Mitigate Common Audit Findings of the Community Development Block Grant

The objective of the Community Development Block Grant program is to provide affordable housing, suitable living environments, and expanding economic opportunities, mainly for persons of low and moderate income.

The U.S. Department of Housing and Urban Development (HUD) monitors recipient organization’s financial activity via its Integrated Disbursement and Information System (IDIS). However, non-financial activities are not as easy for HUD to monitor and are reviewed during HUD site visits or by the independent auditor as part of the organization’s single audit.

Learn more about common CDBG compliance findings to help equip your organization with the knowledge and tools to manage the program more effectively, meet compliance, and enhance grant impact.

Inadequate subrecipient monitoring

A CDBG subrecipient is a nonprofit organization receiving CDBG funds from a nonfederal entity to undertake program responsibilities.

Subrecipient monitoring is not a direct and material compliance requirement for the single audit; therefore, it’s not subject to audit by an independent auditor. The subrecipient may make program decisions and be responsible for state and federal requirements and regulations.

The recipient organization is responsible for developing, implementing, and maintaining an effective management tool for monitoring subrecipients to verify:

• All regulations governing the administrative, financial, and programmatic operations are in compliance
• Performance objectives are achieved as identified in the subrecipient agreement and program budget

Failing to meet performance objectives while maintaining program compliance may reflect a risky program strategy, lack of planning, or ineffective use of CDBG resources.

Conversely, the program may achieve all performance objectives but still be noncompliant with federal or state requirements — potentially causing risk of sanctions from HUD, disallowed costs, or debarment from receiving federal funding.

What you can do

Establish written policies and procedures for subrecipient monitoring and conduct a risk assessment of all subrecipients to prioritize monitoring efforts. Keep thorough documentation of all monitoring activities, communications, and findings, and promptly address any issues or findings identified during monitoring.

Federal Funding Accountability and Transparency Act (FFATA) reporting

Grant recipients awarded a federal grant are required to file a FFATA subrecipient award report by the end of the month following the month in which the prime awardee awards any subaward grant equal to or greater than $30,000.

This requirement can be tricky, because subrecipient monitoring is not a direct and material federal compliance requirement. However, the CDBG program is subject to reporting requirements that includes FFATA reporting. Historically, grantees have often overlooked this requirement; however, HUD has provided guidance related to the compliance requirement and the reporting process.

What you can do

Develop and implement internal controls specifically aimed at timely, accurate, and complete reporting of federal awards and subawards. Conduct regular training sessions for staff involved in federal award management to keep them informed of FFATA requirements and updates. Learn more strategies to improve FFATA reporting in this recent article.

Noncompliance with rehabilitation requirements

CDBG-supported rehabilitation projects must be inspected to confirm the work is properly completed. This requires the grantee to perform a pre-rehabilitation inspection to identify deficiencies and a post-rehabilitation inspection to determine if the deficiencies were corrected as outlined in the rehabilitation contract.

Grantees often lack documentation to support performance of either the pre- or post-rehabilitation inspection. As a result, CDBG supported costs may be questioned and required to be returned to the grantor.

What you can do

Maintain thorough records of all project activities, expenditures, and compliance efforts. This includes contracts, financial records, and reports. You may also choose to engage with the community to be sure the project meets local needs and complies with public participation requirements. Seek advice from compliance professionals or legal counsel to navigate complex regulations and verify all aspects of the project meet CDBG standards.

Noncompliance with wage rate requirements

Wage rate requirements apply to HUD programs by statutory provisions in the Davis-Bacon Act — which mandates that laborers and mechanics be paid federal prevailing wage rates. Specific CDBG rehabilitation programs may be subject to this compliance requirement.

The grantee may be inaccurate in their assessment of the project’s exemption status or may not document the review of contractors’ wage reports.

What you can do

Include the appropriate labor standards clauses in all contracts and subcontracts and collect and review weekly certified payroll reports from contractors and subcontractors. Conduct on-site worker interviews to verify the wages reported on payrolls match what workers are actually receiving, and maintain thorough documentation of all compliance activities.

How CLA can help with CDBG compliance

Our team of professionals can help your organization identify federal and state program requirements and develop procedures to help mitigate the risk of noncompliance.

Contact us

Knowing common CDBG pitfalls can help with planning and executing projects more efficiently — and support effective use of funds to achieve intended outcomes. Complete the form below to connect with CLA.