Congress split oversight of the RCs and urban EZs between the Department of Housing and Urban Development and the Department of Health and Human Services. Each played a different, but important role in ensuring program integrity.

By statute, HUD was the designating agency for urban and rural RCs and for urban EZs. HUD was also statutorily responsible for making a periodic progress determination for each of its designees. The HHS Office of Community Services administered the federal funding for the Round I EZ projects. OCS has awarded the funds to state agencies that, in turn, passed them to local-level organizations that implemented EZ projects. In many cases, the city planning department received the federal grant funding and coordinated the EZ activities at the local level, but in several cities, a private not-for-profit organization had that responsibility. The federal grants were authorized in Section 2007 of the Social Security Act and they were a special component of the Social Services Block Grant program. The HHS website for the EZ program provides more details about the Round I grants. HHS regulations concerning the grants are found at 45 CFR Part 96.

Congress provided a different funding source for the 15 Round II EZs and a different mechanism was followed to distribute that funding. HUD used a process similar to the HUD Community Development Block Grant (CDBG) program to distribute the EZ funding. Funding was sent to the lead locality (city or county) which in turn may distribute the funding to a non-profit 501c(3) corporation.

Framework Governing HUD'S Legal Responsibility for Monitoring & Auditing the RC/EZ Initiative

HUD's legal responsibility regarding monitoring the EZs derives primarily from section 1391(d)(2) of the Omnibus Budget Reconciliation Act, which provided for the revocation of an EZ's designation if the Secretary determined, among other things, that a designated EZ has failed "to make progress in achieving the benchmarks set forth in the strategic plan." This provision applied to Round I - Round III designations, and implied that information must be submitted to and reviewed by HUD in order for the Department to make such determinations. To further implement this responsibility, the Department's regulations at 24 CFR §597.400-403 provided for reporting, performance reviews, validation of designation and revocation of designation under appropriate circumstances. Similar provisions applied to Empowerment Zones designated in Round II pursuant to 24 CFR § 58.415-430.

Provisions for monitoring the RCs derived from section 1400E of the Omnibus Budget Reconciliation Act, which provided in paragraph (b)(2) for the revocation of an RC's designation if the Secretary determined that the local government or the State in which the RC was located modified the boundaries of the RC or the RC was not complying substantially with, or failed to make progress in achieving, State or local commitments.

HUD'S Process for Monitoring Progress of RCs and Urban EZs

HUD's Office of Community Renewal staff monitored and communicated with each RC and EZ. In addition, to help ensure compliance with applicable laws and regulations, HUD's Assistant Secretary for CPD assigned a CPD Representative to monitor and assess the progress of these communities. The CPD Representatives worked with the Office of Community Renewal to help ensure full compliance with HUD's statutory monitoring responsibilities for the RCs and EZs. These representatives received training from the Office of Community Renewal on monitoring the designees. This Office used annual assessments from these CPD representatives and other pertinent information to determine if a designee should maintain its good standing and retain its designation.

RC/EZ Initiative Performance Measurement System (PERMS)

To satisfy its monitoring and evaluation responsibilities, HUD's Office of Community Renewal instituted an Internet-based performance measurement system called PERMS. The RC/EZ designees used PERMS to document the projects and programs they implemented to achieve their local strategic plan and Course of Action. The CPD Representatives used PERMS to monitor and evaluate the progress of each RC/EZ. Each year the designees used PERMS to submit an annual performance report that identified progress made in achieving project/program milestones and output measurements and tracked the performance of governance boards and, for RCs, the Coordinating Responsible Agency (CoRA). The CPD Representatives used PERMS to evaluate the information contained in the RC/EZ annual reports. PERMS not only cut down on the paperwork burden facing the designees, it provided HUD with a low-cost mechanism for continually monitoring the progress of each designee.

Statutory and Regulatory Framework Concerning HHS's Responsibilities for the Round I Grants

Section 13761 of the Omnibus Budget Reconciliation Act of 1993 authorized the Department of Health and Human Services' Office of Community Services to provide funds to appropriate State agencies for designated Round I Empowerment Zone projects. The grants were subject to that department's regulations and procedures.

Legal Responsibility of the States Regarding Monitoring and Auditing

In general, HHS delegated some oversight responsibilities for the EZ funds to the States. The States were responsible for ensuring program integrity. The States were responsible for monitoring EZ spending to ensure compliance with legal requirements. Regarding HUD and the States, Section 597.400 of the implementing regulations provided that the required periodic reports submitted by designees must include "State actions which have been taken in accordance with the strategic plan," but no further State action was specified. For Round II §598.415(b) specifically provided that the States must submit periodic reports to HUD, demonstrating compliance with the certifications they must submit to HUD pursuant to the statute and regulations. Other than these reporting requirements, progress determinations were left to HUD. The State agencies that receive federal grants from HHS for the EZ projects were also required to provide annual reports to HHS about the grants.

Statutory Framework Governing Designees' Legal Responsibility for Monitoring & Auditing the Initiative

Pursuant to 24 CFR §597.400, EZ designees were required to present periodic reports of actions taken pursuant to their strategic plans. Under §597.401, HUD regularly evaluated that progress, and on the basis of these performance reviews reevaluated designations, pursuant to §597.402 or had the ability to revoke designations, under §597.403. Designees under Rounds II and III were required to submit periodic reports to HUD pursuant to 24 CFR§598.415(a). HUD periodically reviewed and evaluated progress in implementation of the strategic plan, in accordance with §598.420, and validated designations, pursuant to §598.425 or had the ability to revoke designations under §598.430. HUD considered input from the states in making its progress determination.

With regard to monitoring the RCs, §599.511 indicated that each CoRA and the State or local governments where the RC was located were required to submit period reports as HUD may require. Pursuant to §599.513, HUD had the ability to revoke a designation if it determined that the RC modified its boundaries without authorization or was failing to achieve progress in meeting commitments under its Course of Action.