oversight

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)

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,      T&ether   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,
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