantees over the grant funds. To evaluate OEO's general management of pilot projects, GAO reviewed also at OEO headquarters 23 pilot projects randomly selected from a total of 136 projects funded in fiscal year 1969. FINDINGS AND CONCLUSIONS The six economic development pilot projects had limited success in achiev- ing their objectives and in demonstratinq that these were workable ap- proaches to solving the problems involved. The projects' lack of managerial competence was one of the most critical problems in establishing minority-owned bus inesses or other bus iness ven- tures to be operated by the poor. Other problems involving one or more of the projects included: --Inadequate evaluations of the practicability of projects prior to funding. --Unrealistic goals established in view of the amount of funds and the period of time available under the grant. --Projects not organized sufficiently well to be effective. --OEO's and projects' disagreements on program objectives. --Work plans not fully implemented by projects. The general downturn in the economy during fiscal year 1970 also may have hampered some projects from achieving their stated objectives. (See p. 71.) In funding future projects, OEO should improve the planning and imple- mentation of the projects to minimize these shortcomings, In the event that project goals cannot be accomplished, OEO should redirect such goals or should take other action timely to prevent or minimize the in- effective use of Federal funds. (See pp. 27 and 28.) Federal and private expertise not used The resources of private enterprise were not sufficiently involved in carrying out the six pilot projects nor were the resources of other Fed- eral agencies sought to the fullest extent available. (See p. 30.) OEO should consider ways to increase the use of jointly sponsored industry-OEO economic development pilot projects to establish minority- operated businesses or other businesses to aid the poor. It was anticipated that four of the six projects would receive financial and technical assistance from other Federal agencies to accomplish their objectives. For two of the four, however, the necessary cooperation from other Federal agencies was not sought by OEO in advance of funding or was not well coordinated after funding. As a result the successful accom- plishment of project goals was hampered. (See pp. 35 and 36.) For example, the success of a component of one pilot project, a farmers' cooperative for raising and marketing feeder pigs, depended on about 1,000 farmers each obtaining a loan of $2,750 from the Farmers Home Ad- ministration, Department of Agriculture. Neither OEO nor the project determined, prior to funding, whether these loans would be made available, When these loans could not be obtained, only 32 farmers were able to par- ticipate in the project by receiving loans provided from OEO funds. (See P. 36.) 2 Another Federal program, the Service Corps of Retired Executives (SCORE), which might have been helpful to several of the pilot projects, WJS not used by OEO. The Small Business Administration organized SCORE in 1964 to provide free counseling and guidance to new and established small busi- nesses. More than 3,800 retired business executives belong to SCORE. Not until July 1970 did OEO inform its grantees of the availability of SCORE volunteers. (See pp. 36 and 37.) Ineffective management by LX0 Some of the problems encountered by the six economic development pilot projects indicated a need for more effective management of the projects by OEO headquarters staff. For example, OEOproject managers of five of the six projects did not have training and experience in business. As a result they were not techn-i- tally capable of providing management assistance to the projects. (See P. 39.) GAO's review of OEO's general management of pilot projects showed a need for improvement. GAO found that --adequate instructions, guidelines, and procedures had not been issued; --most project managers did not have business backgrounds; --projects were not always reporting on their operations; --project operations were not being adequately monitored and evalu- ated; and --project results were not being determined and disseminated. (See p. 39.) Better financia2 management needed Questionable expenditures of grant funds totaling about $200,000 for four of the six projects were found by GAO, as well as by certified public ac- countants and by OEO's audit staff. These audits also showed that im- provements were needed in the accounting procedures and internal controls for five of the six projects to provide greater assurance that grant funds were expended in compliance with OEO requirements. (See p. 56.) Grantees are responsible for establishing an acceptable system'of control and administration of grant funds, and OEO has a responsibility to pro- vide sufficient surveillance and assistance to grantees to help ensure that grant funds are expended properly. (See p. 56.) RECOMVENDATIONS OR SUGGESTIONS - In planning and implementing economic development pilot projects, OEO, through its Office of Program Development, should --determine the feasibility of proposed projects and the organiza- tionai and managerial capability of the grantees to carry out the projects, --reach a clear understanding with grantees on carrying out approved project plans, --make evaluations at established intervals to detect problems in meeting interim goals to Iminimize the consequences of the problems, and --take prompt and effective action toward resolving obstacles affect- ing accomplishments. be p. 28.) To obtain needed managerial competence in future economic development projects, OEO should consider using the resources of private enterprise and seeking maximum cooperation of other Federal agencies which could provide financial and technical assistance to OEO-sponsored projects. (See p. 37.) OEO, through the Office of Program Development, needs to --issue instructions, guidelines, and procedures for managing and funding research and pilot project grants; --employ personnel having educational and vocational backgrounds in business to assist in the management of the projects; --establish a training program for project managers; --establish requirements as to the number and type of reports to be furnished on pilot projects; --establish an effective monitoring and evaluation system to ensure that OEO will receive information to aid in managing projects and in analyzing their results; and --improve OEO's dissemination of project results. (See pp. 53 and 54.) OEO should ensure that pilot project grantees improve their management of grant funds and disallow unauthorized expenditures of grant funds. (See Pn 57.) AGENCYACiJlONS OEO stated that GAO's report accurately presented OEO's management of economic development pilot projects and that it would be helpful in im- proving the projects and their management. OEO agreed with the recommendations in the report and informed GAO of the actions taken or planned to implement them. (See app. I.) MATTERSFOR CONSIDERATIONBY THE CONGRESS No new legislation is needed. GAO is reporting its findings to inform the Congress of the problems which have arisen in the administration of the economic development pilot projects and to demonstrate the need for greater use of the private sector and for better cooperation of Federal agencies in carrying out this program. 5 Q-IAPTER 1 INTRODUCTION We reviewed six selected economic development pilot projects funded by the Office of Economic Opportunity under title II, section 232 of the Economic Opportunity Act of 1964, as amended (42 U.S.C. 2825). Our review was directed toward evaluation of the accom- plishments of these projects, solutions to problems encoun- tered, efficiency of OEO's administration, and controls ex- ercised by the grantees over the expenditures of grant funds. To evaluate the general management of pilot projects, we reviewed, in addition to the six pilot projects, the Of- fice of Program Development's management of 23 pilot proj- ects randomly selected by us from a total of 136 projects funded in fiscal year 1969. We obtained comments on the matters discussed, in this report from the Deputy Director of OEO; the Assistant Secre- tary of Commerce; the Director, Office of Minority Business Enterprise, Department of Commerce; the Administrator, Farm- ers Borne Administration, Department of Agriculture; and the Administrator, Small Business Administration. These com- ments are included as appendixes I, II, III, IV, and V and are recognized in the body of the report where appropriate. ECONOMIC OPPORTUNITYPROGRAMS The Economic Opportunity Act of 1964 (42 U.S.C. 2701) was enacted on August 20, 1964, to strengthen, supplement, and coordinate efforts to eliminate poverty in the United States. The act authorized the establishment of various programs intended to open to everyone the opportunity for education and training, the opportunity to work, and the op- portunity to live in decency and dignity. To lead this en- deavor, the act created OEO, headed by a director, in the Executive Office of the President. Amendments enacted in 1965, 1966, 1967, and 1969, au- thorized continuance of the programs included in the origi- nal legislation, added new programs, and made various changes governing the administration of the programs. 6 The President of the United States in his message to the Congress in February 1969 on redirecting the economic opportunity programs stated that: "OEO's greatest value is as an initiating agency-- devising new programs to help the poor, and serv- ing as an 'incubator' for these programs during their initial, experimental phases. One of my aims is to free OEO itself to perform these func- tions more effectively, by providing for a greater concentration of its energies on its innovative role." Section 232 of the Economic Opportunity Act, as amended, permits the Director, OEO, to contract or provide financial assistance for pilot or demonstration projects conducted by public or private agencies that are designed to test or as- sist in the development of new approaches or methods that will aid in overcoming special problems or in furthering the purposes of rural and urban community action programs. In January 1970 OEO stated the following purposes of pilot projects. --To show how existing local and State private and pub- lic institutions and programs can be made more rele- vant to the needs and aspirations of the poor. --To impact on the policies , programs, and legislation of other Federal agencies to make them likewise more responsive, --To mobilize new and greater resources directed at the needs of the poor. --To involve the poor in the mainstream of community and national life, and to demonstrate new ways to ma'ke their involvement more effective. --To increase individual opportunities for self- sufficiency and to enrich the quality of individual and community life, especially for the disadvantaged, 7 Pilot projects funded by OEO include projects (1) de- voted to finding new ways to develop income-earning oppor- tunities and capacities of the poor through jobs and new business opportunities, such as minority-owned businesses and cooperatives, (2) directed toward finding new ways on how the poor can gain access to livable communities in both rural and urban areas, such as testing new approaches to providing low-income people with opportunities to obtain and manage decent housing, and (3) designed to supplement the ef- forts of community action programs to build bridges of com- munication and understanding between the poor and nonpoor and between the poor and those institutions which have a major impact on improving the status of the poor. -PILOT PROJECT ADMINISTRATION The Director of OEO is responsible to the President for the administration and coordination of antipoverty programs authorized by the Economic Opportunity Act; for the estab- lishment of basic policies governing OEO operations and pro- grams; and for the planning, direction, control, and evalu- ation of OEO programs. Prior to September 1969, pilot projects were adminis- tered by the Research and Demonstration Division, Office of Program Policy, Community Action Program, OEO headquarters, Washington, D.C. In September 1969 the OEO headquarters of- fice underwent a major reorganization, and the responsibil- ities for administering pilot projects were vested in a newly established Office of Program Development. This of- fice is also responsible for administering Special Impact programs funded under title I, part D of the Economic Op- portunity Act, as amended. The authorized headquarters staff of the Office of Pro- gram Development in June 1970 was 118 positions, and on- board strength of full-time employees was 109, including 27 employees on the secretarial staff. By June 30, 1970, OEO had provided funds of about $204 million for about 740 research, demonstration, and pilot projects as follows: Obligated Fiscal amount year (millions) 1965 $ 16.5 1966 55.6 1967 24.6 1968 28.0 1969 26.5 1970 52.6 Total $203.8 9 THE SIX PILOT PROJECTS --- Basic information concerning the six economic develop- ment pilot projects covered in our review is shown below. OR0 grants as of Grant period June 30, Pilot project Purpose of proiect &.ll To 1970 Albina Manufacturing TO demonstrate that a Corporation, Port- minority-owned business can land, Oregon make a significant social and economic impact in a ghetto area June 1968 Apr. 1971 $1,457,000 East Central Citizens TO demonstrate that a self- Organization, Colum- governing neighborhood ser- bus, Ohio vice corporation can become self-sufficient Aug. 1968 July 1970a 578,000 South East Alabama TO demonstrate that a rural Self-Help Associa- Community-based service cor- tion, Tuskegee, poration can become self- Alabama sufficient Oct. 1968 June 1971 764,000 Project Demeter, To demonstrate that a rural Visalia, California grass-roots organization can assume the responsibility for economic development in a rural area Apr. 1969 Dec. 1971 237,000 Migrant Rural Action To demonstrate that migrant Inc., Webb County, families can be converted Texas into owners of mechanized truck farms June 1968 Nov. 1970 386,000 Watts labor Consumer To demonstrate that an in- Action Project, Las digenously organized and op- Angeles, California erated consumer action proj- ect can meet the consumer needs of the poor in a ghetto. area June 1967 Dec. 1969 . 261.000 Total S3.683NOOO aIn July 1970 OR0 discontinued funding the grantee as a pilet project and began funding it-as a title I, part D Special Impact program. 10 CHAPTER 2 SIX ECONOMICDEVELOPMENTPILOT PROJECTS EXPERIENCED LIMITED SUCCESS The six projects had limited success in achieving their objectives and demonstrating the feasibility of the innova- tive concepts involved. Because of the experimental nature of pilot projects which are intended to develop and test new approaches to reducing poverty, it is important to study carefully the shortcomings and successes of ongoing projects before planning or approving similar projects. One of the most critical problems was the lack of grantee managerial competence in operating minority-owned businesses or other business ventures of the poor. Our pro- posals for greater efforts by OEO to enlist the experience and resources of private enterprise and available financial and technical assistance of other Federal agencies to strengthen the managerial know-how of OEO assisted pilot projects are discussed in chapter 3. Other problems found by us with respect to one or more of the projects included: --Inadequate evaluations of the feasibility of the projects prior to initial funding. --Establishment of unrealistic goals in relation to the level of funding and period of grant. --Grantees lacked effective organizational structures. --Disagreements developed between OEO and grantees on project objectives. --Work plans were not fully implemented by grantees. Although not readily measurable, the general downturn in the economy during fiscal year 1970 also may have ham- pered some projects from achieving their stated objectives. 11 Some of the above problems indicated a need for more effective management by OEO headquarters staff. Our evalu- ation of OEO's management of pilot projects, in general, and proposals for improvements are discussed in chapter 4. Cur comments on the results of the six projects follow. ALBINA MANUFACTURINGCORPORATION The primary objective of the Albina project in Port- land was to demonstrate that a ghetto-owned, ghetto- controlled corporation could make a significant impact on the financial and social development of a poverty popula- tion. This was to be accomplished through a so-called second-income plan by (1) employing residents of a ghetto community to manage and operate a manufacturing-type enter- prise and (2) distributing shares of stock to employees, using a formula based on compensation, which thereby pro- moted corporate growth and made the employees capital own- ers. To conduct the project, OEO granted Albina a total of about $1.46 million beginning in June 1968 and spent another $174,000 for technical and managerial assistance; the De- partment of Labor awarded Albina two contracts totaling $446,000 for on-the-job training; the Small Business Admin- istration guaranteed $350,000 of a $400,000 bank loan and leased a building to Albina for a period of 18 months with an option to purchase; and the Economic Development Admin- istration, Department of Commerce, provided funds of $45,000 to conduct a feasibility study on the potential of market- ing and manufacturing boats. In addition, Albina had the free use of surplus Government equipment from the Defense Industrial Plant Equipment Center, Albina used part of the grant funds to establish a metal fabrication plant in an old bowling alley leased from the Small Business Administration in May 1968 and located in the Albina target area of Portland. Albina also estab- lished a fiber glass boat production plant at another loca- tion outside the target area, The major part of the corporation's manufacturing work was devoted to a $1.2 million contract competitively awarded 12 in February 1969 by the Department of the Army (Frankford Arsenal) for manufacturing 227,569 ammunition storage con- tainers having a selling price of $5.29 each, Other sales generated by the project amounted to about $300,000 and in- cluded work for various Federal agencies and private corpo- rations. As of November 1970 Albina did not have any major work programmed after the estimated completion date of the storage container contract in May 1971, After 26 months of operations, Albina had incurred an operating loss of over $1.3 million. It appeared unlikely that Albina could operate at a profit in the foreseeable future and thereby demonstrate whether a second-income plan could have the anticipated effect on the community, unless significant changes were made in its operations. We believe that the following conditions contributed to Albina's in- ability to make a profit. 1. The board of directors was dominated by Albina@s top management personnel, and policies were made and activities of the company were conducted without an outside review to evaluate such policies and activ- ities for objectively measuring the progress at- tained by Albina. 2. Albina filled all of its key management positions with members from the community who lacked marketing and manufacturing experience, which placed a strain on its ability to operate an efficient manufacturing plant. Further, there were frequent personnel changes in key management positions. For example, Albina had two or more people in the positions of president, vice president, and accountant from the time that it began operations in 1968. 3. Albina had not established well-defined, long-range production or marketing policies. Its operations were primarily oriented toward taking on any work for which it could possibly tool up its production facilities. 4. Albina was unable to produce a quality ammunition container at a sufficiently high level of production to meet contract delivery schedules and at a cost 13 lower than the established selling price, This was caused primarily by: --Albina's undertakingtomanufacture a product which required close tolerance work and using equipment which was not capable of holding the required tolerances. This caused considerable rework of ammunition containers to meet the Army contract's specifications which resulted in in- creased costs. --Albina's inability to obtain a skilled and stable work force capable of producing the com- plex products it was manufacturing. The presi- dent of the company estimated that the turnover rate was about 300 percent, Moreover the com- pany had to hire about five employees to ensure that three positions would be filled for each production shift, OEO, in administering the Albina project, did not (1) provide adequate technical assistance to Albina, (2) finance the project on a timely basis, and (3) resolve project de- ficiencies disclosed during its monitoring and evaluation efforts. In May 1970 OEO concluded that Albina had a dismal busi- ness history, although its social achievements in the black community had been significant. OEO decided to award Albina a final grant of $370,000 to be used to pay off Albina's creditors, to contract for technical assistance, to finance a month's payroll, and to provide for employee severance pay* OEO decided also that, except for monitoring the ex- penditures of these final funds, its relationship with Albina was terminated. Due to a lack of working capital to purchase raw mate- rial and to pay its work force, Albina in February 1971 laid off its employees, except for a skeleton crew of 11 persons, and closed down its production facilities. Albina informed Frankford Arsenal that it desired a termination of the con- tainer contract. In February 1971 OEO granted Albina an extension to April 15, 1971, to use about $10,000 remaining from the $370,000 grant to seek new businesses. 14 The project did have some beneficial aspects. In May 1970 Albina was employing 90 persons and, after inception of the project, had employed a total of 305 persons, many of whom were unemployed and came from the ghetto community. This work experience should have benefited the employees who left Albina; the president of the company stated that most of his former employees had obtained other jobs for higher wages. 15 EAST CENTRAL CITIZENS ORGANIZATION The primary objective of the East Central Citizens Or- ganization (ECCO) project in Columbus was to demonstrate that a self-governing neighborhood service corporation could continue providing community services to the poor while becoming independent of outside sources of financial assistance through the establishment of revenue-producing enterprises. ECCO proposed to demonstrate that: 1. A self-governing neighborhood corporation can within 3 years establish sources of sufficient income to ensure its continuation without governmental grant funding. 2. An organization previously dedicated solely to pro- viding self-government, community organization, and social services is sufficiently versatile and flex- ible to enter the world of business on a competi- tively profitable basis. 3. Local business, labor, and civic leaders will sup- port and cooperate with a ghetto-based, self-help organization which seeks to finance its programs throug‘h business enterprise. 4. Low-income residents have the capacity and desire to become stockholders, managers, and entrepreneurs if given the opportunity. 5. A neighborhood corporation can continue to provide relevant programs of government, service, and organ- ization while engaged in a campaign to become finan- cially self-sufficient. From August 1968 to July 1970, OEO granted ECCO $225,000 of seed money (funds used to attract capital from other sources to invest in business ventures) for investment purposes to establish profitable business ventures and $327,000 for administrative expenses to continue ECCO's com- munity service programs. OEO also provided ECCO with $26,000 to f orm an independent evaluation committee to eval- uate ECCO. 16 Members of ECCO's board of directors seemed to have the necessary experience in business matters to provide expert advice, but ECCO had not adequately staffed the ECCO Devel- opment Corporation which was formed to establish profitable business ventures by using the OEO-provided seed money. After almost 2-l/2 years of operations, ECCO had made only limited progress in getting income-producing activities under way. Part of the problem stemmed from the fact that the funds for capital investment were not received until 3 to 5 months after the grants had been approved by OEO, causing confusion in investment planning and delays in the purchase of business ventures. The director of ECCO, who also served as president of the development corporation, stated that the pressures of the ECCO community for services prevented him from ade- quately staffing the corporation with funds provided by OEO. As a result, ECCO rewested a $152,800 grant from the Eco- nomic Development Administration, Department of Commerce, to staff the corporation. In November 1969 the Economic Devel- opment Administration turned down the request and informed ECCO that: "JJe have attempted to maximize the impact of our small budget by maintaining the momentum of on- going activities; and therefore, have been re- luctant to expand our technical assistance efforts beyond these ** cities in whic'h we are presently working." In its August 1968 proposal to OEO, ECCO stated that the objective of the pilot project would be "to achieve fi- nancial independence for itself and its many programs of service and opportunity to the community" which were Ijud- geted at about $370,000. Assuming ECCO could earn a lo- percent return on any businesses that it established, it would have needed at least $3.7 million of investment capi- tal from OEO and other sources to fully support the service programs it operated, Because OEO provided only $225,000 in seed money, the chances that ECCO would be able to at- tract the remaining capital and have such capital produce sufficient revenues to allow it to become self-sufficient within 3 or 4 years was highly unlikely. 17 In May 1970 ECCO modified its goals of self-sufficiency to that of generating profits capable of supporting only the ECCO administrative staff budgeted at about $50,000 annually. ECCO indicated that the community services programs would continue to be funded by OEO and other Federal agencies, In July 1970 OEO discontinued funding ECCO as a pilot project and began funding it as a Special Impact program under title I, part D of the Economic Opportunity Act, as amended (42 U.S.C. 2763). Title I, part D allows OEO to initiate Special Impact programs to fight poverty in urban areas having large con- centrations of low-income residents or rural areas having substantial migration to such urban areas. These programs-- combining businesses, community, and manpower development-- are designed to have a major impact on unemployment, depen- dency, and community tensions, The Special Impact program is experimental and offers the poor an opportunity to use the free-enterprise system to become independent and self- supporting and to get a piece of the action. ECCO requested OEO to provide title I, part D Special Impact funds of about $2 million to achieve a breakthrough in solving the economic, social, and physical problems of the ECCO area. ECCO is located in the east-central section of the city of Columbus and covers 40 city blocks having a population of about eight thousand residents, ECCO proposed to use the funds to establish (1) a plant to manufacture low-cost modular homes and (2) a capital revolving fund to be used to make loans and to guarantee loans from private lending institutions to support ECC09s enterprises and to provide economic assistance to local minority businesses. On June 30, 1970, OEO awarded ECCO a $900,000, 24-month Special Impact grant which included $550,000 of venture cap- ital. ECCO was required to obtain $100,000 of venture capi- tal from non-Federal sources. As of November 1970 ECCO had invested funds in seven business ventures; although it was too early to assess the long-range profit potential of these businesses, the small amounts of funds invested made it doubtful whether signifi- cant revenue would be derived in the near future for use in paying ECCO administrative staff. ECCO's investments are shown below. Amount Date of Business Ventures invested investment Mound Street apartments S15,700a June 1970 ECCO Dairy Bar 23,900 Jan. 1970 Bass Dairy Store 7,500 June 1970 18th and Oak Street Market 30,000 June 1970 Land purchased for con- struction of 18 townhouse Apr. and cooperatives 22,000 May 1970 Litter receptacles 25,000 June, July, and Oct. 1970 Building lease for school of cosmetology 1,800 July 1970 (1 year) aECCO also assumed a $45,500 loan. The ECCO project was evaluated by a committee composed of individuals having professional expertise in t'he economic, social, and physical aspects of communities, such as the ECCO area. The evaluation committee, in its report dated August 31, 1970, concluded that OEO's funding of ECCO activ- ities, on the whole, had been a failure in that ECCO was not self-sufficient and that none of the evidence indicated a high probability that ECCO's business ventures would yield any more than if the OEO grants had been invested in U.S, Government bonds. The evaluation committee also stated that, if ECCO hoped to maintain a reputation as a community organization involving large numbers of its neighborhood residents, it should increade its recruiting program to draw in new par- ticipants since only 10 percent of ECCO's 600 active members were new to the organization during the first half of 1970. The committee recommended that ECCO should better inform its constituency of ECCO's goals, accomplishments, services, and benefits. Finally the evaluation committee concluded that the concepts of self-sufficiency, self-determination, 19 self-control, and ownership were meaningful alternatives to be tested for alleviating poverty; the self-sufficiency experiment at ECCO should be continued; and OEO should al- low ECCO the necessary freedom and flexibility to make its own mistakes as well as its own successes. 20 SOUTH EAST ALADAM SELF-HELP ASSOCIATION The primary objective of the South East Alabama Self- Help Association (SEAS&%) is to demonstrate that a rural com- munity-based organization can undertake varied economic de- velopment enterprises which generate sufficient funds to sus- tain SEASHA's community service activities. SEASHA's major areas of activity included community ser- vice, a feeder-pig cooperative, nonfarm economic development, and a credit union, To carry out these activities, OEO granted SEASHAa total of about $764,000 for the period Octo- ber 1968 to June 1971. The Economic Development Administra- tion, Department of Commerce, awarded SF=ASHAa contract of about $157,000 for the period April 1969 to August 1971 for nonfarm economic development. Included in the OEO grant was $165,000 of seed money to be used to establish nonfarm busi- nesses in connection with the contract from the Economic De- velopment Administration. As of November 1970 the project had made negligible progress toward demonstrating its feasibility, primarily be- cause of (1) inadequate coordination of OEO's plans with the Farmers Home Administration (FHA), Department of Agriculture, (2) the inability of the project to attract nonfarm business ventures, and (3) ineffective management by OEO. SEASHA's proposal for OEO assistance stated that the goal of the feeder-pig cooperative was to become self- sustaining after a Z-year period. The proposal stated also that the cooperative would involve up to 1,000 low-income farmers in a LZ-county area in rural southeast Alabama, who were potential out-migrators to urban centers. It was anticipated that participating farmers would ob- tain loans of $2,750 each from FDA, Neither OEO nor SEaSHA officials, however9 made a determination, prior to funding the cooperative, Tðer FHA loans would be available for the feeder-pig project. None of the farmers were able to obtain FHA loans, pri- marily because of the unavailability of FDA loan funds and because most of the farmers could not meet the credit re- quirements of FHA. As of November 1970, after 25 months of 21 operations, only 32 farmers who obtained loans from SEASHA were participating in the feeder-pig cooperative. This ac- tivity did show some promise of raising the living standards of the farmers involved but would have to be greatly en- larged before sufficient funds would be available through the feeder-pig cooperative to help support SEASHA's commu- nity service activities. As of November 1970 no firm commitment had been obtained by SEASHA from private enterprise to establish businesses in the 12-county target area. Most of the $165,000 of invest- ment capital provided by OEO was used, after OEO approved budget changes, to pay salaries and related expenses of the feeder-pig program rather than to establish business ven- tures. SEASHAestablished a credit union in April 1969, which as of May 1970 had about 1,900 members. The credit union, however, was experiencing financialdifficultiesbecause of a substantial number of delinquent loans. Without additional funds for loans to farmers and in- vestment in business ventures, it is unlikely that SEASHA can become self-sufficient or can make any notable progress toward the alleviation of poverty in the 12-county target area. In managing the SEASHApilot project, OEO should have taken more effective action by --evaluating the feasibility of proposed project goals; --denying SEASHA's requested budget changes to use the nonfarm economic development seed money for paying the salaries of feeder-pig cooperative staff that would leave little money for establishing businesses, one of the project's goals; --coordinating its efforts with FHA; and --providing SEASHAwith needed management assistance, including an evaluation of the progress of SEASHAin accomplishing stated objectives, and correction of project deficiencies reported by consultants under contract with OEO. 22 PROJECT DEMETER The primary objective of project Demeter in Visalia was to test the ability of a rural grass-roots organization to take on the responsibility for economic development in a rural area by establishing business ventures owned and op- erated by low-income individuals. In April 1969 OEO awarded a 14-month $237,198 grant to the Tulare County Community Ac- tion Agency which delegated the project to Rural Action Groups, Inc., an organization of low-income community groups. In October 1970 OEO transferred the grant to Rural Action Groups and extended the termination date of the grant through December 1971. Opposition by four Tulare County Community Action Agency board members to project Demeter and the inability of Rural Action Groups to hire administrative staff for the project because of internal and external conflicts delayed implemen- tation of the project. As of September 1970, or 17 months after the award of the grant, project Demeter's efforts con- sisted primarily of conducting feasibility studies on a num- ber of proposed business ventures, of providing financial assistance to three small businesses0 and of considering the desirability of financing seven others. Project Demeter's assistance to the three businesses included loaning $10,400 and $18,400, respectively, to two low-income groups for the purpose of establishing gas station-grocery store combinations in a public housing proj- ect near Woodville, California, and on the Tule Indian Res- ervation adjacent to the Sequoia National Park and loaning $5,500 to two farmers to operate a food-processing plant. At the completion of our fieldwork in September 1970, project Demeter had begun to make progress toward assisting in the establishment of businesses owned by low-income in- dividuals but the project had not been in operation long enough to permit a full assessment as to whether it would achieve its objectives. MIGRANT RURAL ACTION, INC. The primary objective of the Migrant Rural Action, Inc. (MBA), project in Webb County was to demonstrate that a 23 group of migrant families could be trained to become mecha- nized truck farmers and establish and successfully operate their own farms as an alternative to seasonal migration to the North in search of employment. OEO anticipated that, after receiving training and on-the-job experience, each migrant family would cbtain a loan from FHA to purchase and operate a 50-acre truck farm. In June 1968 OEO awarded the Economic Opportunities Development Corporation of Laredo and Webb County, Texas3 a $314,000 grant for conducting the project, In March 1970 the corporation was granted an additional $72,000 through November 1970, at which time the project was terminated as a pilot project because it had not accomplished its objec- tives. The operation of the project was delegated to the Laredo Migrant Opportunity Corporation which, in turn, en- tered into an agreement with MIRA, a profitmaking corpora- tion to manage the project under the guidance of a board of directors that consisted of the 24 migrant families partic- ipating in the project. Actual operations of the project were started in January 1969 on a leased 505-acre farm in Webb County adjacent to the Rio Grande River in the lower south-central section of Texas. As of December 1970 the Economic Opportunities Develop- ment Corporation assumed control over the farm and equipment and planned to grow and harvest crops until expiration of the farm lease in July 1971. It was anticipated that the MIRA farm would grow and market fresh vegetables and realize a profit of about $298,000 during the first year of operation, The profit would be used to establish a $176,000 operational trust fund revolving account, to create a capital reserve of $50,000, and to distribute $3,000 to each of the 24 participating families, The primary objective of the pilot project was not ac- complished, because the necessary training program for the migrant families was not implemented and because most of the families had returned to the migrant stream. We believe 24 that the accomplishments of project objectives were further impeded by --unrealistic project goals that did not consider such factors as the limited period of the grant, the mea- ger educational and vocational experiences of the participants, and the length of training needed for converting the migrant families into farmers; --an unworkable organizational structure--the project director did not have authority to direct a subordi- nate work force since the work force also served on the board of directors; and --the managers of the project did not have the qualifi- cations and experience required to provide adminis- trative and operational direction. MIRA did provide employment to the participating fami- lies and other migrant farm workers during peak work peri- ods. Revenue was realized from the sale of some crops, al- though the farm operated at a substantial loss. In managing project MIRA, OEO did not (1) coordinate the project with the Department of Agriculture and Depart- ment of Commerce, State agencies, and universities, contrary to the provisions of the grant proposal, or with other OEO- funded programs in the Laredo area, (2) take corrective ac- tion when deficiencies in the operation of the project were brought to its attention in monitoring reports prepared by consultants under contract with OEO, and (3) require the grantee to adhere to grant conditions, such as the estab- lishment of a training program for the migrant families, which were essential for accomplishing project objectives. 25 WATTS LABOR CONSUMERACTION PROJECT The primary objectives of the Watts Labor Consumer Ac- tion project in Los Angeles were to demonstrate that (1) residents of the Watts area, recruited and trained as com- munity counselors, could develop an effective organization at the neighborhood level to meet the consumer needs of low-income residents and (2) the infusion of outside loan capital would stimulate the growth of a low-income commu- nity credit union in Watts. In June 1967 OEO awarded a l-year $260,806 grant to the Watts Labor Community Action Committee for the purpose of conducting the project. The period of the grant was ex- tended through December 31, 1969, at which time the project was terminated. The Federal Government, directly or through the prin- cipal community action agency for Los Angeles, provided the Committee with $6.5 million through grants and contracts from July 1966 through January 1970 to conduct various anti- proverty programs. The primary objective of the pilot project was not ac- complished, mainly because of a disagreement between OEO and the grantee on project objectives and method of imple- mentation. Few of the proposed activities called for in the project proposal were implemented, and few of the ex- pected results were realized. The proposed objectives and project scope were formu- lated by OEO program personnel rather than by the grantee. The OEO staff who prepared the proposal intended community involvement and control to be the main thrust of the con- sumer action project and envisioned the project as a means for organizing the community into neighborhood-controlled councils concerned with consumer and economic issues in the Watts area. However, according to an OEO project manager's report in September 1968, the chairman, Watts Labor Commu- nity Action Committee, had no intention of allowing the community to control the project. The chairman informed us that he considered the con- sumer action project to be a supportive and organizing arm 26 of the Watts Labor Community Action Committee and that it was not a separately identified project but part of the Committee's total consumer activities, which would provide opportunities for community residents to become more effec- tive consumers and save money. We noted that (1) the director of the consumer action pilot project spent more than half of his time serving as an assistant to the chairman of Watts Labor Community Ac- tion Committee and thereby spent little time directing the activities of the pilot project and (2) 10 employees who were paid about $45,000 with grant funds under the OEO project were assigned to other Watts Labor Community Action Committee projects, such as the Neighborhood Youth Corps program, area clean-up details, and service stations. The project proposal provided for the establishment of purchasing or buying clubs and cooperative enterprises. The director of the pilot project informed us, however, that buying clubs were not established because he believed the concept was unfeasible. Similarly, the chairman of the Watts Labor Community Action Committee disapproved a pro- posal for a purchasing cooperative because he disagreed with the cooperative concept andbelievedthat such a ven- ture would not work. He felt that the consumer needs of residents would be better served by establishing and op- erating such enterprises as food markets. Our review indicated that OEO had not monitored and evaluated the progress of the project timely and effec- tively. CONCLUSIONS The six economic development pilot projects had lim- ited success in accomplishing their objectives as contem- plated in the project proposals. In funding economic de- velopment pilot projects in the future, it is essential that OEO seek to avoid the shortcomings discussed in the preceding sections of this report. Of particular impor- tance is the need for OEO to improve its planning and im- plementation of pilot projects and to ensure that grantees have the necessary managerial capability to conduct the projects. In the event that project goals cannot be 27 accomplished, OEO should redirect such goals or should take other action to prevent or minimize the ineffective use of Federal funds. RECOMMENDATIONS TO THE DIRECTOR, OEO We recommend that the Director, OEO, emphasize to the Office of Program Development that, in planning and imple- menting economic development pilot projects, it should --determine the feasibility of proposed projects and the organizational and managerial capability of the grantees to carry out the projects, --reach a clear understanding with grantees upon ap- proval of such projects for carrying out approved project plans, --make evaluations at established interim check points or milestones to detect problems in meeting interim goals to minimize the consequences of the problems, and --take prompt and effective action toward resolving obstacles affecting accomplishments. By letter dated April 21, 1971, the Deputy Director of OEO informed us that OEO concurred in our recommendations and was taking action to institute the recommended improve- ments. He informed us that a structured review system assess- ing the feasibility of project goals and the organizational and managerial capacities of grantees had been established. He agreed that the need for adequate managerial capability on the part of grantees was critically important and told us that the selection of the chief executive officer on all projects, and often their key staff, required OEO's ap- proval. The Deputy Director stated, in response to our second recommendation, that the review system established by OEO 28 would serve as a means for obtaining, in advance, a clear understanding by the grantee of the project plans and OEO's expectations of them and that, at least once a quarter, field visits would be made by OEO project managers to help guide grantees toward approved project plans. Regarding our third and fourth recommendations, the Deputy Director informed us that, in their applications, grantees were required to build into their projects mile- stones of achievement and that, during field visits, proj- ect managers would determine whether these milestones were realistic and would identify problems and solutions. 29 CHAPTER 3 OPPORTUNITIES FOR IMPROVEDEFFECTIVENESS OF ECONOMIC DEVELOPMENTPILOT PROJECTS The resources of private enterprise were not suffi- ciently involved in carrying out the six pilot projects, nor were the resources of other Federal agencies sought to the fullest extent available. OPPORTUNITIES FOR PARTICIPATION OF PRIVATE ENTERPRISE Section 620 of the Economic Opportunity Act, as amended, provides that the Director, OEO, take such steps as may be desirable and appropriate to ensure that the resources of private enterprise are employed to the maximum feasible ex- tent in conducting economic opportunity programs, Participation of private enterprise in the six pilot projects consisted of (1) grantees' engaging consultants to provide technical assistance, (2) OEO's engaging consultants under technical assistance and monitoring contracts, and (3) grantees' obtaining the services of persons having expertise in business matters on their board of directors. In our eval- uation of the projects, we noted that the use of such consul- tants and board members did not provide the pilot projects with the necessary management expertise to efficiently oper- ate the business ventures or to attract new business ventures. For example, the Albina Manufacturing Corporation em- ployed a consulting management team from August 1968 to August 1969 for the positions of manufacturing manager, comptroller, plant superintendent, plastic boat superinten- dent, and purchasing agent. In August 1969 OEO requested Albina to dismiss these consultants because Albina was hav- ing financial and production problems and hired another consulting firm to analyze Albina's operations. In its report to OEO dated September 8, 1969, the con- sulting firm recommended that a complete management team take over the duties of managing the corporation. On September 18, 1969, OEO hired the consulting firm to assume the duties of general manager of Albina. 30 The management consulting team, however, was unable to improve Albina's manufacturing capability to produce ammu- nition storage containers on a sustained, high-volume- production basis to meet delivery schedules, and in June 1970 OEO terminated the contract with the consulting firm. Many leading businessmen, researchers in the field of minority-group capitalism, and Government officials have stressed the need to incorporate into economic development projects, such as those discussed in this report, the char- acteristics of the private sector which have been essential to business success. One of the most important is manage- rial competence, a factor markedly lacking in the projects that we reviewed. Because OEO is allocating increasing amounts of its resources to Special Impact and pilot proj- ects that are to demonstrate new ways for the poor to become self-sufficient through business opportunities and creation of jobs, the desirability of enlisting the resources of pri- vate enterprise to provide the necessary management know-how takes on greater importance. For example, a consultant to OEO who evaluated a number of economic development projects stated in his final report dated March 1969, that: “Management is the single most important determi- nant of a successful enterprise, and is a badly neglected aspect of the projects studied. A structured program of management training for project personnel is essential. OEO monitoring personnel similarly often lack management know- how, and it is necessary that this be supplied for the project monitors. Continuing on-the-spot management assistance for the first year of any project is also essential, to teach the on-going management of the enterprise the use of records and management tools, the importance of planning the phasing of operations, and methods for commu- nicating with the staff of the organization, the membership, and the outside economy." In commenting on establishing businesses in the ghetto, the American Management Association in its book published 31 in 1968 under the title "Mobilizing for Urban Action" stated, in part, that: "The creation of a small business today, however, is a far more complicated task than it was only yesterday. Larger capital is needed to start, The new businessman must have some fairly sophis- ticated knowledge of how to market, merchandise, and advertise his product. He must know public relations and a hundred other intangible skills. Dun and Bradstreet reports that of all small busi- ness failures, over 90 percent are due to a lack of management know-how-not a lack of money." The Vice President of the United States, in a speech on March 7, 1970, to the National Alliance of Businessmen, stated, in part: "A venture into minority business is even riskier than a venture into small business generally. The minority enterprises are usually marginal and are undercapitalized. They have limited markets and restricted locational opportunities--many times artificially imposed by discrimination from the majority community. "With unskilled business personnel, they are hand- icapped in overcoming these built-in impediments. Usually subject to vandalism, pilferage, and rob- beries, the minority businessman finds that insur- ance is sometimes completely unavailable and us- ually unobtainable at realistic rates. "Starting with such handicaps, it is obvious that the potential minority business entrepreneur is going to need something more than a bank loan. He is going to need the type of assistance which can come only from the private sector--marketing skills, a knowledge of organizational and person- nel procedures, accounting and purchasing know- how, advertising and public relations expertise-- all of which make the difference between profit and loss." 32 There are many ways in which private industry can be- come involved in minority business development. In an ar- ticle in the Journal of Small Business (April - July 19691, Mr. Henry Honechman described one way that a large corpora- tion could develop minority-owned enterprises: the "spinoff". Mr. Hone&man stated, in part: "Through the spinoff approach, a large business develops a new business by spinning off products, purchasing contracts, people, processes, and per- tinent technology and managerial assistance. The minorities lack exactly those items that are the strengths of the establishment: contact with cap- ital and customers; access to technology and man- agerial know-how." "Probably the strongest argument for the limited success in getting substantial minority enterprises going and keeping them in business is that most endeavors to date did not take into account the primary motive of most businesses--to make a profit for the stockholders, Companies are not estab- lished to further the public interest. Too many of these new endeavors have been force-fit into operations that cannot stand the pressures of the market place. With careful thought, and a sound business approach, it should be possible to spin- off new minority business to the profitable ad- vantage of both parties." Managerial competence is one of the most critical needs for the successful establishment of minority-owned busi- nesses and other projects designed to aid the poor in be- coming self-sufficient. Greater use of private enterprise to provide this competence would be desirable as a supple- ment to the Government's financial assistance, which was the primary ingredient provided by OEO in the projects that we reviewed. We, therefore, believe that OEO should consider ways for increasing the use of jointly sponsored industry- OEO economic development pilot projects to establish minoriv- operated businesses or other businesses to aid the poor in ghetto and rural areas. 33 The relationship between industry and OEO can take many forms, For example, such a relationship could consist of OEO's providing financial assistance or incentives to a well-established corporation to develop a business in a ghetto or rural area which would offer ownership and employ- ment opportunities to the area's residents with the manage- ment of the new business receiving support and guidance of the sponsoring corporation's top management. OEO could also provide financial assistance to grantees representing minor- iv group employees of the new venture or residents of the ghetto or rural area to enable them to acquire equity capi- tal in the private firm. 34 COORDINATION WITH OTHER FEDERAL AGENCIES The Congress intended that antipoverty programs funded under the Economic Opportunity Act should be coordinated with other antipoverty programs and Federal agencies to pro- vide a concentrated effort to eliminate poverty0 At the national level, OEO has coordinated its economic development efforts with other Federal agencies through the Office of Minority Business Enterprise, Department of Com- merce. The President of the United States authorized the establishment of.the Office of Minority Business Enterprise on March 5, 1969, by Executive Order 11458. One of the functions of this office is to coordinate the plans, pro- grams, and operations of the Federal Government which affect or may contribute to the establishment, preservation, and strengthening of minority business enterprise, The Inter-Agency Committee on Minority Business Enter- prise was established to serve as the focal point for the coordination of overall Federal efforts in minority enter- prise. Most of the major Federal agencies including OEO are members of the Inter-Agency Committee which meets monthly and serves as a forum for discussions of ways to improve the minority enterprise program, particularly through the work of task forces. OEO representatives have been members of several task forces, including (1) the Task Force on Federal Procurement which was established to analyze Government procurement policies to determine the extent of minority participation and potential markets for such entrepreneurs and (2) the Task Force on Assistance Grants which was created to con- sider the many Federal grant-in-aid programs assisting mi- nority enterprises and to make policy and program recommen- dations, including mechanisms for improved reporting and coordination. Although OEO had established coordination with other agencies at the headquarters level, it had not secured the assistance of other Federal agencies to the fullest extent available in carrying out economic development pilot proj- ects. Four of the six pilot projects anticipated the re- ceipt of financial and technical assistance from other 35 Federal agencies to successfully accomplish their objec- tives. For two of the four projects, however, the necessary cooperation from other Federal agencies was not generally sought by OEO in advance of funding or was not well coordi- nated after funding. As a result the successful accomplish- ment of project goals was hampered, as discussed below. 1. The success of the feeder-pig cooperative component of the SEASHApilot project was contingent upon a large number of farmers (up to 1,000) obtaining loans of $2,750 each from FHA. Neither OEO nor SEASHAmade a determination as to whether these loans would be made available, When these loans could not be obtained, only 32 farmers were able to participate in the project by receiving loans pro- vided from OEO funds. 2. It was anticipated that the MIRA farm project in Laredo, Texas,would obtain technical assistance from the Department of Agriculture and Department of Com- merce as well as from State agencies and universi- ties located in Texas. This assistance was generally not obtained. Timely technical advice in the areas of management, irrigation, crop selection, and mar- keting could have benefited the project, For the other two projects, the coordination with other Federal agencies appears to have been satisfactory. For ex- ample, the Albina Corporation received financial assistance from several Federal agencies including (1) $350,000 of a $400,000 bank loan guarantee from the Small Business Admin- istration (%A), (2) contracts for on-the-job training from the Department of Labor, and (3) $45,000 from the Department of Commerce for a feasibility study, Also the director of project Demeter informed us that funds would be loaned to low-income individuals to help them secure SBA business loans and that officials of SBA had been receptive to some of the proposed businesses. Another Federal program, the Service Corps of Retired Executives (SCORE), which might have been helpful to several of the pilot projects, was not used by OEO. 36 SBA organized SCORE in 1964 to provide free counseling and guidance to small businesses and prospective small busi- nesses. More than 3,800 retired business executives in 166 chapters located throughout the Nation belong to SCORE. In September 1969 SBA and OEO prepared an interagency agreement to-provide for SCOREvolunteer counselors to render management and technical assistance to OEO grantees and del- egate agencies. In June 1970 the interagency agreement had not yet been finalized and we brought the matter to the at- tention of SBA and OEO officials. Subsequently, SBA and OEO officials met and decided that OEO grantees and delegate agencies were entitled to use the services of SCOREvolunteers and that an interagency agreement was not necessary* In July 1970 OEO informed its grantees about the use of SCOREvolunteers. CONCLUSIONS To help alleviate the critical need for managerial com- petence in establishing enterprises designed to aid the poor, OEO should see%cmaximum use of the private enterprise resources --which were generally not used in carrying out the six projects reviewed by us-- and thereby obtain the benefits of business experience and know-how as a complement to Fed- eral financial assistance. Also OEO should seek maximum co- operation of other Federal agencies, such as SBA, which can provide valuable financial and technical assistance to the projects sponsored by OEO. RECOMMENDATIONS TO THE DIRECTOR, OEO We recommend that OEO, in sponsoring future economic development projects, consider using the resources of private enterprise to obtain needed managerial competence and seek maximum cooperation of other Federal agencies which are in a position to provide financial and technical assistance to OEO-sponsored projects. The Deputy Director of OEO informed us that OEO sub- scribed to the concept of using the resources of private 37 industry and gave several examples where OEO had involved private industry in economic development projects. He stated, however, that success for these projects did not come easily as it was a new experience for the poor and business and commercial leaders to work together in economic development. The Deputy Director stated also that progress was being made in coordinating OEO's efforts with other Fed- eral agencies. The Administrator, SBA, informed us that SBA was always eager to cooperate to the extent possible with any Federal agency who would have a need for the type of assistance that the SBA could provide. 38 CHAPTER4 IMPROVEMENTSNEEDED IN OEO'S II---- MANAGEMENTOF PILOT PROJECTS -- Some of the problems encountered by the six economic development pilot projects indicated a need for more effec- tive management of pilot projects by OEO headquarters staff. For example, OEO headquarters office project managers of five of the six projects did not have training and experi- ence in business and therefore, we believe, were not tech- nically capable to provide needed management assistance to the projects. Further, OEO did not establish a systematic monitoring and evaluation system for pilot projects to de- tect and resolve problems that impede the projects in achieving their objectives, To evaluate the effectiveness of OEO's general proce- dures for managing pilot projects, we reviewed at OEO head- quarters, in addition to the six projects discussed earlier, the Office of Program Developmentqs management of 23 pilot projects randomly selected by us from a total of 136 proj- ects funded in fiscal year 1969. These 23 pilot projects received Federal funds of $7.2 million in fiscal years 1969 and 1970, We reviewed also two OEO internal study reports relating to OEO headquarters grant and contract practices and inquired into the activities of two consulting firms engaged by OEO to determine and disseminate the results of research and pilot projects and to establish an effective administrative information system. Our review showed a need for improvements in (1) issuing and implementing adequate instructions, guidelines and pro- cedures, (2) recruiting and training project managers, (3) reporting on project operations, (4) monitoring and evaluat- ing such operations, and (5) determining and disseminating pilot project results. These matters are discussed in the following sections. 39 INSTRUCTIONS, GUIDELINES ------ ----1,------.--- AND PROCEDURES OEO had not issued specific instructions, guidelines, and procedures for managing and funding research and pilot project grants and contracts. As a result, grantees and OEO headquarters staff used instructions, guidelines, and procedures applicable to grants administered by 080 regional offices for funding and administering community action agen- cies which, we believe, were not suitable to pilot project grants administered by OEO headquarters. OEO recognized the need for pilot project guidelines and procedures and was correcting the situation at the completion of our review. OEO's Community Action Program instructions to grant- ees, issued in February 1965, stated, in part, that addi- tional guidelines were being prepared to provide information on policies and application procedures for research and pi- lot project grants and contracts. When these instructions were revised in August 1968, OEO again indicated that sepa- rate instructions would be issued for agencies applying for research and pilot project grants. In March 1969 OEO issued a memorandum stating that grant application instructions for organizations applying for research and pilot project grants were being prepared but that it would be several weeks before they would be completed. These instructions, however, were not issued. In January 1970 OEO established a headquarters grant- making practice work group to study the grant process of OZO headquarters offices including the Office of Program Development. In its report, "Improving Headquarters Grant Practices in the Office of Economic Opportunity," issued in March 1970, the work group concluded that adequate formal proce- dures were not available for most headquarters grants--pilot project grants are made by headquarters offices--and that many headquarters analysts found that grant requirements and procedures suitable for grants funded by OEO regional of- fices --community action agency grants-- were not suitable for grants administered by headquarters. 40 The work group recommended that policies, instructions, guidelines, procedures, and forms for all headquarters grants be incorporated in a set of manuals which would pro- vide a single reference point for headquarters managers and grantees and that, as an interim measure, instructions should be prepared spelling out minimum grant requirements and procedures to be followed pending completion of the manuals. In May 1970 OEO issued the interim grant instructions and procedures for funding headquarters grants, and in September 1970 the manuals were in the draft stage. 41 RECRUITING AND TRAINING OF PILOT PROJECT MANAGERS At June 23, 1970, there were 34 project managers in OEO's Office of Brogram Development responsible for managing pilot projects. OEO's personnel files showed that most of the project managers did not have the educational back- grounds and/or experience necessary for managing the types of projects they were responsible for. Further, until fis- cal year 1971, OEO had not established a training program for project managers and other staff in the Office of Pro- gram Development to help prepare them for managing pilot projects. An OEO staff instruction stated that a project manager was a designated individual assigned the responsibility and delegated the authority for the centralized management of a particular headquarters project. The staff instruction stated, in part: "It is mandatory that a Project Manager have a high degree of technical, professional, business and managerial competence, supplemented whenever possible by recent experience and training in the special requirements of project management." In June 1969 an ad hoc committee, composed of represen- tatives from the Department of Justice; the Bureau of the Budget; a national certified public accounting firm; and two assistants to the Director, OEO, was established to review OEO headquarters grants and contracts proposed for funding during June 1969. In its July 1969 report, the ad hoc committee commented on the need for staff with experience in business and finan- cial matters in administering economic development pilot projects to ensure that each project is thoroughly analyzed, giving attention to economic and cash-flow projections, al- ternative uses of funds within the projects' budgets, ade- quacy of feasibility studies, management skills required, and comparisons with experiences on comparable or prior projects. 42 In its report the ad hoc committee stated, in part: "It is important that key personnel in this de- partment have a strong background in business. The development of thoughtful policies and mate- rials (i.e., manuals, outlines, checklists, model budgets) would be useful aids to analysts and grantees in constructing sound economic develop- ment projects. Considering the turnover of per- sonnel , such materials would help to insure con- tinuity in administration of these projects." Of the 34 project managers, 11 were responsible for managing economic development pilot projects and, of these, only three had educational backgrounds in business adminis- tration or related subjects. Only one of the 11 managers had experience in private enterprise prior to being em- ployed by OEO. OEO did employ two business analysts in June 1969 and September 1969, respectively, to assist project managers in administering economic development pilot projects, but, as of October 1970, the ad hoc committee's recommended policies and guidelines had not been developed. The previously mentioned OEO work group, set up to re- view headquarters grant-making practices, stated in its March 1970 report that there had been virtually no formal training of project managers in any aspects of the grant process even though OEO analysts had one of the most diffi- cult analyst roles in Government. The work group concluded: "In effect, the typical OEO analyst is expected to be able to deal competently with social and political problems which perplex the country's top experts; to negotiate sensitive issues ef- fectively with top-level local administrators; and, to be knowledgeable in financial and manage- ment matters. However, the analyst may be equipped with little qualification save enthusi- asm for the program and almost certainly will re- ceive no training and too little supervision to prepare him (or her) to meet these problems." 43 The work group recommended that OEO's Office of Admin- istration, in cooperation with the Office of Operations, de- velop training programs in grant administration and manage- ment. The chief, Training and Career Development Branch, Office of Administration, informed us in October 1970 that he was in the process of establishing a training program for project managers and other Office of Program Development staff. The Deputy Director, OEO, informed us that a train- ing program for project managers would be conducted during the summer of 1971. 44 REPORTING One of the main functions of pilot projects is to gen- erate information on new and innovative approaches for al- leviating poverty; therefore, reporting systems which pro- vide OR0 with the required feedback from its grantees should be an integral part of any pilot project. OEO, how- ever, did not establish reporting guidelines for pilot projects as to the number of reports required or the type of information to be furnished. The determination of re- porting format and contents was left largely to individual project managers, OEO project managers required 22 of the 23 pilot proj- ects to submit progress reports, but the number of reports and type of information to be submitted did not appear to be based on any specified requirements. For example, one project in operation for 13 months was required to submit and submitted only one progress report whereas another proj- ect in operation 14 months was required to submit and sub- mitted monthly progress reports. Only seven of the 22 projects submitted the number of progress reports required by the grant agreement and only five projects were presenting information in the reports to OEO which we believe was adequate for measuring project ac- complishments. For example, one project in operation for 24 months was required to submit quarterly progress reports, but the project was furnishing OEO only one- or two-page letters that did not appear to adequately describe project accomplishments and problems. MONITORING AND EWALUATION In its report to the Congress entitled "The Theory and the Fact," which summarized research and pilot project ac- tivities for fiscal year 1968, OR0 indicated the importance of close monitoring and careful evaluation of such activi- ties as follows: "Given the experimental nature of research and demonstration projects, it is clear that each proj- ect should be closely monitored and carefully evaluated. This is accomplished in a number of 45 Ways. Projects are monitored by staff analysts who are charged with responsibility for areas as- signed to them. Site visits are made, narrative, statistical and fiscal reports are built into the project and reviewed, and frequently, expert con- sultants are called upon for outside opinion. De- cisions, including basic ones to refund are based on these reports and evaluations. "The importance of assuring that evaluation is done stems from the basic idea behind these proj- ects--the testing of new program ideas which will be expanded if they work and abandoned if they do not. To make a solidly based judgment as to whether they work or not obviously requires that a sound and objective evaluation be an essential part of the demonstration process." OEO has taken various actions to carry out the monitor- ing and evaluation functions described in the cited state- ment, but we believe that OEO has not provided headquarters personnel with adequate guidance as to the extent of such monitoring and evaluation of pilot projects. Monitoring According to OEO, the primary purpose of monitoring pilot projects is to assess the managerial and operational efficiency of grantees. Projects are monitored generally by project managers through site visits and by consultants under contract with Om. OEO, however, had not established guidelines on the extent that projects should be monitored by project managers and OEKIconsultants. Although all except one of the 23 projects covered in our review had been visited by OEO project managers and/or monitored by consultants, some projects received insufficient coverage, considering the length of time that they had been in operation, whereas other projects were monitored much more frequently. For example, one project in operation for 49 months under four different OEO project managers had not been visited by consultants and had been visited only four times by project managers; trip reports had not been prepared by the project managers to assess the operational efficiency of this 46 project. In another case, one project in operation for 39 months had been visited 11 times by project managers and eight times by consultants. The project managers, how- ever, had not prepared any trip reports on their visits. Most project managers had not prepared reports on their visits, We believe that there is a special need for information and timely reports on site visits to maintain continuity in project management because of the turnover of project managers assigned to individual projects, For the '23 projects that we reviewed, all but two experienced changes in project managers; five had three managers, two had four managers, and one had five managers. 47 Evaluation According to OEO, evaluation is a crucial tool in the process of testing innovative projects and serves two basic purposes. --To ascertain the progress, competence, and effect- tiveness of a particular OEO-funded project or group of projects in a problem area. --To assess the potential impact of the project find- ings in order that what has been learned may be uti- lized for further program development, Because OEO had not established procedures and guide- lines for the systematic evaluation of pilot projects, proj- ect managers were uncertain when projects should be evalu- ated. Some projects were never formally evaluated whereas others were frequently evaluated. As of June 30, 1970, 16 of the 23 pilot projects which we reviewed were evaluated by consultants under OEO con- tracts, and arrangements had been made for evaluations by OEO contractors of two of the other seven projects. The number of evaluations made by OEO contractors for the 16 projects did not appear to be based on consistent criteria such as months in operation, progress toward meet- ing established milestones, completion of grant, etc. For example, one project which was in operation for 15 months was evaluated nine times and another project which was in opera- tion for 29 months was evaluated only once. Another project which was in operation for 49 months and under the respon- sibility of four different project managers had not been evaluated until the fourth project manager assumed respon- sibility for the project, The ad hoc committee, established to review the funding of OEO headquarters grants and contracts, stated in its July 1969 report that the problems associated with the monitoring and evaluation function were numerous and substantial, The committee further stated that (1) insufficient attention had been given to the selection of monitors and evaluators and 48 (2) as inadequate as the evaluations may have been, it had been noted that, in some instances, program personnel were making decisions or recommendations without either analyzing the monitoring and evaluation reports and responding to the deficiencies noted therein or taking remedial action where valid criticisms were made. Under OEO's reorganization, the Planning and Evaluation Division, Office of Prograrn Development, assumed some of the monitoring and evaluation tasks for which project managers had been responsible and became responsible for developing new evaluation capabilities. In a Harch 1970 memorandum, the Planning and Evaluation Division recognized OEO's eval- uation problems and stated that D'evaluation must be an in- tegral part of planning, development, and operation“ of all pilot projects. The Division identified several areas where it intended to improve the Office of Program Development's monitoring and evaluation efforts. In September 1970 the Planning and Evaluation Division prepared draft guidelines and instructions for planning and evaluating research and pilot projects. The draft instructions identified certain characteris- tics that pilot projects should have. Included were: 1. The objectives of the project should be in a re- searchable manner. 2. The objectives should be understood and agreed upon by the sponsors, administrators, and evaluators. 3. An appropriate evaluation design should be readily derivable from the project design. We believe that systematic monitoring and in-depth evaluation of pilot projects provides a means for assessing progress in achieving project objectives and for identifying and obtaining correction of management weaknesses. The need for promptly implementing an effective monitoring and evalu- ation process is emphasized by the 1967 sllllendments to the Economic Opportunity Act which specifically require that OEO 49 provide for continuing evaluation of antipoverty programs, including their effectiveness in achieving stated goals, their impact on related programs, and their structure and mechanisms for the delivery of services. 50 DETERMINING AND DISSEMINATING PROJECT RESULTS OEO recognized that it had not documented the results of a large number of its research and pilot projects. In an attempt to determine and disseminate the results of re- search and pilot projects and to establish an effective ad- ministrative information system, OEO entered into contracts with two consulting firms, E. F. Shelley and Company, Inc., and Urban Systems, Inc., both of which had offices in Wash- ington, D.C. OEO awarded E. F. Shelley two contracts--one in Janu- ary 1968 and one in December 196%-totaling about $344,000, to determine and summarize research and pilot project find- ings, to analyze the findings for possible legislative ac- tion, to determine the effects on legislative and adminis- trative actions at the State and local levels, and to de- sign and implement an administrative information system. In June 1968 OEO awarded Urban Systems a contract at an estimated cost of $297,000 to assist OEO in its efforts to collect, analyze, summarize,disseminate, and ensure the utilization of findings obtained from research and pilot projects. At the completion of its contract efforts in June 1970, E. F. Shelley had (1) retrieved documents on 178 research and pilot projects, (2) prepared project profiles, and (3) - implemented the administrative information system contain- ing basic information on research and pilot projects grants and contracts. We found that the administrative information system established by E. F. Shelley was being utilized very little by Office of Program Development staff in managing pilot projects. OEO officials informed us that the contractor's information system somewhat duplicated OE09s existing in- formation system and that they were investigating the pos- sibility of incorporating the information on research and pilot projects contained in the Shelley system into OEOss information system. Urban Systems contract activities included locating, analyzing, and packaging the results of 72 research and 51 pilot projects and preparing 50 newsletters on project op- erations for dissemination to grantees. The Chief, Evaluation Branch, Office of Program Develop- ment, informed us that a few of the newsletters developed by Urban Systems were distributed to grantees but that the work was not used by OEO as much as had been contemplated. In certain respects, the efforts of the two contractors were duplicative in that each contractor attempted to col- lect and analyze information on the results of some of the same research and pilot projects and to prepare project pro- files for dissemination. Our comparison of the 72 research and pilot project profiles prepared by Urban Systems with the 178 profiles prepared by E. I?. Shelley showed that, for 35 projects, profiles had been prepared by both contractors. Additionally, both contractors studied the documentation available and prepared listings of available documents on most of the research and pilot projects. In its final report dated November 30, 1969, Urban Sys- tems concluded that the OEO management team should make a strong commitment toward establishing an efficient dissemi- nation and utilization system if the full value of past and future pilot projects is to be realized and that the data bank of information on pilot projects at OEO was, by and large, inadequate for utilization by audiences outside the agency. Urban Systems reported that, of 513 completed project files it reviewed, 106 contained final reports; 36 con- tained substantial documentation but no final reports; 126 contained progress, quarterly, or interim reports; and 245 contained only copies of proposals or negotiated contracts. Similarly, E. F. Shelley reported that project files for 284 projects were missing and, of the 406 files that were located, 268 had only partial documentation, of which 128 had no report information. We also noted that OEO had not been maintaining ade- quate grantee information files necessary to support the decisionmaking process by which grantees are evaluated and approved and to provide for the dissemination of project 52 results. OEO officials informed us that they were taking action to improve the maintenance of grantee information files and the dissemination of projects results. In general, OEO needs to improve its mmagement of pilot projects. OEO's task force, established to review the headquarters grant practices, recognized that improvements were needed in the management of headquarters grants, as did its consultants and the June 1969 ad hoc committee. OEO has initiated certain corrective actions in this area. Because of the significant amounts of funds being allocated toward finding new and innovative methods to alleviate poverty through pilot projects and their importance in the overall OEO mission, there is a need for timely completion of the corrective actions to ensure that such projects are effi- ciently and effectively managed. RECOB!M!3NDATIONS TO THE DIRECTOR, OEO We recommend that, through the Office of Program Devel- opment, OEO --finalize and implement instructions, guidelines, and procedures for managing and funding research and pilot project grants; --recruit and employ personnel having educational and vocational baclcgrounds in business to assist in the management of economic development pilot projects; --establish a training program for pilot project manag- ers; --establish pilot project reporting requirements as to the number of reports requfred and the type of qbfor- mation to be furnished; --establish an effective monitoring and evaluation sys- tem to ensure that meaningful infomtion will flow to OEO throughout the life of pilot projects to aid 53 in managing projects and to enable valid analysis of projects results; and --improve OEOss efforts of disseminating research and pilot project results. The Deputy Director of OEO informed us that OEO was in agreement with these recommendations and that actions had been or would be ta'ken to implement them. Regarding the development and implementation of in- structions, guidelines, and procedures, the Deputy Digctor stated that, over the Last several months, the available staff for this activity had been significantly increased and that, over the coming months, OEO would be strengthening management systems in a number of ways, including --completing new grant application forms for research and pilot project grants with accompanying appropri- ate instructions, --reviewing the entire set of OEO instructions to grantees and determining those applicable to Office of Program Development grantees, --establishing a series of Office of Program Develop- ment staff instructions, and --developing a method to provide for systematic compar- isons of grantees1 progress against plans, In addition, the Deputy Director informed us that the Director, Office of Program Development, had established task forces to develop new procedures governing a number of aspects of grant funding and management. On recruiting and employing personnel with educational and vocational backgrounds in business, the Deputy Director informed us that agressive efforts were under way to employ such personnel. 54 On establishing a training program, the Deputy Director stated that, although progress had not been as substantial in this area, training of OEQ staff and project staff was receiving major attention and that a training session for OEO project managers on project monttoring would be con- ducted during the summer of 1971. On establishing pilot project reporting requirements, the Deputy Director stated that instructions were being de- veloped for general guidance to project managers but that specific uniform requirements were not considered appropri- ate. On establishing an effective monitoring system, the Deputy Director informed us that this would be accomplished in connection with implementing the other recommendations made in our report inasmuch as clarifying grantee reporting requirements, training project managers, making it possible to compare progress against project plans, and other im- provements are parts of such a monitoring system. He also stated that OEO was working toward developing a warning sys- tem which would provide 'key QEO personnel with information when there was a need to take action, With respect to evaluation of projects, the Deputy Di- rector pointed out that, with the establishment of a separate evaluation division within the Office of Program Develop- ment, an effective evaluation system was then in place and staffed with eight highly professional personnel responsible for designing evaluations of projects and letting and admin- istering contracts to conduct those evaluations, In regard to disseminatlhg research and pilot pro-ject results, the Deputy Director informed us that OEO was reeon- sidering the way in which project results were utilized and that new procedures would be oriented toward getting re- search and demonstration results into the hands of those members of society who were likely to find them useful, 55 CHAPTER 5 NEED FOR IMPROVEDCONTROLS OVERTHEEXF'ENDTTURESOFGRANT FUNDS To promote an effective and proper use of grant funds, OEO requires that OEO grantees have adequate internal con- trols and accounting systems and be audited periodically by a certified public accountant (CPA) or a licensed public accountant. The OEO Audit Division reviews reports on au- dits of grantees' activities and prepares letters to the responsible OEO officials summarizing the results of such audits. Our examination revealed that three of the six pilot projects expended about $129,000 in grant funds for items which appeared to be of questionable applicability and jus- tification for charging the respective grants. Also a CPA who had audited one of the three projects questioned in his audit report the allowability of additional expenditures totaling about $21,000. We referred the questionable ex- penditures to OEO's regional auditors for appropriate action. OEO auditors subsequently audited the expenditures claimed by three of the six grantees and questioned addi- tional expenditures of grant funds for two of the projects totaling about $49,000. Our examination and reviews of CPA reports further re- vealed that, for five of the six projects, improvements were needed in the grantees' accounting procedures and in- ternal control to provide for greater assurance that ex- penditures of funds were in compliance with OEO requirements. Although it is agranteelsresponsibility to comply with the terms of its grants and OEO instructions relating to the establishment of an acceptable system of control over, and administration of, grant funds, OEO has a respon- sfbility to provide sufficient surveillance over, and as- sistance to, a grantee to h e 1p ensure that grant funds are expended properly. 56 Expenditures of over $123,000 for salaries and related costs were subject to question because (1) grantees did not obtain OEO approval as required by OEO regulations for granting salary increases of more than 20 percent, (2) ex- penditures were made for personnel services which had not been budgeted or justified, (3) stipend payments were made to ineligible participants, and (4) payments were made to personnel performing services which were unrelated to achiev- ing the objectives of the project. Other expenditures of about $76,000 found to be subject to question related to travel, consultant and contract ser- vices, space costs, equipment, and other items which were not budgeted or were not adequately justified. We also noted numerous errors and discrepancies in five of the projects in the administration and maintenance of per- sonnel, accounting, property, and loan records, that were indicative of inadequate financial management practices of the grantees. CONCLUSION Weaknesses in the control over the expenditure of grant funds in the case of five of the six projects reviewed by us indicate the need for better financial management prac- tices by grantee project officials and greater efforts to- ward compliance with Federal grant requirements, There is a continuing need for OEO to help ensure that grantees are exercising appropriate control over project funds. RECOMMENDATIONS TO THEYDIREXTOR, OEO We recommend that OEO ensure that pilot project grantees improve their management of grant funds and disallow unau- thorized expenditures of grant funds. The Deputy Director of OEO informed us that the first step, which would soon be accomplished, in ensuring adherence to OEO requirements would be to clarify for the grantees what the requirements were. The Deputy Director stated that, in addition, the proposed training program for project managers 57 would include training on effective monitoring of financial administration. Regarding the disallowance of unauthorized expenditures of grant funds, the Deputy Director informed us that this was a policy regularly pursued by OEO. The Deputy Director also stated that, with respect to the costs questioned by us involving three of the pilot projects, OEO disallowed the costs for one of the projects and the other two proj- ects were being audited and that the questionable expendi- tures referred by us to OEO's regional auditors would be considered in connection with the audits. 58 APPENDIXES 59 APPENDIXI EXECU,TIVE OFFICE OF THE PRESIDENT WASHINGTON, D.C. 20506 OFFICE OF ECONOMIC APR 21 1971 Mr. Henry Eschwege Associate Director United States General Accounting Office Washington, D. C. 20548 Dear Mr. Eschwege: I am pleased to enclose the comments of the Office of Economic Opportunity on your proposed report on "Improvements Needed in the Management of Economic Development Pilot Projects." I appreciate having had the opportunity of submitting these comments. Sincerely, 61 APPENDIXI OFFICE OF ECONOXLC OPPGKTLJNLTYRESPONSE TO DRAFT GAO REPORT '~IMPROYEMENT~ r:EEDED IN HANAGEPIENTOF ECONOXIC DEVELOPMENT PILOT PROJECTS" GENERAL ------ COMNZNTS The GAO report is an accurate picture of the status of OEO's management of economic development pilot projects for the period covered by the report. The co~Lclusions reached by GAO are rsasonable and provide an excellent guidepost to OEO in its efforts to improve the economic development pilot projects and OEO's management of them. The recommendations, almost without exception, are sound in our view and are currently being instituted by OEO in its desire to improve the agency's activities in the field of economic development pilot projects. In this response to the GAO report, we are primarily addressing our comments to the recomnendations which were made in the body of that report. Ih doing so, we also touch upon the conclusions made by GAO, as these form the basis for their recommendations. --CHAPTEn I Although this chapter does .not contah any' formal recommendations, we wish to comment that GAO's description of the leg&btive and grograt&tic basis for OEO's activities in economic developmenf pilot proje&s acourarely reflects the understanding of OEO in this sphere of the agency's activity. CHAPTER 2 GAC.str5sse.4 the need for . . .. . . 1. .'VCarefully planning and determining the-feasibility of pro- F&ed projects and the organizational ,and managerial capacity of the grantees.to carry .: out the projects." A structured review pr6cess for grantee applications has-been established. It begins with a field visit . - by the OEO project manager and hfs stipervisor. At thattimean assessment is made of the organizational and 62 APPENDIX I managerial capacities of the grantee, whether the goals are realistic, the understanding of and support for the project by the community, and other local. factors which will have a bearing on the project's success. All applications, whether for new projects or for refunding, are reviewed by the Busi.ness Analysis Section of the Economic Development Division to judge the viability of the business components. Special conditions are written to provide he-xhmarks for achievement and safeguards for the orderly and effective management and operation of the project. Further review of all proposals is made by a Project Review Board made up of senior staff representatives of each Division of the Office of Program Development, as well as representatives of other offices in OEO. Their review serves two purposes: (1) to give final staff judgement on the merits of the pro- posal and (2) to be certain that the proposal is in keeping with the overall program directions and policies of the Office of Program Development. OEO Genercl Counsel then makes its revic:q. In the ongoing monitoring of a project, the OEO project manager makes field trips to the project at least once each quarter. AK that time, he assesses both the organization and management of business development and lends assistance to the grantee. His reports of these trips are given careful review. For Section 232 grantees, a contract let with Checchi Associates provides technical assisrance in organization, management and f;usiness development to the grantees. * . All business ventures by economic ddvelojbent grantees must have . - the approval of OEO before they are undertaken. Frequently, the grantee 63 APPENDIX I uses Checchi for technical assistance in the development of these ventures. Help often comes from the local business and financial communities. On each venture,the grantee submits a feasibility study which is reviewed.by the project manager, his supervisor and the Business Analysis Section. upon Lheir favorable recommendatioll, the Director of the Office ~1 Program Development authorizes the disbursement of funds for the individual venture. (Frequently a business venture is only partially financed with OS0 funds, Money also comes from banks, SBA guaranteed loans and similar sources. Thus, this review is a further check of the business venture's. viability,) The need for adequate managerial capability on the part of grantees is critically important. With the OEO type of economic development, manage- ment must have multiple abilities not always needed in regular business ventures -- or at least not heeded in the same degrees. Management must be able to work with the poor and to assist them in having responsibilities in the decision making process. Management must also have the necessary skills to make the project's ventures financially successful. The selection of the chief executive officer on all projects, and often; Fts key staff, requcres OEO's approval. The technical assistance contractor gives both management guidance and training to grantee staffs. In the periodic meetirigs'called by OEO economic development grantees, major attention is devoted to management problems and tgchniques. '2. " . ..reaching a clear understanding with grantees upon approval of such projects on carrying out..approved project plans." The review system, particularly the.field review, serves as a :means for obtaining, in advance, a clear understanding by the grantee 64 APPENDIX I of the project plans and OEO's expectations of them. In addition, special conditions which serve as benchmarks for grantee performance are developed for each grant, Finally, at least once a quarter, field visits are made by the DE0 project manager; These visits are critical in guiding the grantee toward approved project plans. 3. " . ..making evaluations at established interim check points or milestones to detect problems in meeting interim goals so as to minimize the consequences of the problems, and 4. ” . ..taking prompt and effective action toward resolving obstacles affecting,accomplishments." In the application, the grantee is required to build into his pro- ject milestones of achievement. The purpose' of the field review is, in part a to determine whether these milestones are realistic and to obtain a measure of how local conditions will affect them, The special conditions reinforce these milestones and also set their own. The quarterly field visits to the projects by OEO project managers both identify problems and remedy thpa. The policies and guidelines for the development, management and operation of the economic development projects, in large measure,have been influenced by and adapted from policies and guidelines for community action programs. Bowever, there are substantive differences between. comtiity action and economic devriopment. Guidelines and policies specifically directed at economic development projects are being developed. They will assist Economic Development Division staff by spelling o;t specific requirements for grantees, They will also make management more systematic and will give staff additional time to deal with substantive operational problems. ~CI-IAPTER3 GAO recommends that: 65 APPENDIXI I, OEO, in sponsoring *e. future economic development projects, consider using the resources of private enterprise to obtain needed managerial competence and seek maximum cooperation of other Federal agencies which are in a position to provide financial and technical assistance to OEO-sponsdred projects." We, of course, subscribe to this concept. The involvement of industry in our I-D program is being tested in a variety of ways. For example, in the development of a wood products plant in Alabama, the local purchaser of the products worked with the grantee in product improvement so that the products would have market advantages. In New York, the grantee bought out an established business with management staying on. Franchise opera- tions are being used in a number of places. Partnerships with industry 'sharing in ownership is being tested in New York. One of the principal devices for involving industry and commerce in the special impact program is the OEO requirement that industry be represented on the project's governing board. But success does not come easily. It is a new experience -for the poor and business and commercial leaders to work together in economic dev&lopment. Once working relationships and trust between the two groups have been established, the system holds promise for long term benefits. There are few parallel examples of industry cooperation in the 232 grX.tS. In Tennessee, for example, a grantee is buying into businesses with the-former owners retaining an equity.' But as a general. proposition, the 2.32 grants are predominantly..rural southern enterprises, where we -frequent-ly find surrounding circumstances not conducive to cooperation with local established businesses. Progress is being made in coordinating efforts with other federal agencies. The Director of OPD's Economic D&elopment Division is a member 66 APPENDIXI of the Federal Inter-Agency Coordinating Committee, Office of Minority Bus~ncss Enterprise, Department of Commerce, Two projects on Indian reservations, one in North Dakota,' the other in the State of Washington, . ' were jointly developed by OEO and the Economic Development Administration. H1lD is msking exception in its own regulations so that the project in North Dakota may have major advantages in securing contracts %on Indian reservations for the building of low cost housing. This may also apply to South Dakota. The Small Business Administration is giving help so that ventures may receive SBA guarantee loans., Work-is currently under- way with both GSA and SBA so that projects may get a greater share of the 8-A set-aside contracts. CUPTER 4 GAO recommends that OEO: II ,..fiaalize and implqment instructions, guidelines, and pro- cedures for managing and funding research and pilot project grants.*' The development and implemeneatibn of instructions, guidelines, and procedures is, of course, a continuing process. Over the last several months, the available staff for this kind of work has been significantly increased through additions tb both ‘the Planning Branch and @he OPD Director's office. Over the comilig montb$, -we will be-strengthening manag&ent systems in a number of ways. These include: a. Hew grant application forms, appropriate for research and.pilot project grants, have been completed.and sent to Om for clearance. Accompanying-instrt.ions are,.in %he fi'nal stages-of-review. b. The entire set of OK3 Instructions to grantees is being reviewed to determine which-ones should be made ap'plicable to UPD grantees. This .review, which is in its finat stages, ~211, 9or fhe first time, provide _ * a comprehensive set of regulations applicmtble to OFD grantees. At tMs 67 APPENDIX I time, it does not appear that there will be any major policy gaps left unfilled after the process is complete. c. A series of OPD Staff Instructions are being prepared. This series,for the first time, will provide OPD staff with a systematically maintained set of instructions on matters of particular concern to OPD. The first of these was issued in May of 1970 and provided guidance on preparing proposed grants. Other staff instructions, which are being prepared, will: (1). revise the narrative portion of the staff memorandum which accompanies the proposed grant; (2) provide guidance on the nature of reports which are desired from grantees; (3) provide guidance on the frequency of site visits to grantee projects by OEO personnel; (4) clari- fy the procedures for winding up the affairs of grants which have expired or terminated; and (5) set forth a clear statement. of the mission of OPD. d. Both the new application forms and the revised staff instruc- tions :.-ill require the development of a schedule of activities under a proposed grant to provide a systematic basis for later comparisonsof progress against plans. The guidance on grantee reporting will be largely aimed at providing information needed to make such comparisons. In addition, the Director of OPD has established a number of task forces to develop new procedures governing a number of aspects of grant funding and management. These include questions of selection of program areas, design of experimental and demonstration projects,selection of grantees, evaluation of performance, and utilization of results. GAO recommends that OEO: . . . recruit and employ personnel with educational and vocational II backgrounds in business to assist in the management of economic development pilot projects;" and...". establish a training program for pilot project managers." 68 APPENDIX I Agressive efforts are underway to employ more personnel with educa- tlonz? 2nd vocational backgrounds in business. The new Director of the Economic Development Division has broad knowledge in business affairs, Special emphasis is being given to recruiting people with similar baok- grounds in our Business Analysis Section. As staff vacancies oct~r, our intention is to recruit individuals with more extensive backgrounds in business in order to provide better balance. Toward this end, we have been conducting interviews at MIT, Harvard, and other well-known instituticns. In project management, there is a deliberate trend to select people with business experience for the chief executive officer’s position and to fill subordinate positions with people experienced in community affairs and other skills needed in economic development efforts among the poor. While progress has not been as substantial in this area, training of both OEO staff and project’staff is receiving major attention. A training session for OEO project managers on the Peat, Marwick ana Mitchell monitoring system will be conducted this summer. Currently, negotiations are underway with schools of Business Administration to provide a direct relationship with OEO’s Economic Development Division in order to give both OEO and grantee staff technical assistance and training, GAO recommends that OEO: . . . establish pilot project. reporting requirements as to the 91 number of reports required and the type of information to be furnished.” As indicated above, the instruction on reporting requirements is being developed. However, in view of the wide variety of projects funded with research and pilot funds, it does no.t seem practicable to make uni- form such requirements. Our approach, therefore, will be to give general guidance to project managers on how to tailor reporting require- 69 APPENDIX I ments to the circumstances of the particular grant. In considering the pro- posed grant, the OPD project review board will be required to focus on the report requirements proposed by the project manager. We believe that such a system holds the greatest promise for getting grantee progress reports which will be useful in the administration of the grant. GAO recommends that OEO: II . ..establish an effective monitoring and evaluation system to ensure that meaningful information will flow to OEO throughout the life of pilot projects to aid in managing projects and to enable valid analysis of project results." In dealing with this recommendation, it is important to clarify what is meant by "monitoring" and what is meant by "evaluation." The labels are not particularly important, but in a research and demonstration context, there are two quite distinct functions to be performed. Information obtained as part of what we call "monitoring" is obtained to serve a purpose that is essentially a part of project management. It is concerned with whether a grantee's program is proceeding according to plan and in a prudent and intelli- gent manner. Information obtained as part of what we call "evaluation" is con- cerned with whether the program is having the desired impact upon conditions of poverty. An experimental job training program, for example, may be very efficiently run and entirely in accordance with its plans, but nevertheless may be ineffectual in helping poor people achieve higher incomes through em- ployment. Considering monitoring information in the context described above (as an integral part of project management), we believe that such information should be obtained whenever possible by OEO personnel rather than by contractor personnel. The establishment of an effective monitoring system is not, in our view, distinct from the other recommendations made in the report. Clari- fying grantee reporting requirements, training project managers, making it possible to compare progress against plans, and the like are parts of such a monitoring system. 70 APPENDIXI we are, at the same time, working to develop a warning system which will provide the OPD Director and his Division directors with information when there is a failure to file reports, too long a time lag between site visits to the the project by OEO personnel, or similar lapses. With respect to evaiuation, we believe that an effective system is now in place. OPD has a separate Evaluation Branch with eight highly qualified professional personnel. The principal. duties of this branch are to design evaluations of OPD programs and to let and administer contracts to perform those evaluations. Not all OPD projects are now the subject of independent evaluations, since the Evaluations Branch has not been able to catch up with all projects funded before it was established in the 1969 reorganization. However, we are rapidly expanding the degree of coverage. GAO recommendsthat OEO: I‘ 1.. improve OEO’s efforts ot disseminating research and pilot project results in accordance with established procedures." As indicated above, we are reconsidering the ways in whicharesearch and pilot project results are utilized. We anticipate that this review will produce some substantial modifkation of the utilization procedures prescribed in 1968. The new procedures will be oriented more toward getting research and demonstration :esults intothe hands of those members of society who are likely to find them useful. That does not foreclose, of course, the library-priented approach of the 1968 instruction. But that approach should constitute only a &nor portion of the utilization system. With respect to past compliance with the January 1968 instruction, we do not believe the criticism in the GAO draft report is entirely well taken. A literal reading of the instruction does seem to suggest that it applies to every report that might be filed by an OEO grantee or contractor. APPENDIX I [See GAO note.] CHAPTER 5 GAO recommends that OEO: r, .I. initiate the necessary action to help ensure that pilot project grantees adhere to OX0 requirements for administering grant funds by ensuring -that grantees improve their management of grant funds, and by requiring CEO auditors and project managers to effectively monitor grantees' financial transactions." We believe that one of the reasons for failure to adhere to OEO requirements in the past has been a lack of clarity about which regulations apply to OPD grantees. The first step, therefore, in ensuring adherence to OEO requirements is clarifying for the grantees what those requirements are. This will soon be accomplished, as indicated above. In addition, the proposed program of training for project managers will include train- ing with respect to the effective monitoring of financial administratipn. [See GAO note.1 72 APPENDIXI [See GAO note.] GAO recommends that OEO: . ..require that unauthorized expenditures of grant funds be disallowed." This policy is regularly pursued by OEO. Specifically, in the case of the three pilot projects with respect to which costs were questioned by GAO, the status is as follows: Watts Labor Community Action Committee. The General Accounting Office Letter to the OEO Regional Auditor was dated January 19, 1970. G-n March 5, 1970, a Federal audit of this grantee was completed. The GAO comments were taken into account in the Federal audit. A total of $60,992 was disallowed by letter of February 18, 1971, subject to the grantee's right to submit additional documentation by April 15. At a meeting with the grantee on April 9, that date was extended to June 8. 73 APPENDIX I MiPrant Rural,Action Project. This project is now undergoing a final audit. The costs questioned by the GAO will be considered in connection with this audit, Southeast Alabama Self-Kelp Association. This project also is currently under audit. The costs questioned by GAO again will La taken into consideration, xxxxxxxxxxxxxx GAO note: Deleted comments referred to material discussed in our draft report but not included in our final report. 74 APPENDIXII THE ASSISTARIT SECXETARY BF CedbW Washington, D.C. 20230 Mr. Max A. Neuwirth Associate Director Civil Division General Accounting Office Washingtoc, D. C. 20548 Dear Mr. Neuwirth: This is in reply to Mr. Eschwege*s letter of January 28, 1971, requesting comments on a proposed report to the Congress on the "Improvements Needed In The Management of Economic Development Pilot Projects, Office of Economic Opportunity." We have reviewed the comments of the Economic Development Admini- stration and believe that they are appropriately responsive to the EDA related matters discussed in the report. Sincerely yours, Enclosures 75 APPENDIX II THE W$S&STAMT SECRETARY cw COMMERCE Washington, D.C. 20230 MEMORANDUM FOR LARRY A. JOBE SUBJECT: Comments on GAO Audit of OEO Economic Development Pilot Projects A letter from Mr. Henry Eschwege, Associate Director of the General Accounting Office, dated January 28, 1971 forwarded sections of the subject audit, and indicated that the Secretary of Commerce had been requested to forward Commerce Department comments on the draft. The following EDA com- ment is offered. On page 21 of the draft, the following statement is made: "AS a result, ECCO requested a $156,800 grant from the Economic Development Administration, Department of Commerce to staff the corporation but the agency turned down the request since the Columbus, Ohio area was not designated for assistance because of the low rate of unemployment.“ ECCO's request was turned down not because Columbus is not a designated area per se (technical assistance grants are not limited to designated areas), but because the shortage of funds in the face of many requests for assis- tance led us in that fiscal year to concentrate our limited resources for our urban technical assistance effort to on- going activities in currently designated cities. A letter from EDA to the ECCO dated November 25, 1969 states in part as follows: "We have attempted to maximize the impact of our small budget bymaintaining the momentum of on-going activities; and f&erefore, have been reluctant to expand our technical assistance efforts beyond these non-designated cities in which we are presently working." Thus, the decision with regard to the ECCO request was made on the basis of 76 APPENDIX II 2. priorities for the use of limited resources and not on the basis of designation as is implied by the GAO report. Robert A. Podesta Assistant Secretary for Economic Development 77 APPENDIX III U.S. DEPARTMENT OF COMMERCE Office of the Secretary Washmgton, DC. 20230 MAR 1 1971 Mr. Henry Eschwege Associate Director Civil Division U.S, General Accounting Office Washington, D-C, 20548 Dear Mr. Eschwege: The Office of Minority Business Enterprise has reviewed the General Accounting Office's draft report to the Congress on the need for improved management of the Office of Economic Opportunity's economic development pilot projects. OMBEhas been involved with only one of the cited pilot projects and is therefore unable to effectively evaluate GAO's report and conclusions. The firm with which we are familiar is Albina Manufacturing Corporation, Portland, Oregon. Your report on Albina, to our knowledge, is accurate and well documented. Sincerely, Abraham S. Venable Director Office of Minority Business Enterprise 78 APPENDIXIV UNITED STATES DEPARTMENT OF AGRICULTURE FARMERS HOME ADMINISTRATION WASHINGTON. D.C. 20250 OFFICE OF THE ADMINISTRATOR FE3 8 1971 L\ir . Bernard Sacks Assistant Director Civil Division General Accounting Uffice Washinston, D. C. Dear Plr. Sacks: We appreciate the opportunity to review the draft of your report to the Congress on "Improvements Needed in Management of i5conoml.c Oevelopment Pilot Projects, Office of Economic Opportunity." Aithough we are referred to in the report, we were net invcjlvcti in the plennin: of tne project and, thcrefore, we have no comments to offer. s'incerely, 79 APPENDIXV VS. GOVERNMENT SMALL BUSINESS ADMINISTRATION WASHINGTON, D.C. 20416 MAR 9 1971 Mr. Henry Eschwege Associate Director, Civil Division United States General Accounting Office Washington, D. C. 20548 Dear Mr. Eschwege: This is in response to your letter of January 28, 197'1, which requested our comments on sections of your proposed report to the Congress, titled, "Iplprovements Needed in Management of Ekonomic Development Pilot Projects," Office of Economic opportunity. We have reviewed the report sections and offer the following comments : 1. The statements on pages 16 and 4'7 concerning SB4 should be changed to ?Phe Small Business Administration guaranteed 873 or $350,000, of a $400,000 bank loan, and did lease the building to Albina Manufacturing Corporation for a period of 18 months with an option to purchase. The monthly rental was $2,750 and the option of purchase was $300r000.11[See GAO note.] 2. With regard to the SCOPE statistics on pages 4 and 47, our most recent reports show over 3,800 volunteers and the chapters have been consolidated to 166. [See GAO note.] 3. Concerning the conclusion and recommendation on page 48, the SBA. is always anxious to cooperate to the extent possible, as we have in the past, with any Federal agency who would have a need for the type of assistance that the SBA. can provide. We appreciate the opportunity to review and comment on this report, and if you need any additional information please advise. Sincerely, A%= . Administrator-- GAO note: Final report revised accordingly. 80 APPENDIX VI PRINCIPAL OFFICIALS OF THE OFFICE OF ECONOMICOPPORTUNITY RESPONSIBLE FOR THE ADMINISTRATION OF ACTIVITIES DISCUSSED IN THIS REPORT Tenure of office From -To DIRECTOR: Frank C. Carlucci Dec. 1970 Present Donald Rumsfeld &Y 1969 Dec. 1970 Bertrand M. Harding (acting) Mar. 1968 &Y 1969 R. Sargent Shriver Oct. 1964 Mar. 1968 ASSISTANT DIRECTOR FOR COMMUNITY ACTION PROGRAM(note a): Theodore M. Berry Apr. 1965 Sept. 1969 ASSISTAKC DIRECTOR FOR PROGRAM DEVELOPMENT: Alfred H. Taylor (acting) June 1971 Present Joe P. Maldonado Aug. 1970 June 1971 Marvin J. Feldman Jan. 1970 Aug. 1970 Robert Perrin (acting) Sept. 1969 Jan. 1970 aIn September 1969 this position was terminated as an orga- nizational entity and responsibility for administering pi- lot projects was assigned to the Office of Program Develop- ment, a newly created office, U.S. GAO, Wash., D.C. 81 Copies of this report are available from the U. S. General Accounting Office, Room 6417, 441 G Street, N W., Washington, D.C., 20548. Copies are provided without charge to Mem- bers of Congress, congress iona I committee staff members, Government officials, members of the press, college libraries, faculty mem- bers and students. The price to the general public is $1 -00 a copy. Orders should be ac- companied by cash or check.
Improvements Needed in Management of Projects To Develop Business Opportunities for the Poor
Published by the Government Accountability Office on 1971-07-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)