CDBG Financial Management
For 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
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local government
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
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Internal Control
• Basic elements of internal control
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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
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:
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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-87
OMB A-87 Attachment B: (Unallowable) Listing of selected Items of Cost
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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
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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.
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Allowable Costs
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Advertising
Audits
Bonding
Insurance
Meetings
Professional Services
Publications and Printing
Training
Travel
Unallowable Costs
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Alcoholic Beverages
Bad debts
Contingency provisions
Defense and prosecution of criminal and civil
proceedings
Fund raising
General government expenses
Lobbying
Fines and penalties
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 Audit
Requirements
• 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 Requirements
continued
• The State may determine when audit must
be submitted
• Instructions
– Include date of entity’s fiscal year end
– List sources of all federal expenditures
Annual Audits
Knowing 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 Audit
Requirements
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Upon completion, the Grantee must:
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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 Audit
Requirements
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The Grantee is responsible for followup and corrective action on all audit
findings.
The Grantee must prepare a
corrective action plan to address each
audit finding. Plan must include:
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Name of person responsible
Corrective action planned
Anticipated completion date
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Auditor Selection
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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 Management
Conclusion
• 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 financial
management practices are sound!
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