Finding Text
Federal Program 14.228 - Community Development Block Grants/State's Program and Non-Entitlement Grants in Hawaii Award Numbers CDBG Subgrant: 1137-21-111-PF-01 Federal Agencies U.S. Department of Housing and Urban Development (HUD} Compliance Requirement Special Tests and Provisions-Section 3 Compliance (24 CFR Part 75) Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned Costs None Criteria Per 24 CFR §75.27, recipients of CDBG funds must include Section 3 requirements in all contracts for work funded in whole or in part with Section 3 covered assistance. This includes contracts exceeding $100,000 for professional services, such as architectural and engineering vvork, related to Section 3 covered projects. Condition During our testing of Section 3 compliance, we noted the engineering services contract, which exceeded $100,000 in CDBG funding, did not include the required Section 3 clause. Although the engineering firm's advertisement referenced Section 3, the executed contract lacked any language requiring compliance with Section 3 provisions. Cause The City did not have a consistent process in place to ensure that Section 3 language was included in all applicable contracts. Effect Failure to include Section 3 requirements in covered contracts increases the risk of noncompliance with HUD regulations and may result in missed opportunities to promote economic opportunities for low- and very low-income persons. Context This issue was identified during our review of three contracts under the CDBG program. The engineering contract exceeded the $100,000 threshold but lacked Section 3 language. No new hires were made by the engineering firm during the project period. Recommendation We recommend that the City implement procedures to ensure that all contracts subject to Section 3 requirements include the appropriate language and that documentation of compliance efforts is retained. Views of Responsible Officials The City concurs with the finding. The City has adopted a Section 3 Action Plan and will ensure that all future contracts funded with CDBG assistance include the required Section 3. language. The City will also enhance its documentation practices to support compliance with HUD's Section 3 Final Rule.