Module 11: Financial Management

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Module 11: Financial Management

  1. 1. CDBG Financial Management Requirements For Grant Administrators
  2. 2. Financial Management - Objective <ul><li>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. </li></ul><ul><li>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. </li></ul>
  3. 3. Financial Management - Overview <ul><li>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). </li></ul><ul><li>Local CDBG recipients must comply with the standards established by the state. </li></ul>
  4. 4. State Standards <ul><li>The fiscal and administrative requirements </li></ul><ul><li>established by each state CDBG program </li></ul><ul><li>must: </li></ul><ul><li>Show that uses of funds comply with all applicable statutory and regulatory requirements; </li></ul><ul><li>Document that all funds received have been spent only for reasonable and necessary costs of program operation; and </li></ul><ul><li>Demonstrate that program funds have not been used for general expenses of State or local government. </li></ul>
  5. 5. State Standards <ul><li>Insert state specific information related to whether or not the state has chosen to use Part 85. </li></ul>
  6. 6. Financial Management Using Part 85 <ul><li>Fiscal control and accounting procedures of local recipients must be sufficient to: </li></ul><ul><ul><li>Permit preparation of reports required by statute and regulation </li></ul></ul><ul><ul><li>Permit tracing of funds to establish that they have not been used in violation of any statutory or regulatory restrictions </li></ul></ul>
  7. 7. Financial Management Using Part 85 - continued <ul><li>Financial management systems must meet the following standards: </li></ul><ul><ul><li>Accurate, current and complete financial reporting </li></ul></ul><ul><ul><li>Accounting records that identify the source and application of funds </li></ul></ul><ul><ul><li>Effective internal controls and accountability for all assets </li></ul></ul><ul><ul><li>Budget controls with actual expenditures compared with budgeted amounts </li></ul></ul>
  8. 8. Financial Management Using Part 85 - continued <ul><ul><li>Use of OMB cost principles (Circular A-87) in determining the reasonableness, allowability and allocability of costs </li></ul></ul><ul><ul><li>Complete source documentation for all accounting records </li></ul></ul><ul><ul><li>Effective cash management to maximize timeliness of spending </li></ul></ul>
  9. 9. Financial Management Using Part 85 - continued <ul><li>Internal control and accountability must be maintained for all cash, real/personal property, and other assets. </li></ul>
  10. 10. Internal Control <ul><li>Basic elements of internal control </li></ul><ul><ul><li>organizational chart </li></ul></ul><ul><ul><li>written definition of duties </li></ul></ul><ul><ul><li>formal system of authorization and supervision </li></ul></ul><ul><ul><li>separation of duties </li></ul></ul><ul><ul><li>control over access to assets, blank forms, and confidential documents </li></ul></ul><ul><ul><li>comparison of actual assets and liabilities to financial records </li></ul></ul>
  11. 11. Determining Allowable Costs <ul><li>Local grant recipients must ensure that costs charged to the CDBG grant are allowable </li></ul><ul><li>Recipients should use OMB Circular A-87 to guide their determination of allowable costs </li></ul><ul><li>Standards for determining allowability apply equally to all cost items and apply whether a cost is direct or indirect </li></ul>
  12. 12. Determining Allowable Costs - continued <ul><li>Allowable costs under CDBG, must: </li></ul><ul><ul><li>Be necessary and reasonable </li></ul></ul><ul><ul><li>Be allocable according to the CDBG contract </li></ul></ul><ul><ul><li>Be authorized or not prohibited under state/local laws and regulations </li></ul></ul><ul><ul><li>Conform to limitations or exclusions (laws, terms, conditions of award, etc.) </li></ul></ul><ul><ul><li>Be consistent with policies, regulations and procedures </li></ul></ul>
  13. 13. Determining Allowable Costs – continued <ul><ul><li>Allowable costs must (continued): </li></ul></ul><ul><ul><li>Be in accordance with Generally Accepted Government Auditing Standards (GAGAS) </li></ul></ul><ul><ul><li>Be adequately documented </li></ul></ul><ul><ul><li>Be treated consistently (with non-CDBG costs) </li></ul></ul>
  14. 14. Determining Allowable Costs - continued <ul><li>In order to be allowable, costs must be necessary and reasonable to carry out the objectives of the grant </li></ul><ul><li>Reasonable costs must be: </li></ul><ul><ul><li>Generally recognized as ordinary and necessary </li></ul></ul><ul><ul><li>Related to requirements imposed by sound business practices </li></ul></ul><ul><ul><li>Related to Federal and state laws and regulations </li></ul></ul><ul><ul><li>Related to the terms and conditions of the award </li></ul></ul>
  15. 15. Determining Allowable Costs - continued <ul><li>The individuals involved in implementing the activity must have carried out their responsibilities appropriately </li></ul><ul><li>The award may have caused significant deviations from the established practices of the local recipient, which resulted in increased costs </li></ul><ul><li>The local recipient must be able to document that they have paid market prices for goods and services </li></ul>
  16. 16. Determining Allowable Costs - continued <ul><li>OMB Circular A-87 includes a Listing of Selected Items of Cost (Attachment B) </li></ul><ul><li>The specific cost items are described as “allowable” “generally allowable” or “unallowable”. </li></ul>
  17. 17. Allowable Costs OMB A-87 Attachment B: Listing of selected Items of Cost (unallowable costs red lettering) <ul><li>Advertising and public relations costs </li></ul><ul><li>Advisory councils </li></ul><ul><li>Alcoholic beverages </li></ul><ul><li>Audit costs and related services </li></ul><ul><li>Bad debts </li></ul><ul><li>Bonding costs </li></ul><ul><li>Communication costs </li></ul><ul><li>Compensation for personal services </li></ul><ul><li>Contingency provisions </li></ul><ul><li>Defense and prosecution of criminal and civil proceedings, and claims </li></ul><ul><li>Depreciation and use allowances </li></ul><ul><li>Donations and contributions </li></ul><ul><li>Employee morale, health, and welfare costs </li></ul><ul><li>Entertainment costs </li></ul><ul><li>Equipment and other capital expenditures </li></ul><ul><li>Fines and penalties </li></ul><ul><li>Fund raising and investment management costs </li></ul><ul><li>Gains and losses on disposition of depreciable property and other capital assets and substantial relocation of Federal programs </li></ul><ul><li>General government expenses </li></ul><ul><li>Goods or services for personal use </li></ul><ul><li>Idle facilities and idle capacity </li></ul><ul><li>Insurance and indemnification </li></ul><ul><li>Interest </li></ul><ul><li>Lobbying </li></ul><ul><li>Maintenance, operations, and repairs </li></ul><ul><li>Materials and supplies costs </li></ul><ul><li>Meetings and conferences </li></ul><ul><li>Memberships, subscriptions, and professional activity costs </li></ul><ul><li>Patent costs </li></ul><ul><li>Plant and homeland security costs </li></ul><ul><li>Pre-award costs </li></ul><ul><li>Professional service costs </li></ul><ul><li>Proposal costs </li></ul><ul><li>Publication and printing costs </li></ul><ul><li>Rearrangement and alteration costs </li></ul><ul><li>Reconversion costs </li></ul><ul><li>Rental costs of building and equipment </li></ul><ul><li>Royalties and other costs for the use of patents </li></ul><ul><li>Selling and marketing </li></ul><ul><li>Taxes </li></ul><ul><li>Termination costs applicable to sponsored agreements </li></ul><ul><li>Training costs </li></ul><ul><li>Travel costs </li></ul>
  18. 18. Unallowable Costs <ul><li>Unallowable Costs (per A-87, Attachment B) </li></ul><ul><ul><li>Alcoholic Beverages </li></ul></ul><ul><ul><li>Bad Debts </li></ul></ul><ul><ul><li>Contingencies </li></ul></ul><ul><ul><li>Contributions & Donations </li></ul></ul><ul><ul><li>Defense and prosecution of criminal and civil proceedings and claims </li></ul></ul><ul><ul><li>Entertainment </li></ul></ul><ul><ul><li>Fines and Penalties </li></ul></ul><ul><ul><li>Fund raising and investment management costs </li></ul></ul><ul><ul><li>General government expenses </li></ul></ul><ul><ul><li>Idle facilities and idle capacity </li></ul></ul><ul><ul><li>Lobbying </li></ul></ul>
  19. 19. Documentation <ul><li>All accounting records must be supported by source documentation… KEY!!! </li></ul><ul><li>CDBG costs charged must be incurred during grant period </li></ul><ul><li>Funds must be expended on allowable items </li></ul><ul><li>Expenditures must be approved by responsible grantee official </li></ul><ul><li>Documentation must explain the basis of costs incurred </li></ul>
  20. 20. Budget Control <ul><li>Budget control as a management tool </li></ul><ul><ul><li>control expenditures and compare to approved operational budget </li></ul></ul><ul><li>Control and compare expenditures to approved budget by: </li></ul><ul><ul><li>maintaining record of the amounts budgeted </li></ul></ul><ul><ul><li>recording unexpended and unobligated balances </li></ul></ul><ul><ul><li>comparing actual against projected funds </li></ul></ul>
  21. 21. Cash Management <ul><li>Disbursements/payments </li></ul><ul><ul><li>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 </li></ul></ul>
  22. 22. Cash Management - continued <ul><ul><li>Disbursement/payment methods </li></ul></ul><ul><ul><ul><li>Reimbursements: payments made as a reimbursement for costs already paid by grantee </li></ul></ul></ul><ul><ul><ul><li>Cash advance: disbursements made to pay for expenses/costs invoiced or billed to grantee. These must be only for source documented costs </li></ul></ul></ul>
  23. 23. Cash Management - continued <ul><li>Cash management: fund transfers must be in compliance, which includes: </li></ul><ul><ul><li>Accurate information in the disbursement request </li></ul></ul><ul><ul><li>Compliance with the general standard---CDBG funds are disbursed to pay for CDBG program costs within 3 business days of the receipt of funds </li></ul></ul><ul><ul><li>Erroneously drawn funds must be returned in a timely manner </li></ul></ul>
  24. 24. Financial Reporting <ul><li>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 </li></ul><ul><li>At a minimum the reporting must include: </li></ul><ul><ul><li>amount budgeted </li></ul></ul><ul><ul><li>disbursements to date </li></ul></ul><ul><ul><li>program income and other </li></ul></ul><ul><ul><li>actual expenditures/disbursements </li></ul></ul>
  25. 25. Pre-agreement Costs <ul><li>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 </li></ul><ul><li>State must have established procedures (which may include environmental requirements) </li></ul><ul><li>Costs must be incurred for eligible activities </li></ul>
  26. 26. Annual Audit Requirements <ul><li>Single Audit </li></ul><ul><ul><li>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. </li></ul></ul><ul><li>Audits must be in accordance with Generally Accepted Government Auditing Standards (GAGAS) and OMB A-133 </li></ul>
  27. 27. Annual Audit Requirements continued <ul><li>The State may determine when the audit is due </li></ul><ul><li>Instructions </li></ul><ul><ul><li>Include date of entity’s fiscal year end </li></ul></ul><ul><ul><li>List sources of all federal expenditures </li></ul></ul>
  28. 28. Annual Audits Knowing the Rules <ul><li>Local Governments and Non-Profit Organizations receiving Federal Funds: </li></ul><ul><ul><li>Single Audit Act and OMB Circular A-133 </li></ul></ul><ul><ul><li>www.whitehouse.gov/omb/grants/grants </li></ul></ul><ul><ul><ul><li>circulars.html </li></ul></ul></ul>
  29. 29. Annual Audit Requirements <ul><li>Upon completion, the Grantee must: </li></ul><ul><ul><li>Submit a copy of the Audit to the State </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Submit copies of Collection Form (SF-SAC) and/or Reporting Package to Federal Clearinghouse, and each federal awarding agency as appropriate </li></ul></ul>
  30. 30. Annual Audit Requirements <ul><li>The Grantee is responsible for follow-up and corrective action on all audit findings. </li></ul><ul><li>Prepare a corrective action plan to address each audit finding including: </li></ul><ul><ul><li>name of person responsible </li></ul></ul><ul><ul><li>corrective action planned </li></ul></ul><ul><ul><li>anticipated completion date. </li></ul></ul>
  31. 31. Auditor Selection <ul><li>Must procure </li></ul><ul><li>Request for Proposal most appropriate </li></ul><ul><li>Should be CPA or licensed public accountant </li></ul><ul><li>Must be experienced with Single Audits, CDBG programs, and local government </li></ul><ul><li>Verify completion and timeliness of previous audits </li></ul><ul><li>CDBG funds can pay for grant’s share of Audit </li></ul><ul><li>Charge to General Administration </li></ul>
  32. 32. Financial Management Conclusion <ul><li>Local governments that receive CDBG funds must: </li></ul><ul><ul><li>Comply with applicable Federal, state and local laws, regulations, standards, and procedures </li></ul></ul><ul><ul><li>Conduct financial management methods and procedures in accordance with Generally Accepted Government Auditing Standards (GAGAS) </li></ul></ul><ul><li>All financial management practices will be: </li></ul><ul><ul><li>Monitored by the state CDBG program </li></ul></ul><ul><ul><li>Examined closely by auditors </li></ul></ul>
  33. 33. Conclusion - continued <ul><li>Local officials and grant administrators must be aware that all financial management practices will be: </li></ul><ul><ul><li>Monitored by the state CDBG program </li></ul></ul><ul><ul><li>Examined closely by independent auditors </li></ul></ul><ul><ul><li>Make sure that your financial </li></ul></ul><ul><ul><li>management practices are sound! </li></ul></ul>

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