Finding Text
Identification of the Federal Programs: Assistance Listing Number: 14.218, 14.239 Assistance Listing Title: Community Development Block Grants (CDBG)/Entitlement Grants, HOME Investment Partnerships Program Federal Agency: U.S. Department of Housing and Urban Development Federal Award Number: B24-MC-06-0559, M24-MC060521 Federal Award Year: 7/7/2024 – 9/31/2031, FY2024 – FY2032 Criteria or Specific Requirements: Pursuant to 2 CFR 200.414, Indirect Costs, a non-federal entity may charge indirect costs to federal awards only if it has a federally negotiated indirect cost rate, an approved indirect cost allocation plan as required for state and local governments under Appendix V and VII to 2 CFR Part 200 or has formally elected the 10-percent de minimis rate when eligible. Identified Condition: During our audit, we noted that the City charged indirect costs totaling $223,758 under the Community Development Block Grants (CDBG)/Entitlement Grants and $25,483 under the HOME Investment Partnerships Program without an approved cost allocation plan, a federally negotiated indirect cost rate, or an election to use the 10-percent de minimis rate, based on our review of the applicable grant agreements. Cause: The City did not obtain the required approval from the grantor agency to charge indirect costs to the CDBG and HOME federal awards. In addition, the City had not established an approved cost allocation plan, a federally negotiated indirect cost rate, or elected to use the 10-percent de minimis rate. Effect: As a result of charging indirect costs without an approved cost allocation plan, a federally negotiated indirect cost rate, or an election to use the 10-percent de minimis rate, the City charged $223,758 to the CDBG program and $25,483 to the HOME program in a manner that does not comply with federal grant requirements. These unapproved charges increase the risk that program expenditures may be questioned or deemed unallowable by the grantor agency, potentially requiring repayment of funds. However, the City has since identified and allocated other eligible expenditures to appropriately replace the $223,758 for CDBG. Questioned Costs: $25,483 for the HOME program. Recommendation: We recommend that the City establish procedures to ensure that indirect costs are charged to Federal awards only after confirming that such costs are allowable under the specific grant and that all regulatory requirements have been met. This includes determining whether the grant permits indirect cost recovery and ensuring the City has an approved indirect cost methodology in place—either a federally negotiated indirect cost rate, an approved cost allocation plan, or a formal election of the 10-percent de minimis rate when eligible. The City should also obtain grantor approval when required and maintain documentation supporting the basis for any indirect cost charges. In addition, the City should provide staff training on Federal indirect cost requirements, grant allowability rules, and internal procedures to ensure consistent and compliant application. View of Responsible Officials and Corrective Action Plan: The City will implement a policy directing City staff that, if allowed, grant applications should include the option to charge indirect costs for the execution of the grant work. Upon grant application submissions, the department submitting the grant will coordinate with the Senior Finance Analyst to provide indirect cost rates and/or charges. As it relates to CDBG and HOME Program Grants, the Finance and Administration Department, in conjunction with the Community Development Director, will conduct a year-end review to ensure allowable indirect costs are appropriately charged. Personnel Responsible for Implementation: Meredith Elguira, Carol Molina, Ralston Turner Position of Responsible Personnel: Interim Community Development Director, Interim Finance and Administration Director, Senior Finance Analyst Expected Date of Implementation: April 30, 2026