APRIL 2009 14.228 State Project/Program: Federal Authorization: State Authorization: COMMUNITY DEVELOPMENT BLOCK GRANTS/STATE S PROGRAM NORTH CAROLINA SMALL CITIES CDBG AND NEIGHBORHOOD STABILIZATION PROGRAM U. S. Housing and Urban Development 24 CFR 570; 2301 2304 of the Housing and Economic Recovery Act of 2008 (Public Law 110-289 (July 30, 2008)) (HERA); The Notice of Allocations, Application Procedures, Regulatory Waivers Granted to and Alternative Requirements for Redevelopment of Abandoned and Foreclosed Homes Under the Housing and Economic Recovery Act, 2008 published at 73 FR 58330 (October 6, 2008) (Notice) 4 NCAC 19L North Carolina Department of Commerce Division of Community Assistance Agency Contact Person Program Ms. Vickie Miller, Assistant Director Email: vmiller@nccommerce.com (919) 733-2850 Financial Mrs. Toni Moore, Finance Officer (919) 733-2850 Address Confirmation Letters To Ms. Vanessa Blanchard, Section Chief Division of Community Assistance 4313 Mail Service Center Raleigh, North Carolina 27699-4313 (919) 733-2850 The auditor should not consider the Supplement to be safe harbor for identifying audit procedures to apply in a particular engagement, but the auditor should be prepared to justify departures from the suggested procedures. The auditor can consider the supplement a safe harbor for identification of compliance requirements to be tested if the auditor performs reasonable procedures to ensure that the requirements in the Supplement are current. The grantor agency may elect to review audit working papers to determine that audit tests are adequate. Auditors may request documentation of monitoring visits by the State Agencies. I. PROGRAM OBJECTIVES The primary objective of the State Community Development Block Grant (CDBG) is the development of viable communities by providing decent housing and a suitable living environment and expanded economic opportunities, principally for persons of low- and moderate-income. This is to be achieved in two ways. First, funds can only be used to assist eligible activities that fulfill one or more of the following three national objectives; (1) benefiting low and moderate income persons (2) aid in the prevention or elimination of slums or blight; and (3) meet other community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community and other financial resources are not available to meet such needs. Second, the grantee must spend at least 70 percent B-4 14.228 1
APRIL 2009 of its funds over a period of up to 3 years specified by the grantee in its certification, for activities that address the national objective of benefiting low and moderate-income persons. The national objective for the Neighborhood Stabilization Program (NSP) is that; (1) all funds serve persons up to 120% of applicable area median income and (2) at least 25% of all funds must assist those at or below 50% of applicable area median income. II. PROGRAM PROCEDURES Funds are provided, according to a statutory formula, to those States, that elect to administer the CDBG non-entitlement funds. The States, in turn, distribute the funds to small units of general local government that do not qualify for entitlement grants. The small units of local government must submit an application requesting CDBG funds, which are awarded to local government through a competitive and non-competitive application process. Each competitive application submitted is reviewed, rated and ranked accordingly to the information contained in the application. Once the applications have been reviewed, rated and ranked, the Division of Community Assistance (DCA) makes grant awards beginning with the highest ranked application to the lowest rank application until all CDBG funds have been awarded. Each non-competitive application submitted is reviewed and rated accordingly to the information contained in the application. Once the applications have been reviewed, the Division of Community Assistance (DCA) makes grant awards based on requirements of the application. The local government is given a grant agreement and funding approval signed by the Director of DCA. Once the local government signs the grant agreement and funding approval and DCA receives the grant agreement and funding approval, the local government will be referred to as a grantee. The grantee may at this time expend administrative funds of the award that they have received. No program funds may be expended by the grantee, until all of the conditions on the grantee s funding approval and the Request for Release of Funds have been released in writing by DCA. After releasing all conditions and funds, the grantee may now expend all funds for the eligible CDBG activities listed in the grantee s application. The grantee will procure services to administer the grant or administer the grant themselves. The grantee, through the activities contained in the application will begin utilizing the funds to help the citizens of the target area, designated in the application. The grantee must submit an Annual Performance Report, Quarterly Progress Reports and an Annual Audit, done in compliance with OMB A-133 (if the grantee expended at least $25,000 of CDBG funds in that fiscal year) to DCA. Although the federal requirement is $500,000, the North Carolina Small Cities CDBG program requires an audit of CDBG funds if a grantee expends $25,000 or more in a fiscal year. No federal funds may be used to pay for the audit, unless the grantee expended federal funds totaling $500,000 or more in that fiscal year. However, DCA will allow the grantee to pay for the CDBG portion of the audit with local contributions when less than $500,000 of total federal funds has not been expended. The grantee is provided technical assistance, to help with any areas of the operations of the grant. Monitoring for compliance is also conducted by DCA staff to ensure that the grantee is operating the program according to the federal and state rules and regulations. All grants will be administered under the North Carolina Administrative Code (4 NCAC 19L), which is the state s Program Regulations that are approved by the General Assembly. Each grantee has a copy of 4 NCAC 19L. It is located on the internet at (http://www.ncoah.com/ncac) or a copy may be requested from DCA, 4313 Mail Service Center, Raleigh, North Carolina 27699, (919) 733-2850. B-4 14.228 2
III. COMPLIANCE REQUIREMENTS The federal granting agency has issued a compliance supplement that should be used in conjunction to this compliance supplement issued by the State Agency. Please refer to OMB Circular A-133 Compliant Supplement (Sect. A of the State Compliance Supplement). A. Activities Allowed or Unallowed Eligible activities are those described in the Housing and Community Development Act of 1974 as amended (the Act), including subsequent amendments and editions, under Section 105 (a), Eligible Activities, and in 24 CFR 570.482. (See Program Regulations 4 NCAC 19L Eligible Activities.0301). Each activity to be undertaken by a grantee must address a national objective specified in the Act. Activities that do not benefit low and moderate-income persons must qualify as an activity, which meets the national objective of preventing or eliminating slums or blight or urgent needs. To qualify to meet the objective of benefit to low and moderate-income persons, at least 51% of the CDBG funds used for an activity must benefit low and moderate-income (LMI) persons to meet federal requirements. There are some higher LMI requirements, depending on CDBG Program Category, per the application guidelines. Funds may be awarded only for the following activities: (1) the acquisition of real property; (2) the acquisition, construction, or installation of public works, facilities and site, or other improvements; (3) code enforcement in deteriorated or deteriorating areas; (4) clearance, demolition, removal, and rehabilitation of buildings and improvements; (5) special projects for removal of material and architectural barriers that restrict accessibility, by elderly and handicapped individuals; (6) payments to housing owners for losses of rental income incurred for temporarily holding housing for the relocated; (7) disposition of real property acquired under this program; (8) provision of public services (subject to limitations contained in regulations and to certain HUD determinations); (9) payment of the non-federal share for a grant program that is part of the assisted activities; (10) payment to complete a Title 1 Federal Urban Renewal project; (11) relocation assistance; (12) planning activities; (13) administrative costs; (14) activities, such as acquisition, construction, rehabilitation, or installation which are carried out by public or private nonprofit entities; (15) grants to neighborhood-based nonprofit organizations and the like for neighborhood revitalization; (16) activities necessary to the development of a comprehensive community wide strategy related to energy use; (17) provision of assistance to private, for-profit entities, when the assistance is necessary or appropriate to carry out an economic development project; (18) the rehabilitation or development of housing assisted under Section 17 of the United States Housing Act of 1937; (19) substantial rehabilitation of housing owned and occupied by low- and moderate-income persons (subject to certain HUD determinations) (24 CFR 570.200-207; 42 USC 5305); (20) provision of technical assistance to public or nonprofit entities to increase the capacity of such entities to carry out eligible neighborhood revitalization or economic development activities; (21) housing services; (22) provision of assistance by recipients under this title to institutions of higher education having a demonstrated capacity to carry out eligible activities under this subsection for carrying out such activities; (23) provision of assistance to public and private organizations, agencies, and other entities to enable such entities to facilitate economic development; (24) activities necessary to make essential repairs and to pay operating expenses necessary to maintain the habitability of housing units acquired through tax foreclosure proceedings; (25) provision of direct assistance to facilitate and expand home ownership among person of low and moderate income. B-4 14.228 3
B. Allowable Costs/Cost Principles Grantee shall comply with the Office of Management and Budget circular A-87, entitled Cost Principles for state and local government, which is incorporated in these rules and reference including subsequent amendments and editions. (See Program Regulations 4 NCAC 19L Financial Management Systems.0906 (13)). A copy of the circular A-87 is available from the Division of Community Assistance, Raleigh, North Carolina and the grantee also has a copy in their Division of Community Assistance Implementation Notebook. In applying OMB A-87 the term Federal Agency means Department. C. Cash Management The grantee Financial Management System shall provide for accurate, current and complete disclosure of the financial results of each grant program in accordance with fiscal control and reporting requirements set forth in G.S. 159, Article III the local Government Budget and Fiscal Control Act. Grantees shall meet the following requirements: All grant funds shall be expended in accordance with a project ordinance or budget ordinance adopted under G.S. 159-8 and G.S. 159-13.2. Grantee may deposit or invest all or part of the cash balance of any grant fund; however all interest earned shall be returned to the Division of Community Assistance. The grantee must designate a bank for its official depositories in order for DCA to deposit funds electronically. All CDBG funds must be disbursed by the grantee within three (3) banking days upon receipt of the CDBG funds. All budgetary accounting for appropriations of grant funds shall be in accordance with the procedures for incurring obligations and disbursement as set forth in G.S. 159-28. Each grantee must establish an accounting system in accordance with G.S. 159-26. Grantee finance officer and each officer, employee, or agent who handles or has in his custody more than one hundred dollars of grant funds at any one time, or who handles or has access to the recipient s inventories, shall be bonded in accordance with G.S. 159-29. Grantee shall maintain records that identify adequately the source and application of funds for grant supported activities. These records shall contain information pertaining to federal awards and authorizations, obligations, unobligated balances assets, liabilities, outlays and income. Grantee cash receipts must be deposited with, or to the credit of, the finance officer. This includes program revenues, reimbursements for travel, vendor payments or previously recorded as expenditures, and all other grant monies from the Division of Community of Assistance. Grantee must develop a systematic method to assure timely and appropriate resolution of audit findings and recommendations. (See Program Regulations 4 NCAC 19L.0906). Verify daily cash balance to determine if subgrantee had excess cash on hand. Verify the project authorization matches the budget or project ordinance. Verify whether the grantee followed procedures to disburse CDBG funds within 3 banking days within receipt of funds. Verify the employee(s) or agency that handles $100 or more in grant funds are bonded. D. Davis-Bacon Act B-4 14.228 4
This act requires that prevailing local wage levels be paid to laborers and mechanics employed on construction work assisted with CDBG funds in excess of $2,000, excluding housing rehabilitation with less than 8 units under common ownership. (See Program Regulations 4 NCAC 19L Labor Standards.1006 (a) (1)). E. Eligibility The local unit of government should have a survey form and income documentation on file to verify eligibility of CDBG recipients. Low-moderate income (LMI) data is located on HUD Website (www.huduser.org/datasets/il.html) by county. Also a copy of income data may be requested from DCA, 4313 Mail Service Center, Raleigh, North Carolina 27699. Verify income documentation to ensure the recipient(s) served meets the criteria for low-moderate income. F. Equipment and Real Property Management In accordance with Program Regulations 4 NCAC 19L Property Management Standards.0909, grantees must account for the use and disposition of all property acquired with CDBG funds. Nonexpendable personal property with a unit acquisition cost of less that one thousand dollars ($1,000) may be retained by the grantee for other programs or sold by the grantee without reimbursement to the program budget. Nonexpendable personal property with a unit acquisition cost of one thousand dollars ($1,000) or more may be retained by the grantee for other uses provided that compensation is made as program income. Test purchases of equipment of $1,000.00 value or more to determine if they were bought with CDBG funds. If CDBG funds were used, determine if use of equipment benefited the program. Test all sales of surplus property to determine if any items were purchased with CDBG funds. If so, trace income generated from sale to assure that receipts were treated as program income for the CDBG program. G. Matching, Level of Effort, Earmarking Matching There are some instances where the local unit of government pledges a sum of funds, which is included in their application. The grantee is obligated to contribute 100 percent of its pledged cash contribution to the CDBG project even if the project experiences a savings after authorized activities are completed. Any project savings accrue to the CDBG program. The grantee must ensure that non-cdbg funds are expended along with CDBG funds, following the implementation schedule described in the approved application and modified by the Performance contract. (See Grant Agreement provisions 7 and 8, Project Savings and Expenditure of Non CDBG funds). B-4 14.228 5
Earmarking States must award at least 70 percent of their CDBG funds for activities that benefit low-moderateincome persons. These can be activities in which the majority of beneficiaries who benefit are low-and moderate-income or activities that benefit an area in which at least 51 percent are low-and moderateincome persons. Section 104(b)(3) of the Housing and Community Development Act defines the Criteria for Meeting National Objectives. The projected use of funds has been developed so as to give maximum feasible priority to activities which will benefit low-and moderate income families or aid in the prevention or elimination of slums or blight, and the projected use of funds may also include activities which the grantee certifies are designed to meet other community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community where other funds are not available to meet such needs. The income qualification LMI by county can be found at www.huduser.org/datasets/il.html or you can get a copy of the income by county from DCA. The activities listed in the grantee s application or program amendment should be in accordance with the activities that have taken place. (See Program Regulation 4 NCAC 19L Eligible Applicants.0105, and Size and Use of Grant Made to Recipients.0403). Also, no more than 18% of the total grant may be used for administration. Suggested Audit Procedures: Test to ensure at least 51% of the CDBG funds benefited low-moderate income persons or meet a national objective as specified in HUD regulations. Test to ensure that no more than 18% of the total grant funds are used for administration. Level of Effort N/A H. Period of Availability of Federal Funds Neither CDBG nor non-cdbg funds involved in a project may be obligated, nor may any conditioned project activities begin until the Division of Community Assistance releases in writing any and all applicable conditions on the project and the Request for Release of Funds has been released in writing. The conditions included in the grantee s funding approval are federal compliance regulations. In certain circumstances, special conditions maybe imposed by DCA. The grantee must submit documentation to DCA to release all conditions on the funding approval and documentation to release funds, prior to expending funds, except for administration funds. Grantees may incur costs prior to release of conditions and release of funds with prior Division approval in accordance with CDBG procurement standards (4 NCAC 19L.0908). The local units of government has thirty (30) months from the date the Director of the Division of Community Assistance signs the grant agreement to complete all grant activities unless otherwise specified in the Grant Agreement. Within ninety (90) days from the date of the Division Director signature, the local unit of government must release all conditions on the grant s funding approval to expend funds. If all conditions are not released prior to the end of the ninety (90) days period, funds will be deobligated from the local unit of government unless an extension has been granted by DCA to extend the release of conditions period. B-4 14.228 6
For most program categories, the local unit of government has twenty-seven (27) months in addition to the first three (3) months, totaling (30) months to complete all activities in the application unless otherwise specified in the Grant Agreement. All grant time frames can be found in the grant agreement, which the local unit of government has a copy on file for review. I. Procurement and Suspension and Debarment Grantees shall comply with the procurement standards established in the Administrative Requirements for Grants and Cooperative Agreement to State, Local and Federally Recognized Indian Tribal Governments (24 CFR. Part 85) and HUD implementing regulations contained in 24 CFR 570.489(g). These explicitly prohibit cost plus a percentage of cost and percentage of cost methods of contracting. HUD regulations at 24 CFR 570(h) prohibit conflict of interests, including subsequent amendments and editions. (See Program Regulations 4 NCAC 19L Procurement Standards.0908 and Conflict of Interest.0914) Grantee must have a system of procedures for procurement in accordance with Rule.0908 and Rule.0909 of the Financial Management Systems section of Program Regulations 4 NCAC.19L. Grantees shall verify contractor eligibility when Davis Bacon requirements are applicable in accordance with the List of parties Excluded from Federal Procurement and Nonprocurement Programs as issued by U.S. General Services Administration. Test to ensure grantee follows procurement standards as established in 24 CFR. Part 85, 24 CFR 570.489(g) and 24 CFR 570.489 (h). Verify with the U.S. General Services Administration that the contractor is not on the List of Parties who has been excluded from federal procurement and nonprocurement programs. J. Program Income Program income is defined as gross income received by a unit of local government or a sub recipient from the use of CDBG funds. These earnings may include, but not be limited to, sale of property, interest received from a loan program and the return of sales tax on purchases made during the program. All program income earned must be expended prior to Final Grant Closeout or returned to DCA unless prior approval has been received by DCA for use after closeout. A plan must be developed by the grantee in reference to how the program income will be expended. The plan must be submitted to DCA prior to grant closeout. Income from the use of CDBG funds received after closeout is not considered as Program Income, and may be expended as general fund monies unless it exceeds $25,000 during the fiscal year. Program Income generated by grants made in 1986 or afterward shall be returned to DCA except when: (1) the recipient shall propose at the time of application or at the time the program income is anticipated, a use or uses for the projected program income, and (2) the Department determines that, at the time of the proposal, the use of the projected program income meets federal requirements prohibiting the state from recapturing the program income; or (3) the recipient, designated at the time of the preliminary grant award as a severely distressed county pursuant to G.S. 105-130.40(c), or a city in such a county, wishes to retain the program income to establish a local economic development revolving loan fund. Any activities that are eligible under Title I of the federal Housing and Community Development Act of 1974, as amended, and that meet at least one of the three national B-4 14.228 7
objectives of the Housing and Community Development Act may be undertaken. If the designation, pursuant to G.S. 105-130.40(c), as a severely distressed county is removed from a county, projects having received at least a preliminary grant award prior to the removal of the designation may continue to retain program income resulting from the grant as provided in this subsection. Provision of 4 NCAC 19L.0913 apply at the time of closeout; or (4) the program income is generated from an Entrepreneurial Empowerment project, and the Department has approved the plan for re-use of program income. K. Real Property Acquisition and Relocation Assistance Grantees shall follow the requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA), Sections 104(d) and 106(d)(5)(A) of Title I of the Housing and Community Development Act of 1974 (the Act), as amended, and HUD Implementing regulations, 24 CFR 570.488 and 570.496(a), including subsequent amendments and editions. Optional Coverage Relocation Plans as permitted under section 105(a)(11) of the Act are to be approved by DCA. (See Program Regulations 4 NCAC 19L Acquisition and Relocation.1003) Property management shall be provided in accordance with Rule.0908 and Rule.0909 of the Financial Management Systems section of Program Regulation 4 NCAC 19L. L. Reporting Grantees shall submit an Annual Performance Report at the close of each calendar year concurrently with the annual audit of the program (audit submitted each year when $25,000 or more in CDBG assistance is received). A performance report may also be required of the recipient prior to the grant closeout. (See Program Regulations 4 NCAC 19L Reporting.1101 and Grant Closeout.0913). M. Subrecipient Monitoring The grantee of CDBG monies does not sub-grant these monies; therefore no testing is required by the local CPA. N. Special Tests and Provisions Compliance Requirement: At the time of project closeout, the grantee shall ensure that low and moderate-income families occupy vacant units rehabilitated with CDBG funds. See 24 CFR 570.483. The auditor should verify that a low or moderate- income family occupies any vacant unit rehabilitated by the grantee by the time of project closeout. Compliance Requirements: Low and moderate income beneficiaries must be connected to the water and/or sewer lines to meet the benefit test by the time of project closeout. See 24 CFR 570.483. B-4 14.228 8
The auditor should verify that low and moderate income beneficiaries were connected to the water and/or sewer lines, meeting the benefit test by the time of project closeout. Compliance Requirements: Assessments or fees to recover the CDBG funded portion of a utility project may be charged only to properties NOT owned and occupied by low and moderate- income persons. Such assessments are program income and, as such, must be use for eligible CDBG activities that meet a CDBG national objective. See 24 CFR 570.482 (B) (1). The auditor should verify that assessments and fees have not been charged to properties owned and occupied by low or moderate-income persons. Verify income of persons receiving the benefits of CDBG funded utility projects. Compliance Requirements: Projects must have an environmental review unless they meet criteria specified in the regulations that would exclude them from the requirement such as exempt activities or categorically excluded activities See 24 CFR 58.34, 58.35. The auditor should use 24 CFR 58.34, 58.35 and verify whether an environmental review was needed and if so, a review has been completed. B-4 14.228 9