CDBG Financial Management Requirements

For Grant Administrators

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Financial Management - Objective

• The objective of this module is to provide local grant administrators with a basic understanding of the financial management requirements related to the CDBG program.

• Local grant administrators must be aware that, as a recipient of CDBG funds, their jurisdiction must be in compliance with these requirements in addition to any local or other state requirements.

Financial Management - Overview

• State CDBG Programs are required to have financial management standards or fiscal and administrative requirements as described in the CDBG program regulations at 24 CFR 570.489(d).

• Local CDBG recipients must comply with the standards established by the state.

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State Standards

The fiscal and administrative requirementsestablished by each state CDBG program must:• Show that uses of funds comply with all

applicable statutory and regulatory requirements;

• Document that all funds received have been spent only for reasonable and necessary costs of program operation; and

• Demonstrate that program funds have not been used for general expenses of State or local government. 4

State Standards

Insert state specific information related to whether or not the state has chosen to use Part 85.

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Financial Management Using Part 85

• Fiscal control and accounting procedures of local recipients must be sufficient to:– Permit preparation of reports required by statute

and regulation– Permit tracing of funds to establish that they have

not been used in violation of any statutory or regulatory restrictions

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Financial Management Using Part 85 - continued

• Financial management systems must meet the following standards:– Accurate, current and complete financial

reporting– Accounting records that identify the source and

application of funds– Effective internal controls and accountability for

all assets– Budget controls with actual expenditures

compared with budgeted amounts

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Financial Management Using Part 85 - continued

– Use of OMB cost principles (Circular A-87) in determining the reasonableness, allowability and allocability of costs

– Complete source documentation for all accounting records

– Effective cash management to maximize timeliness of spending

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Financial Management Using Part 85 - continued

• Internal control and accountability must be maintained for all cash, real/personal property, and other assets.

Internal Control

• Basic elements of internal control– organizational chart– written definition of duties– formal system of authorization and supervision– separation of duties– control over access to assets, blank forms, and

confidential documents– comparison of actual assets and liabilities to

financial records

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Determining Allowable Costs

• Local grant recipients must ensure that costs charged to the CDBG grant are allowable

• Recipients should use OMB Circular A-87 to guide their determination of allowable costs

• Standards for determining allowability apply equally to all cost items and apply whether a cost is direct or indirect

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Determining Allowable Costs - continued

• Allowable costs under CDBG, must:

– Be necessary and reasonable

– Be allocable according to the CDBG contract

– Be authorized or not prohibited under state/local laws and regulations

– Conform to limitations or exclusions (laws, terms, conditions of award, etc.)

– Be consistent with policies, regulations and procedures

Determining Allowable Costs – continued

Allowable costs must (continued):

– Be in accordance with Generally Accepted Government Auditing Standards (GAGAS)

– Be adequately documented

– Be treated consistently (with non-CDBG costs)

Determining Allowable Costs - continued

• In order to be allowable, costs must be necessary and reasonable to carry out the objectives of the grant

• Reasonable costs must be:– Generally recognized as ordinary and necessary– Related to requirements imposed by sound

business practices– Related to Federal and state laws and regulations– Related to the terms and conditions of the award

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Determining Allowable Costs - continued

• The individuals involved in implementing the activity must have carried out their responsibilities appropriately

• The award may have caused significant deviations from the established practices of the local recipient, which resulted in increased costs

• The local recipient must be able to document that they have paid market prices for goods and services

Determining Allowable Costs - continued

• OMB Circular A-87 includes a Listing of Selected Items of Cost (Attachment B)

• The specific cost items are described as “allowable” “generally allowable” or “unallowable”.

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Allowable CostsOMB A-87 Attachment B: Listing of selected Items of Cost

(unallowable costs red lettering)

1. Advertising and public relations costs 2. Advisory councils 3. Alcoholic beverages 4. Audit costs and related services 5. Bad debts 6. Bonding costs 7. Communication costs 8. Compensation for personal services 9. Contingency provisions 10. Defense and prosecution of criminal

and civil proceedings, and claims 11. Depreciation and use allowances 12. Donations and contributions 13. Employee morale, health, and welfare costs 14. Entertainment costs 15. Equipment and other capital expenditures 16. Fines and penalties 17. Fund raising and investment

management costs 18. Gains and losses on disposition of

depreciable property and other capital assets and substantial relocation of Federal programs

19. General government expenses 20. Goods or services for personal use 21. Idle facilities and idle capacity

22. Insurance and indemnification 23. Interest 24. Lobbying 25. Maintenance, operations, and repairs 26. Materials and supplies costs 27. Meetings and conferences 28. Memberships, subscriptions, and

professional activity costs 29. Patent costs 30. Plant and homeland security costs 31. Pre-award costs 32. Professional service costs 33. Proposal costs 34. Publication and printing costs 35. Rearrangement and alteration costs 36. Reconversion costs 37. Rental costs of building and equipment 38. Royalties and other costs for the use of

patents 39. Selling and marketing 40. Taxes 41. Termination costs applicable to sponsored

agreements 42. Training costs 43. Travel costs

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Unallowable Costs

• Unallowable Costs (per A-87, Attachment B)– Alcoholic Beverages– Bad Debts– Contingencies– Contributions & Donations– Defense and prosecution of criminal and civil

proceedings and claims– Entertainment– Fines and Penalties– Fund raising and investment management costs– General government expenses– Idle facilities and idle capacity– Lobbying

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Documentation

• All accounting records must be supported by source documentation…KEY!!!

• CDBG costs charged must be incurred during grant period

• Funds must be expended on allowable items• Expenditures must be approved by

responsible grantee official• Documentation must explain the basis of

costs incurred

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Budget Control

• Budget control as a management tool– control expenditures and compare to approved

operational budget

• Control and compare expenditures to approved budget by:– maintaining record of the amounts budgeted– recording unexpended and unobligated

balances– comparing actual against projected funds

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Cash Management

• Disbursements/payments

– Standard: the time elapsed for the transfer of funds and disbursement by the state and unit of local government grantee shall be minimal for payment methods and procedures used

Cash Management - continued

• Disbursement/payment methods− Reimbursements: payments made as a

reimbursement for costs already paid by grantee

− Cash advance: disbursements made to pay for expenses/costs invoiced or billed to grantee. These must be only for source documented costs

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Cash Management - continued

• Cash management: fund transfers must be in compliance, which includes:– Accurate information in the disbursement request– Compliance with the general standard---CDBG

funds are disbursed to pay for CDBG program costs within 3 business days of the receipt of funds

– Erroneously drawn funds must be returned in a timely manner

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Financial Reporting

• Financial reporting must be accurate and current and include complete disclosure of the financial results of funded activities in accordance with financial reporting requirements of the state

• At a minimum the reporting must include:– amount budgeted– disbursements to date– program income and other – actual expenditures/disbursements

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Pre-agreement Costs

• State CDBG program regulations at 24 CFR 570.489 (b) allow for reimbursement of costs incurred by a local CDBG recipient before the establishment of a formal grant relationship between the state and the unit of general local government

• State must have established procedures (which may include environmental requirements)

• Costs must be incurred for eligible activities

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Annual AuditRequirements

• Single Audit – OMB Circular A-133 requires entities that

expend $500,000 or more during a fiscal year* in federal awards (from all sources) have a Single Audit conducted for that fiscal year.

• Audits must be in accordance with Generally Accepted Government Auditing Standards (GAGAS) and OMB A-133

Annual Audit Requirementscontinued

• The State may determine when the audit is due

• Instructions– Include date of entity’s fiscal year end– List sources of all federal expenditures

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Annual AuditsKnowing the Rules

• Local Governments and Non-Profit Organizations receiving Federal Funds:– Single Audit Act and OMB Circular A-133 www.whitehouse.gov/omb/grants/grants

circulars.html

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Annual AuditRequirements

• Upon completion, the Grantee must:– Submit a copy of the Audit to the State– If there are no Audit Findings or questioned

costs, the grantee may provide written notification to the state that an audit was conducted in accordance with A-133

– Submit copies of Collection Form (SF-SAC) and/or Reporting Package to Federal Clearinghouse, and each federal awarding agency as appropriate

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Annual AuditRequirements

• The Grantee is responsible for follow-up and corrective action on all audit findings.

• Prepare a corrective action plan to address each audit finding including:

– name of person responsible– corrective action planned – anticipated completion date.

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Auditor Selection

• Must procure• Request for Proposal most appropriate• Should be CPA or licensed public

accountant• Must be experienced with Single Audits,

CDBG programs, and local government• Verify completion and timeliness of

previous audits • CDBG funds can pay for grant’s share of

Audit• Charge to General Administration

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Financial ManagementConclusion

• Local governments that receive CDBG funds must:– Comply with applicable Federal, state and local

laws, regulations, standards, and procedures– Conduct financial management methods and

procedures in accordance with Generally Accepted Government Auditing Standards (GAGAS)

• All financial management practices will be:– Monitored by the state CDBG program– Examined closely by auditors

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Conclusion - continued

• Local officials and grant administrators must be aware that all financial management practices will be:– Monitored by the state CDBG program– Examined closely by independent auditors

Make sure that your financialmanagement practices are sound!