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 additionto 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. 9

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 11

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)

14. 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

16. 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”.

17. 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 • Goods or services for personal use • Idle facilities and idle capacity • 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 • Termination costs applicable to sponsored agreements • Training costs • Travel costs

18. 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

19. 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

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

21. 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

22. Cash Management - continued • Disbursement/payment methods • Reimbursements: payments made as a reimbursement for costs already paid by grantee • Cash advance: disbursements made topayfor expenses/costs invoiced or billed to grantee. These must be only for source documented costs

23. 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

25. 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

26. 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

27. 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

28. Annual AuditsKnowing the Rules Local Governments and Non-Profit Organizationsreceiving Federal Funds: Single Audit Act and OMB Circular A-133 www.whitehouse.gov/omb/grants/grants circulars.html

29. 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

30. 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.

31. 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

32. 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

33. 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!