CDBG Financial Management Requirements

1
CDBG Financial Management Requirements

• For Grant Administrators

2
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.

2
3
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.

4
State Standards

• The fiscal and administrative requirements
• established 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.

5
State Standards

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

6
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

7
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

8
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

9
Financial Management Using Part 85 - continued

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

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10
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

11
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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12
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

12
13
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)

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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

15
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

15
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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)

• Advertising and public relations costs
• Advisory councils
• Alcoholic beverages
• Audit costs and related services
• Bad debts
• Bonding costs
• Communication costs
• Compensation for personal services
• Contingency provisions
• Defense and prosecution of criminal and civil
  proceedings, and claims
• Depreciation and use allowances
• Donations and contributions
• Employee morale, health, and welfare costs
• Entertainment costs
• Equipment and other capital expenditures
• Fines and penalties
• Fund raising and investment management costs
• Gains and losses on disposition of depreciable
  property and other capital assets and substantial
  relocation of Federal programs
• General government expenses

• Insurance and indemnification
• Interest
• Lobbying
• Maintenance, operations, and repairs
• Materials and supplies costs
• Meetings and conferences
• Memberships, subscriptions, and professional
  activity costs
• Patent costs
• Plant and homeland security costs
• Pre-award costs
• Professional service costs
• Proposal costs
• Publication and printing costs
• Rearrangement and alteration costs
• Reconversion costs
• Rental costs of building and equipment
• Royalties and other costs for the use of patents
• Selling and marketing
• Taxes

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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 documentationKEY!!!
• 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

20
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

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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

24
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

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Annual Audit Requirementscontinued

• The State may determine when the audit is due
• Instructions
• Include date of entitys 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 grants 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 financial
• management practices are sound!