Vision and Mission Statements 5

Message from the Director 7

Message from the Chief Financial Officer 9

Executive Summary and Highlights 11

Organizational Profile 13

Program Discussion and Analysis 17

Financial Discussion and Analysis 29

Reports from the Auditors 35

Financial Statements 48

Notes to the Financial Statements 52

Appendices 61

Management Officials and Advisory Board Members 75

Implement a new direction for community development initiatives, by using limited public resources to invest in and build the capacity of the private sector to address the community development financing needs of distressed communities and disadvantaged populations. This will:

• unleash large amounts of private capital;
• take full advantage of private sector human talent, energy and creativity;
• revitalize neighborhoods;
• encourage and promote entrepreneurs;
• restore healthy private market activity in distressed communities; and
• empower local residents.

Promote economic revitalization and community development through investment in and assistance to community development financial institutions (CDFIs) and through encouraging insured depository institutions to increase lending, financial services and technical assistance within distressed communities and to invest in CDFIs.

The institutions we support make a difference in communities all across the country. Our funds are used to leverage substantial private sector dollars into these communities and create replicable models for poverty alleviation through economic growth. Investment in businesses, housing, commercial real estate, human development, and urban activities that promote long-term economic and social viability are critical to our well being as a country. As a result of the Fund’s investments in institutions serving the underserved, we make economic independence a reality for many more people.

The Fund faced many challenges as it established itself, developing policy and programs with limited staff. Through the end of fiscal year 1997, the Fund has made 79 awards totaling over $75 million to CDFIs across the country, and 92 awards totaling $30 million to banks and thrifts for their efforts in providing creative loans, financial assistance and investments in distressed communities. In January 1997, the Fund managed the first Presidential Awards for Excellence in Microenterprise Development.

As the Fund has evolved so has its staff. In November 1997, Paul Gentille joined our staff as our Deputy Director for Management and CFO. Paul has had a long career in the Federal Government and brings much experience to his role. Our counsel, Maurice Jones, has recently become Deputy Director for Policy and Programs.

In January 1998, I joined the Fund as its second Director. I have a long-term commitment to community development and our basic operating premise — that small amounts of federal dollars can stimulate significant private sector investment in poor communities. We are currently building our team and organizational structure, and plan to have a full staff on board by the end of the fiscal year. Working with our two Deputy Directors will be a cadre of professionals, able to implement our programs prudently and think creatively, as we move forward to further our mission.

The CDFI industry faces many challenges as it grows and strives to increase its impact. I believe the Fund will facilitate that growth through training and technical assistance initiatives beginning later this year. We will also study the impact of the Fund’s investments and engage the community development field through a variety of outreach and communications efforts.

I look forward to building our staff, growing our programs, and ensuring the taxpayer’s investment in the Fund catalyzes significant economic activity in distressed communities.

Ellen W. Lazar
Director

As CFO and a part of a newly appointed management team, I am very pleased to present the fiscal years 1997, 1996 and 1995 audited financial statements for the Community Development Financial Institutions Fund.

These statements, representing the Fund's first efforts to prepare stand-alone financial statements, were audited by KPMG Peat Marwick LLP, and their audit resulted in an unqualified opinion for the Fund. What appeared impossible a few months ago, became a reality through the tireless efforts of a small, but extremely dedicated staff. To them I give a special thank you!

This opinion, along with the auditor's recommendations, now establishes a benchmark for the Fund's financial management and awards administration and monitoring. With a vision towards working better and costing less, the Fund's financial and program personnel will work together in partnership to further strengthen the Fund's management accountability and controls. Together we will ensure the integrity of information, make decisions, and measure performance to achieve desirable outcomes and real cost effectiveness.

We are firmly committed to excellence in all aspects of financial management and awards administration and monitoring. With the addition of new staff, we will focus on attaining a new level of efficiency and quality in the Fund's awards management, with emphasis on quality and customer service. Communicating with applicants and award recipients through the Internet and a CDFI Fund web site will be a priority during fiscal year 1998. We will also strive to have readily available reliable information on the Fund's financial condition, operations and awards programs as well as the performance and costs of these activities. Using a results-oriented management approach, we will enhance our strategic planning process, establish performance measures focused on "outcomes," and link performance information to resource requirements through annual performance plans.

Faced with the many challenges associated with a new and growing organization, our new management team is promoting a forward thinking approach to meet our future challenges and commitments. We are promoting a strong partnership between the Fund's program and management staffs, recognizing that our customers and employees are the most important resources for planning and decision-making processes inherent in carrying out our mission. At the end of each day, our commitment to the sound stewardship of the Fund's financial resources will remain our highest priority.

Paul R. Gentille
Deputy Director for Management
and Chief Financial Officer

The Community Development Financial Institutions (CDFI) Fund is working to expand access to credit and financial services in poor urban, rural and Native American communities, where one of the biggest obstacles to economic development is a lack of access to mainstream sources of private sector capital. Access to capital is an essential ingredient for creating and retaining jobs, developing affordable housing, revitalizing neighborhoods, and building local economies.

The CDFI Fund represents a new direction for community development initiatives by leveraging limited public resources to invest in and build the capacity of private sector institutions to finance community development needs in distressed communities.

In only two years, the CDFI Fund has made a significant contribution to increasing access to private sector capital, effectively promoting partnerships between community based financial institutions, banks and other private sector players, and leveraging scarce Federal resources into private dollars for credit starved communities.

Currently operating three programs - the CDFI Program, the Bank Enterprise Award (BEA) Program, and the Microenterprise Program - the Fund is helping to create jobs, rebuild neighborhoods, and restore hope in communities across the nation.

• The CDFI Fund awarded 54 insured depository institutions a total of $16.5 million in grants in the 1997 round of the BEA Program.
• On January 30, 1997 President Clinton presented the inaugural Presidential Awards for Excellence in Microenterprise Development, recognizing programs that have provided opportunities to people who lack access to traditional credit sources, such as women, minorities and low-income Americans.

The Community Development Financial Institutions (CDFI) Fund was authorized as part of the Riegle Community Development and Regulatory Improvement Act of 1994. In July of 1995, CDFI Fund, a wholly owned government corporation, was placed within the Department of the Treasury.

The offices of the CDFI Fund are located in Washington, D.C., where major policies and programs are developed and implemented in accordance with applicable laws and regulations. The Fund executive structure consists of a Director, Deputy Director for Policy and Programs, Deputy Director for Management/Chief Financial Officer, Legal Counsel and External Affairs Officer.

The Office of Management includes the functions of Awards Administration and Monitoring, Financial Management and Administrative Services. The Office of Policy and Programs includes the CDFI Program, BEA Program, Technical Assistance, Training and Other Programs, and Policy and Research.

The CDFI Fund Advisory Board consists of 15 members. Membership includes the Secretary or designee of the Departments of Agriculture, Commerce, Housing and Urban Development, Interior, and Treasury; the Administrator or designee of the Small Business Administration; and nine private citizens, appointed by the President.

Funding Summary

Of the amounts appropriated to the Fund, not more than $5,550,000 may be used by the Fund in each fiscal year to pay the administrative costs and expenses of the Fund.

BETHEX FEDERAL
CREDIT UNION
Bronx, New York

Ms. Lamont has a home-based business—"Full Potential"—designing and manufacturing high-fashion hats. Over the past eighteen months Ms. Lamont has seen a significant increase in business culminating in a contract with the national clothing retailer, J. Crew. In 1997, Ms. Lamont approached Bethex for a $15,000 working capital loan to purchase supplies to meet the obligations of the contract with J. Crew. After only three years of operations, she had proven to be a successful self-made entrepreneur, but now needed help to meet her contractual obligations and for the business to reach its next level of growth. Ms. Lamont enrolled in an entrepreneurial training class and subsequently applied for a loan with Bethex. Bethex was impressed with the thoroughness of Ms. Lamont’s business plan, her well organized business records and excellent credit history. As a result, the loan was granted.

One of the short term marketing goals outlined in the business plan was to show her merchandise, in-person, at a major retail store—what is known as a "trunk show." In October, 1997 that goal was realized through a trunk show at Bloomingdales in New York City. Without the success of the J. Crew contract, which was able to be honored through the loan from Bethex, an invitation to that show would not likely have happened. Ms. Lamont now has four seasonal employees in her burgeoning millinery operation.

The South Bronx is one of the country’s most distressed communities. Despite the area’s troubles, Bethex Federal Credit Union has been a steady and constant source of credit, and more importantly of hope, for hundreds of low-income families. Founded in 1970 by welfare recipients, Bethex serves these low-income residents who have generally lacked access to conventional banking services. Over time, Bethex has grown from a institution that provided only the most basic financial services: savings accounts, very small loans and selling money orders, into a full-service financial institution now making business loans of up to $15,000.

The South Bronx contains some of the highest concentrations of poverty in the New York City metropolitan area, as well as the country. The typical family income is approximately one-third of the median family income for the New York City area. Bethex’ service area and its membership is heavily (approximately 60%) Hispanic, primarily of Puerto Rican and Dominican background. African Americans comprise about 40% of its membership. For residents of the South Bronx, the general absence of conventional financial services has been filled, in part, by other sources of "credit" with extraordinary interest rates, including pawn shops and loan sharks.

Bethex received a $100,000 grant from the CDFI Fund to expand its financial services and increase its business lending. Since the Fund’s investment, Bethex has been able to granting more loans, larger loans and accept more risk in its lending. Over the past 18 months Bethex’ membership has grown from 1,270 to 3,000, and its assets have increased from $1.6 million to $3 million. The increase in membership is a result of the expansion of financial services—Bethex now offers ATM cards, direct deposit and checking accounts.

In addition, over the last year, Bethex has launched a "School Banking" program. This program encourages savings among the youth of the community and is an important tool for teaching money management skills. Once common in New York City public schools, this program has not been as frequently utilized in recent years. Currently, Bethex has 550 "school accounts" from third, fourth and fifth graders at two public schools located in the Bronx.

Joy Cousminer, Treasurer/
Manager of Bethex, notes that receiving the award from the CDFI Fund "has made us famous." Since Bethex received their award many commercial banks and thrifts have made non-member deposits and have offered a variety of technical support to the credit union.

ACCION TEXAS
San Antonio, Texas

Andrew Fuentes was too ill to return to his construction job and his family’s money was dwindling. At his wife’s suggestion, he made a table and set of chairs for their empty kitchen out of some old wood. This project, which had a unique, hand hewn look, made Andrew realize his creative potential. Soon afterward, he was selling his "blue fence" furniture to friends and began making furniture full-time. Andrew approached several local banks for a loan, but was turned down because of his credit history. By the time he heard about ACCION Texas, Andrew was too discouraged to apply for a loan. Andrew’s wife encouraged him. "Let’s try it!" she said. But Andrew declined fearing his request would be rejected. Eventually, he applied for and received a loan from ACCION Texas. He used the $3,000 loan to buy more inventory. He filled his shop with furniture and his sales doubled. "Without ACCION," Andrew stated, "we never could have made it."

The decision to launch ACCION Texas was based on a 1993 market study carried out by ACCION International of San Antonio’s Westside micro- and small business sector. The survey of 120 microentrepreneurs included owners of small restaurants and grocery stores, plumbers, electricians, painters, seamstresses, jewelry-makers, house cleaners, home day-care providers, and flea market vendors. These icroentrepreneurs expressed a need for credit, but were unable to access traditional financing. ACCION Texas was created to give these entrepreneurs access to financing and to other business support services. Of the San Antonio Westside micro-business owners surveyed, 83% had never tried to obtain a bank loan and only 2% had used a bank loan to finance their businesses. Many believed that they could not offer sufficient collateral, business history, or income to secure a loan. Of the 80% who said that their businesses were not operating to their potential, 77% cited "lack of capital" as the primary constraint. Approximately 70% of ACCION Texas’ borrowers are Mexican-American and have businesses located in San Antonio’s low-income neighborhoods. ACCION Texas offers microloans from $500 to $25,000—with an average loan size of $3,100—and technical assistance to borrowers.

A $500,000 grant from the CDFI Fund is assisting this CDFI in its efforts to expand service to more than 1,500 borrowers through loans totaling over $3.8 million over a five year period. The grant will also enable ACCION Texas to strengthen its organizational performance.

Since 1994, ACCION Texas has made 817 loans to 331 business owners totaling more than $2.5 million. A study of ACCION Texas’ borrowers found that the 25 clients who had received at least four loans from the program had experienced a 49-percent average increase in the dollar value of the their business assets from $7,971 to $11,870. Their monthly business profits increased an average of 55-percent and their take-home incomes increased 16%.

With a $1 million grant from the CDFI Fund, the Santa Cruz Community Credit Union has opened a new branch office serving the low-income population of Watsonville, California. Eleven percent of the total population and twenty-one percent of the children live below the poverty line in Watsonville. The opening of this new branch has extended needed financial services into the Watsonville community, a major agricultural area whose population is approximately 60% Hispanic. Prior to the opening of the new branch, Watsonville residents had limited access to the full-range of financial services now offered by Santa Cruz Community Credit Union.

Of note are two loans that have been made in Watsonville to address the critical needs of the community’s at-risk youth. Santa Cruz Community Credit Union provided a $160,000 loan to the Santa Cruz Community Counseling Center (the Community Center) enabling it to secure a counseling facility located right in downtown Watsonville. Prior to the Watsonville location, the Counseling Center’s nearest facility was approximately 15 miles away. The Counseling Center’s new Watsonville facility has provided greater accessibility to needed counseling services for the youth and families of Watsonville and now has a greater presence in the community.

Since its inception in 1977, Santa Cruz Community Credit Union has achieved a remarkable track record as a full-service community development financial institution. It has attracted over 6,300 members and has increased its assets to $28 million.

Santa Cruz Community Credit Union offers its members a wide variety of services (savings, checking, credit cards, ATMs, telephone banking) and a range of lending products (consumer loans, real estate loans and business loans). A special lending focus is agricultural loans to support farm operations that employ environmentally sensitive practices such as integrated pest management techniques or sustainable organic growing practices.

A $1 million grant from the CDFI Fund has provided the Santa Cruz Community Credit Union with the capital it needed to implement its plans for a significant expansion – the new branch office in Watsonville.

Santa Cruz Community Credit Union has become a pre-eminent credit union in providing small business loans. To date, it has lent over $37 million to small businesses, cooperatives, and nonprofit service providers – generally entities that could not otherwise access loans from traditional sources. It has provided approximately $4 million in small business and nonprofit loans annually, and over 220 such loans are currently on its books. Over 70% of these loans have been made to minorities and women.

Self-Help’s ability to leverage the CDFI Fund investment is noteworthy. The $3 million was used, in part, to leverage the purchase of affordable single-family mortgage loans from a North Carolina commercial bank. During the last year, this type of transaction was duplicated seven times with three banks, BB&T, Centura Bank, and First Union. Additional capital for these transactions was borrowed from the Federal Home Loan Bank of Atlanta, including $33 million in 1997 alone. Another $11 million was borrowed from banks through incentives from the BEA Program. The purchases of these mortgage pools have so far totaled $103 million and include 1,820 underlying mortgages. The average income of the homebuyers in these mortgage pools is 60% of the area median family income. (More than 55% of these homeowners live in rural areas, and 29% are minority.) Further, the capital the banks gain from the sale of mortgages is being used to make additional home purchase loans to lower-income families. With Self-Help’s demonstrated success, the CDFI is now in a position to open doors to the national capital markets to accelerate the flow of dollars available for achieving home ownership for North Carolina’s low-wealth families.

The increase in Self-Help’s asset base has also allowed for a 30% increase, over 1996 levels, in its small businesses and community facilities lending. A few loans that added particular community building value include: a loan to an African American property owner in Pittsboro to build a facility that is leased to a church-sponsored daycare center; a $250,000 loan to build a facility for a new charter school in Kingston; and a loan to an entrepreneur to finance a manufacturing business that converts recycled wood waste (from area mills) into fiber board that in turn is used in the production of doors purchased by building suppliers.

Self-Help, launched in 1980, aggregates resources and forges partnerships with the public and private sectors and advocates for community development issues. Self Help’s two financing entities, Self-Help Credit Union and Self-Help Ventures Fund, provide access to credit for North Carolina’s distressed communities and low-wealth families. Self-Help Ventures Fund provides loans to emerging small businesses, provides management assistance to its commercial borrowers, and helps expand housing opportunities and community facilities. Self-Help’s steady growth and increased demand has allowed the this CDFI to open five regional offices in the state. Self-Help’s partnerships engages it in increasingly sophisticated transactions and leveraging strategies. Self-Help’s work is having significant impact in transforming conventional loan underwriting standards and, in particular, in creating increased opportunities for home ownership among the state’s lower income families.

The CDFI Fund’s $3 million grant was channeled to Self-Help Ventures Fund and helped to boost its equity capital and assisted it in expanding its secondary market initiatives. Beginning with Wachovia Bank, Self-Help has pioneered a means to create a continual flow of capital to provide mortgages for low-income homebuyers. Self-Help has expanded its asset base from $94 million in September 1996 to $140 million at the close of 1997.

Republic National Bank of New York (Republic), which was awarded $519,659 in the first round of the Bank Enterprise Award (BEA) Program, is an avid proponent of investing in distressed communities and the community development financial institutions (CDFIs) which serve them. Republic has used all of its award to leverage an additional $5 million in economic development and small business lending in low- and moderate-income communities. In this way, its BEA award will be leveraged nearly 10 times over in the form of new lending. The award dollars have been used to create the Special Economic Development Fund which provides below market rates and create a loan loss reserve for loans Republic will make to non-profit economic development organizations over the next few years. Two examples are:

• A $2 million loan was made to the Local Initiatives Support Corporation (LISC)(a certified CDFI and a 1996 CDFI Program awardee), a financial and technical services intermediary focused on real estate development and operations which serves low-income communities throughout the nation. This loan, with a below market rate of 3% over 5 years, could not have been done without the Bank Enterprise Award.

• Republic is also lending $120,000 to Leviticus 25:23 Alternative Fund, Inc. (a certified CDFI and a 1997 CDFI Program awardee), which makes loans for affordable housing, community facilities and small businesses in New York, New Jersey and Connecticut. The $120,000, which is being made at 0% for 1 to 2 years, will be used to expand educational space at qualified child care facilities throughout New York City.

Republic National Bank of New York is a full service bank, which is based in and serves New York and South Florida.

Republic was awarded $519,659 under the BEA Program for providing loans and operating grants totaling $5,196,592 to 21 community development organizations. The institutions assisted by Republic range in size, products and service areas: the Local Initiatives Support Corporation, mentioned above, has a national service area; the Enterprise Foundation (a certified CDFI and a 1997 CDFI Program awardee), based in Columbia, Maryland, which provides loans and technical assistance to nonprofit developers of affordable housing serving distressed areas of 16 cities across the nation; and Bethex Federal Credit Union (a certified CDFI and a 1996 CDFI Program awardee), a full-service credit union serving the low-income residents of the South Bronx, New York.

In addition to significantly increasing its lending activity in eligible distressed neighborhoods—activity that qualified it for an award of $1,585,510 under the first round of the Bank Enterprise Award (BEA) Program in 1996—the Bank of America (B of A) Community Development Bank, together with Bank of America, F.S.B., has invested its entire combined Bank Enterprise Award back into the community. $1.1 million of the award money has been used to establish the Bank of America Leadership Academy, a nine-month program that provides training for senior management of community development organizations. The B of A Leadership Academy is funded jointly by Bank of America Community Development Bank, Bank of America, F.S.B., and the Local Initiatives Support Corporation (a certified CDFI and a 1996 CDFI Program awardee); and is conducted by the Development Training Institute. The B of A Leadership Academy is funded for three nine-month programs. Each session trains 35 executive directors or senior staff of community-based development organizations that are at least five years old and have completed at least three projects.

An additional 20 percent of the combined awards will go to the Low Income Housing Fund, a certified CDFI and a 1996 CDFI Program awardee which provides loans for very low-income housing development across the country.

The Bank of America Community Development Bank is based in Walnut Creek, California and has a service area that includes the entire State of California. The bank provides a range of lending products, including multi-family housing, commercial real estate, and business loans.

The B of A Community Development Bank was awarded $1,585,510 in the 1996 funding round for increasing its multi-family housing, commercial real estate and business loans in distressed communities across California. The Bank made nearly $25 million in loans in targeted neighborhoods meeting the BEA Program’s distress criteria, including $9.5 million in commercial real estate loans, $13.2 million in multifamily loans, and $2.2 million in business loans. The Bank projects that these loans will generate more than 185 units of affordable housing and 300 jobs. The Bank’s increased multifamily lending activity has helped provide a vital source of affordable housing for low-income families in targeted neighborhoods in San Francisco, Modesto, and Los Angeles, including the projects described below:

• a $2.6 million construction loan to support the acquisition and rehabilitation of a deteriorated residential hotel in San Francisco’s Tenderloin neighborhood into 58 units of quality affordable housing for formerly homeless individuals; and

• a $6.8 million loan to support construction of a new 79-unit apartment building located in Downtown Los Angeles. The building serves households earning less than 60% of Los Angeles County’s median income.

The CDFI Fund's financial statements included in this annual report represent the first stand alone statements prepared by the Fund since its inception in FY 1995. Prior to this report, financial information for the CDFI Fund had been included as part of the Department of the Treasury's annual Accountability Report for FY 1996.

Since the beginning of the Fund, accounting services and financial statement preparation have been performed outside of the Fund in other Treasury offices. Until mid FY 1997, these services were performed by the Financial Management Division in the Departmental Offices. For the last half of FY 1997, accounting services and financial statement preparation were contracted to the Bureau of the Public Debt-Franchise Services.

With these first audited financial statements and stand-alone annual report, the CDFI Fund, a wholly owned government corporation, is not only complying with its enabling legislation, but also conforming to the spirit of the CFO Act of 1990 and the Government Performance and Results Act (GPRA) of 1993. In addition, in the first quarter of FY 1998, a Deputy Director for Management/Chief Financial Officer was appointed for the CDFI Fund and a process begun to establish an internal Fund financial management structure and staff.

During FY 1997, the CDFI Fund did not have a formal FMFIA program in place to evaluate, continuously monitor and improve the effectiveness of management controls associated with the Fund’s programs. Consequently, the Fund’s internal control process during this period lacked adequate individual program and operating level self-assessment to provide reasonable assurance that its systems of management, accounting, and administrative control, taken as a whole, achieved FMFIA and FFMIA objectives.

A formal FMFIA program enables management to make an assertion that:

• obligations and costs comply with applicable laws;
• assets are safeguarded against waste, fraud, abuse, and mismanagement;
• revenues and expenditures applicable to the CDFI Fund operations are properly recorded and accounted for so that accounting, financial, and statistical reports may be prepared, and accountability of the assets may be maintained; and
• programs are efficiently and effectively carried out in accordance with applicable laws and management policies.

As a first step towards the preparation of a CDFI Fund Annual Report and audited financial statements for FY 1997, the Fund management initiated an FMFIA review subsequent to September 30, 1997. As a result of this review, which did not include any transaction testing, the following material weaknesses were identified. Currently corrective action plans are being developed with target dates for completion in the first half of FY 1998.

1. Title and Description: (CDFI 97-01) No formal FMFIA Program in place.

CDFI did not have a formal FMFIA program in place during FY 1997 to evaluate, continuously monitor and improve the effectiveness of management controls associated with CDFI’s programs. Therefore, all of the Fund's internal control processes lacked adequate individual program and operating level self-assessment.

Status and Accomplishments: Subsequent to September 30, 1997, the CDFI Fund management initiated an FMFIA review to assess its internal controls. This review identified seven material weaknesses and three instances of administrative systems’ non-conformance. During the first half of FY 1998, the Fund will establish a formal management control process and designate the Deputy Director for Management/CFO as the Fund’s Management Control Officer.

2. Title and Description: (CDFI 97-02) CFO and Controller positions and functions not established.

The CDFI Fund did not hire a Chief Financial Officer (CFO) until after September 30, 1997. Since a CFO’s duties would normally include overseeing all aspects of the Fund’s administrative, accounting, reporting, management controls, budgetary, portfolio monitoring, and compliance with laws and regulations, these areas were not receiving sufficient management attention during FY 1997. In addition, the Fund lacked a controller (financial manager) to oversee the day-to-day accounting functions, as well as the accounting activities performed for the Fund by the Bureau of the Public Debt. The lack of a CFO and Controller potentially impairs the Fund’s management ability to make sound financial decisions and to monitor the Fund’s financial and performance activities.

Status and Accomplishments: A Deputy Director for Management/Chief Financial Officer was appointed in November, 1997. A staff accountant was hired in January, 1998. Additional financial positions are being developed and hiring will continue through the first half of FY 1998.

3. Title and Description: (CDFI 97-03) Awards Administration and Monitoring Positions and functions not established.

The duties of an awards officer normally include serving as the principal procedural authority, advisor and implementer of awards management policies. Key to such a function is the development and coordination of the Fund's awards management program, including the dissemination of procedural and technical advice, guidance and interpretation on CDFI award management activities and requirements, maintenance of award files, as well as sufficient monitoring of the pre- and post-award operations of the Fund. The lack of an awards manager impairs the Fund’s ability to carry out the above activities and to monitor CDFI’s program performance and compliance activities.

Status and Accomplishments: Policies and procedures for an awards administration and monitoring function are being developed in the first half of FY 1998. An Awards Officer reported for duty in January, 1998.

4. Title and Description: (CDFI 97-04) Post Award Monitoring Procedures not established and implemented.

• Develop written, formal, ongoing monitoring procedures and forms and place them into operation.
• Continue with the design and development of a portfolio monitoring database system.
• Determine the audit guidelines for the CDFI awardees to follow.

• Track the receipt of all required reporting activities for all CDFI awardees since the inception of the Fund.

1. Title and Description: (CDFI 97-05) No formal review of monthly financial statements and accounting records or completion of supporting reconciliations.

Monthly trial balances and other reports such as spending transaction reports, budget and obligation reports were not routinely reviewed and reconciled to source documentation such as invoices and purchase orders. Where reviews were performed, documentation of the review procedures was not evident. There was no formalized administrative funds control policy or process. Lack of a formalized review of monthly financial statements and other financial reports impairs the Fund’s management ability to effectively and adequately monitor the CDFI Fund’s financial activities.

Status and Accomplishments: During the first half of FY 1998, the Fund will establish a formal process for preparing and distributing monthly financial statements. The Deputy Director for Management/CFO will establish and implement Fund policies and procedures for the administrative control of funds. Monthly financial statements will be reviewed and any issues acted upon in a timely manner.

2. Title and Description: (CDFI 97-06) Inadequate Delineation of Organizational Responsibilities.

• Reevaluate all existing position descriptions;
• Establish performance criteria and standards for each Fund position
• Implement a performance appraisal process; and
• Establish an awards system for employee performance.

1. Title and Description: (CDFI 97-07) Program Award Files not completed.

The CDFI Fund management is responsible for the fair presentation of information contained in the principal financial statements, in conformity with the accounting hierarchy described in Note 1, Summary of Significant Accounting Policies, which constitutes an "other comprehensive basis of accounting." Management is also responsible for the fair presentation of the Fund’s performance measures in accordance with Office of Management and Budget requirements. The quality of the Fund’s internal control structure rests with management, as well as the responsibility for identification and compliance with pertinent laws and regulations.

The financial statements, included as part of this total package, present the financial position and results of operations of the Community Development Financial Institutions Fund for the years ended September 30, 1997, 1996 and 1995 pursuant to the requirements of the Government Management Reform Act of 1994. While the financial statements have been prepared from records in accordance with the formats prescribed by the Office of Management and Budget Bulletin No. 94-01, "Form and Content of Agency Financial Statements," the statements are different from the financial reports used to monitor and control budgetary resources that are prepared from the same records and are subsequently presented in Federal budget documents. Therefore, readers are advised that direct comparisons are not possible between figures found in this report and similar financial concepts found in the fiscal year 1997, 1996 and 1995 Budget of the United States Government. Additionally, the financial statements should be reviewed with the realization that they are for a sovereign entity (the United States Government), that liabilities not covered by budgetary resources reported in the financial statements cannot be liquidated without the enactment of an appropriation, and that the payment of all liabilities other than for contracts can be abrogated by the sovereign entity.

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