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CDBG Financial ManagementFor Local Officials

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Financial Management - Objective

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

• Local officials 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

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Objective - continued

• Local officials are ultimately responsible for the accuracy and adequacy of records and reports related to management of the CDBG funds their jurisdiction has received

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Financial Management - Overview

• State CDBG Programs are required to have financial management standards or fiscal and administrative requirements as described in the 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 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

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

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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 of state and local CDBG recipients 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

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Financial Management Using Part 85 - continued

– Budget controls with actual expenditures compared with budgeted amounts

– 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

• Allowable cost– determine if costs are reasonable, allowable, and

allocated appropriately (to the grant)– Follow OMB Circular A-87

• Cost is allowable under CDBG if it is:– necessary, reasonable, directly related to the grant– authorized by the grantee– not prohibited under Federal, state or local laws– consistently treated

• An expense may be claimed only once

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OMB Circular A-87OMB A-87 Attachment B: (Unallowable) Listing of selected Items of Cost

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.

Allowable Costs

• Advertising• Audits• Bonding• Insurance• Meetings• Professional Services• Publications and Printing• Training• Travel

Unallowable Costs

• Alcoholic Beverages• Bad debts• Contingency provisions • Defense and prosecution of criminal and civil

proceedings• Fund raising• General government expenses• Lobbying• Fines and penalties

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Pre-agreement Costs

• State CDBG program regulations allow for reimbursement of costs incurred 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 audit must be submitted

•  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 no Audit Findings or questioned costs,

grantee may provide written notification to the state that 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.

• The Grantee must prepare a corrective action plan to address each audit finding. Plan must include:

– Name of person responsible– Corrective action planned– Anticipated completion date

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Auditor Selection

• Must be selected through procurement• 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 procedures in

accordance with Generally Accepted Government Auditing Standards (GAGAS)

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Conclusion - continued

• Local officials 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!